India has more billionaires today, but also more inequality. Is there a connection?

[A] more relaxed attitude about the rise of the super-wealthy in turn echoed a wider intellectual tussle between two of India’s greatest living intellectuals, the economists Jagdish Bhagwati and Amartya Sen, which in its own way came to define the contours of the country’s debates about its own economic progress.

A professor at Columbia University in New York, Bhagwati is a gregarious if sometimes cantankerous free-marketeer, with a waspish sense of humour and a talent for argument. Although most famous for his academic work on trade policy, he began agitating for an end to the Licence Raj from the 1970s, providing the intellectual ballast for many of the market reforms that eventually followed decades later. Now in his eighties, he has long been dogged in the defence of economic liberalisation, pointing out that India’s prosperity post-1991 led to sharp reductions in poverty, while poorer Indians also enjoy much higher consumption of basic goods like food and clothing.

Bhagwati tended to downplay worries about inequality, or at least to argue that policies designed to ensure fast economic growth should precede any tilt towards redistribution.

More controversially, he also became a vocal enthusiast for Narendra Modi, arguing that the politician’s economic successes in Gujarat – with his emphasis on large-scale infrastructure investment and export-focused manufacturing – should provide a template for the rest of the country to follow. His vision of India’s future has emphasised a path similar to that taken by China and most other successful east Asian nations, with their focus on industrialisation and trade, an area where India’s economy has been notoriously weak.

Sen, perhaps India’s most celebrated public intellectual, gave the contrary view: that economic reopening had indeed created a more vibrant economy, but one that was less equal and fair.

A kindly Bengali, also in his mid-eighties, he studied first at Cambridge, where he was a contemporary of both Bhagwati and Manmohan Singh. His subsequent career ranged widely across economics and philosophy, from social choice theory to research on famines and sex-selective abortions, all of which contributed to his winning the Nobel Prize in Economics in 1998.

Sen’s more recent work, written largely with Belgian economist Jean Drèze, has been sharply critical of India’s post-liberalisation record, which for all of its growth has slipped behind that of neighbours like Bangladesh on measures of human development, from child nutrition to the advancement of women.

The duo argued that this was mostly the fault of an under-funded and under-developed welfare state, which has in turn contributed to a growing imbalance between rich and poor. In his own way, Sen also looked to the successful “tiger” economies of east Asia, but mostly because of the way that they grew rich by investing heavily in basic health and education, which in turn helped to provide social support to poorer workers as they moved from farms to factories and onwards into the middle class. Modern India, by contrast, more often looked like an economy in Latin America, with a weak social safety net and yawning inequality.

This argument between Bhagwati and Sen has continued for the best part of a decade, making it hard to adjudicate a victor.

Since Modi’s arrival as prime minister, Bhagwati’s side has been more influential and his arguments have been used by reform advocates within the BJP. Sen, by contrast, has been sharply critical of India’s prime minister, both for his economics and for his Hindu nationalist politics, and he has often found himself attacked by Modi’s supporters in return. Yet for all of their ferocity, the debates have hidden a peculiar intellectual consensus.

On the right, Bhagwati has claimed that growth matters more than its distribution. On the left, Sen has focused on conditions at the bottom. For both, the gap between rich and poor has been secondary. “Some critics of the huge social inequalities in India find something callous and uncouth in the self-centred lives and inward-looking preoccupations of a relatively prosperous minority,” as Sen wrote in the New York Review of Books in 2011. “My primary concern, however, is that the illusions generated by those distorted perceptions of prosperity may prevent India from bringing social deprivations into political focus.”

Long before it reopened its economy, India was riven by profound divisions between its different religions and castes. There were also stark differences between villages and cities, and between regions, with the more industrialised south and west growing prosperous more quickly than the relatively backward north and east. Anyone visiting for the first time would have concluded that India suffered wide inequalities. Yet the idea persisted that India was actually a relatively egalitarian nation.

This was partly a hangover from its decades of socialism, when even its elite earned low incomes by global standards. Indian government data also often focused on consumption, a measure that gave the country a middling position in global rankings of inequality, rather than income or wealth.

More recent research has proved beyond doubt the depths of India’s social divide.

Churning through new data in 2016, Branko Milanovic, an economist at the World Bank, found India had higher income inequality levels than America, Brazil and Russia, leaving it “more egalitarian than only South Africa”, a country famous for its jarring stratification.

Other surveys found similar results. An IMF working paper from the same year showed that India had one the highest and fastest-growing inequality rates in Asia. Its score on the Gini index – a measure of inequality where 0 means total equality and 100 total inequality rose from 45 in 1990 to 51 in 2013. China’s increased even more quickly, from 33 to 53. But 51 is still unusually high: a level common in Latin America, but far above Asian economies like Japan and South Korea.

The threshold for entry into the wealthiest “one per cent” differed wildly across countries, according to research from Credit Suisse in 2016. In North America it required $4.5 million in assets; in an average European country $1.4 million. In India the same figure was just $32,892. Yet within that group, the richest one per cent owned fifty-eight per cent of wealth, one of the world’s starkest gaps, up from thirty-nine per cent at the start of the decade. Meanwhile the bottom half of the country owned a paltry four per cent.

The reasons for this rising inequality are complicated and economists still disagree about which factors matter most.

Some of it stems from positive factors linked to liberalisation, as entrepreneurs built larger companies with links to global markets, making fortunes for themselves and paying higher wages to their workers. Rapid urbanisation and the way in which new technologies rewarded the highly skilled played a role too, boosting incomes among the educated, urban upper middle classes.

“It looks as if a lot of this inequality is coming within urban areas, where the already rich are getting even richer,” I was told by Johanna Schauer, one of the IMF paper’s co-authors. Then there were other trends, for instance a growing gap between richer parts of India, such as Kerala in the south, and poorer areas like the heartland state of Bihar. Tens of millions more people could have been lifted from poverty, according to the Asian Development Bank, had these various kinds of inequality not increased so sharply.

Most striking of all was a 2017 paper published by Thomas Piketty, whose opus *Capital in the Twenty-First Century* first raised worries about an era of renewed inequality across the industrialised world. Along with co-author Lucas Chancel, Piketty compiled data from tax records to show that the share of national income taken by India’s top one per cent was at its highest level since records began to be collected under the British Raj in 1922. In the West, the relative wealth of the ultra-rich dipped in the mid-twentieth century before bouncing back over the last two decades. India showed the same trend, albeit mostly for different reasons.

Most inequality studies had little to say about the super-rich, who are tiny in number and thus hard to capture in research surveys. But Piketty’s data also showed the share held by the very richest – the “0.001%”, as he called them – shooting up even more quickly.

Echoing Bhagwati, not everyone viewed this widening gap as a problem.

One theory – known as the Kuznets curve, after economist Simon Kuznets – suggests that rising inequality is transitory, as most countries become more unequal in their early stages of development and then less so as they grow rich. As a result mainstream economists have often argued that inequality acted as a spur to effort and that in any case it would decline in time. But more recent research, much of it again from the IMF, has begun to overturn this consensus, showing that unequal nations tend to grow more slowly, and are also more prone to financial instability.

Countries with sharp economic divisions – for instance between business owners and their workers – also find it harder to create the kind of broad social agreements that can buttress support for structural economic reforms, a point made by Harvard economist Dani Rodrik and others. Countries that become unequal in their early stages of development, such as Brazil, also seem to face greater struggles reversing that trend later.

Back in 2015, I watched Piketty speak at a packed book festival one morning in Mumbai. The economist was given a rock-star reception, even as his thick French accent baffled many in the audience. The rich world had from time to time managed to curb the inexorable rise of inequality, Piketty argued, although this mostly happened only after the violence of world wars and revolutions. The tragedy of these events pushed national elites to accept that the rich should pay more tax and that the poor should receive greater social support.

India now had inequality levels that were among the highest in the world, he argued, with no sign of remedial action. Piketty was highly critical of India’s political and business class, who he claimed had done little to invest in basic things like healthcare and education, or to ensure that the super-rich paid their fair share in taxes. “I hope the [Indian] elites understand this,” he said at one point during his talk. “Because otherwise capitalism is not sustainable.”

The Billionaire Raj: A Journey Through India’s New Gilded Age, James Crabtree, HarperCollins India.