Amidst all the talk on two Bharats, are we seeing a time horizon where India’s elite may abandon the country’s poor and vulnerable?

This is a question I have been contemplating about for a few months now. My curiosity peaked days after the recent Union Budget was presented: in an analysis of the document I argued that the current government macro-fiscal priorities appear to be blindly indifferent and/or ignorant of India’s poorer, unorganised citizens

For more evidence, see the below-par outlays announced for essential social development priorities in areas of healthcare, nutrition schemes for children and Mahatma Gandhi National Rural Employment Guarantee Act along with a massive cut observed in overall revenue expenditure, all, in the quest to boost growth at all costs.

Putting the nation on a high growth trajectory is of course critical, especially when India’s real growth has been low each successive year over the course of the last seven or eight years. But the quality of growth, and the processes we set in motion for its distribution also matters.

For some time now, the social and economic safety net of the poor and vulnerable across India has been gradually eroding. At the same time, upper-corporate-wealth-endowed (or dependent) classes continue to thrive on waves of profit maximisation even during the pandemic years.

‘Conspicuous consumption’

The real question is: do the elite not care enough about the need for redistribution?

Before one tries to answer the question, it might be useful to first explain what I mean by the words “conspicuous” and “abandon” in context of the behaviour of the elite (often explained as a group or class of people enjoying greater control over the creation-distribution of economic resources).

In 1899, Thorstein Veblen, an economic sociologist, propounded a theory (and idea) of “conspicuous consumption” in context to understanding the behaviour of the leisure class (the elite), their preferences. Veblen argued that wealthy individuals often consume highly conspicuous goods and services in order to advertise their wealth, thereby achieving greater social status.

“In order to gain and to hold the esteem of (wo)men, wealth must be put in evidence, for esteem is awarded only on evidence,” Veblen wrote. By social custom, the evidence consists of unduly costly goods that fall into “accredited canons of conspicuous consumption, the effect of which is to hold the consumer up to a standard of expensiveness and wastefulness in his consumption of goods and his employment of time and effort”.

The details of Veblen’s arguments naturally invite the interpretation that conspicuous consumption reflects useful signalling for explaining the behaviour of the leisure class or elite in a given economy. The need to conspicuously consume luxury goods may increase more in deeply unequal societies where the wealth/income gap between the top 10% and bottom 50% is stark.

Veblen’s work distinguished between two motives for consuming conspicuous goods: “invidious comparison” and “pecuniary emulation”.

“Invidious comparison” refers to situations in which a member of a higher class consumes conspicuously to distinguish himself from members of a lower class. “Pecuniary emulation” occurs when a member of a lower class consumes conspicuously so that he will be thought of as a member of a higher class.

Indian context

In modern terms, these motives are the essence of what explains elite-consumption behaviour amongst both upper-and lower classes (including in India). Members of higher classes voluntarily incur costs to differentiate themselves from members of lower classes (invidious comparison), knowing that these costs must be large enough to discourage imitation (pecuniary emulation).

Source: Jha and Lahoti (2021)
Source: Jha and Lahoti (2021)

Given how badly private consumption-private incomes have been affected for the bottom 50% of the population across India over the past few years (see above: more than 77% reported to have experienced loss in incomes during the pandemic), arguing for the case of “pecuniary emulation” (members of lower classes consuming conspicuously) would be low on evidence.

Still, given the degree of inequality between the top 10% and bottom 50% in the past few decades (see figure below), the case for higher classes voluntarily consuming more luxury goods, affording foreign travel, sending their children abroad for studies, investing abroad – all indicating “invidious comparison”, is found more in evidence.

Deep-rooted income-wealth inequalities have fuelled conspicuous consumption amongst the elite. When there is social and economic mobility amongst other income classes, the aspiring middle-class reorients the macro-consumption basket. But, we have not seen a booming middle class, or the same degree of private consumption levels seen amongst the middle-lower income groups during the 2002-2010 period.

Even the spike in GST revenue this fiscal came largely as a result of high GST collections from import goods signalling the source of a higher indirect tax revenue at the cost of one’s current account deficit (the net balance of exports minus imports).

Towards ‘elite-abandon’?

Going forward, a greater inequality fuelled conspicuous consumption cycle may reorient elite behaviour at the cost of the poor. The undistilled faith in the neoliberal economic path has already ensured a permanence of structural inequities. An “elite-abandon” may be seen as an outcome of exacerbated inequality regimes over time.

In every nation, the elite’s time-horizon determines how it governs. In deeply unequal societies, a question worth investigating is: does the elite treat its country as a luxury watch, that it is only looking after for future generations, or as a stolen wallet full of cash?

It is difficult to say to what extent the Indian elite are confident of India’s future. The poor and the vulnerable have no option but to believe in the vision of an “Amrit Kaal”. They have no alternative.

But, one way to understand the business elite’s behaviour is to study the level of domestic private investment growth over a period of time. The growth of domestic private investment levels in India for almost a decade has seen a flat-line (see figure below).

The rich, creamy-layered top 10% seem quite happy to sit on accumulated piles of cash or profits, but are not ready to invest big in India. “Big capital investment” in certain areas (like infrastructure) is increasingly been monopolised or oligopolies, due to a few players in the mix.

A low rate of domestic private investment tells something about the Indian corporate elite: maximize profits in existing ventures, consume conspicuously, invest abroad for good.

These actions will naturally come at the cost of the poor, or worse an extensive appropriation/exploitation of labour for their own gains, which in Veblen’s terms, would be aimed at continuing with a conspicuous-luxury consumption cycle. Given all that is going on in the government’s vision to push for growth at all costs, without caring enough for its welfare priorities, this outcome appears more inevitable than before.

Deepanshu Mohan is an Associate Professor of Economics and Director at the Centre for New Economics Studies, Jindal School of Liberal Arts and Humanities, OP Jindal Global University.