Wealthy elites have co-opted political power to rig the rules of the economic game, undermining democracy and creating a world where the 85 richest people own the wealth of half of the world's population, worldwide development organization Oxfam warns in a report published on 22 January 2014. The report was a result of polls done in six countries namely Brazil, India, South Africa, Spain, the UK and US.
World Economic Forum in Davos, details the pernicious impact that widening inequality is having in both developed and developing countries, helping the richest undermine democratic processes and drive policies that promote their interests at the expense of everyone else. But now the growing global public awareness of this power-grab can be seen.
In India we can see a sharp rise in the number of billionaires from 6 to 61 in the past decade. What is striking is the share of the country's wealth held by this elite minority, which has skyrocketed from 1.8 percent in 2003 to 26 percent in 2008, though it declined in the aftermath of the global financial crisis.
Nisha Agrawal, CEO of Oxfam India says “At the time of India's Independence, our founders dreamt of creating an equal opportunity country. Today, the reality is far from the dream and we are moving further and further away from becoming a land where everyone has the same opportunity to move ahead in life to one where existing and already large inequalities are getting widened and deepened due to the kind of development path we are on, where opportunities exist only for a handful of those already privileged.”
By some estimates, half of India’s billionaires acquired their wealth in ‘rent thick’ sectors.
This means sectors where profits are dependent on access to scarce resources, made available exclusively through government permissions and therefore susceptible to corruption by powerful actors – as opposed to creation of wealth. Such sectors include real estate, construction, mining, and telecommunications.
In fact, it is common knowledge that property development is India’s most opaque business, where enormous sums of illegal money exchange hands and little tax is collected. Wealth accrued from rents is made possible by the coaction of government and powerful groups, whereby the economic rules of the game are rigged in favor of elites.
Despite incredible economic gains by a few dozen people in India, poverty and inequality remain rampant. While the number of billionaires has multiplied by ten, government spending on the needs of the poorest and most vulnerable groups in society remains remarkably low.
For example, India’s public spending on healthcare is just one percent of GDP. The Asian Development Bank’s recently released (assessing country expenditure on poor and economically vulnerable groups) ranked India 23 out of 35 countries in the region. Even among the 19 low- to middle-income countries, India ranked in the bottom half, in twelfth place.
“In India, inequality is reinforced by social exclusion as well, which impacts the ability of marginalized groups to climb out of poverty. This highlights the need for massive policy shifts to bridge the gaps,” added Avinash Kumar, Director Policy, Research and Campaigns, Oxfam India.
Corruption and loopholes mean that tax revenues necessary to address inequality are either too low or misappropriated. The fortunes amassed by India’s new billionaires are often hidden through shell companies established in foreign countries, making it easy to evade taxes.
A recent working paper by Oxfam India demonstrates that ending the inheritance tax (in 1985) and limiting the wealth tax (in 1993) to non-productive assets (thereby excluding financial assets) has driven a low tax-to-GDP ratio and is permitting the much greater concentration of wealth. The tax structure in India is also highly regressive, with only 37.7 percent of total taxes coming from direct taxation such as income, profits, and capital gains.