rich
GoAir, owned by the Wadia Group. Nusil Wadia is India's 16th richest billionaire. (Credit: Phuong D. Nguyen/Bigstockphoto.com) (via: bit.ly)

It is not unusual to see rich celebrities such as film stars, flashy businessmen (and yes, they are typically male), bankers, famous social activists, and some well-placed academics, philanthropists, and politicians rubbing shoulders with each other. The Davos meeting is one such example. Of course, these meetings among social elites are nothing new. What has been new since the 1990s is the omnipresence of the wealthy at a global level.

What is even newer is the emergence of the nouveau riche from not-so-prosperous countries outside the OECD such as China, India, and Brazil, among others. One major reason for the rise of the visibly wealthy has been unprecedented business opportunities at the global level due to deregulation. The other less talked about reasons are the opportunities for rent-seeking activities generated through systematic political manipulation of deregulation, such as favouritism, insider information, access to key government officials, and so on.

The visibility and international mobility of the rich is further buttressed by governments competing with each other to attract the wealthy through preferential tax treatment and easy access to permanent residency and citizenship. Naturally, the rise of the wealthy is accompanied by considerable inequality since the money-making opportunities created are always unevenly distributed.

Within this global context, I examine India’s experience as it offers interesting insights into the process of wealth creation and worsening inequality. India as a latecomer economy shares several attributes with other late entrants to economic development. However, its particular development trajectory has been shaped by its specific colonial experience, its institutions, political arrangements, diversity, and size, as well as a changing relationship with a changing world economy.[1]

The visibility and international mobility of the rich is further buttressed by governments competing with each other to attract the wealthy through preferential tax treatment and easy access to permanent residency and citizenship.

India has been known for its vast wealth and yet its per capita income hardly grew during British rule. As an independent state, India pursued import-substituting industrialisation, keeping heavy industry for itself while allowing the private sector to enter the consumer market. However, with markets tightly regulated and state enterprises politically mismanaged, economic transformation and industrial take-off was only partial. Widespread poverty remained India’s Achilles heel, while a small minority of wealthy people emerged in various ways. For example, regulation facilitated monopoly profits and price gouging in an economy of shortages, currency and price controls unwittingly created ‘black’ markets, while securing government licenses for production or trade through ‘fixers’ and intermediaries who had the right political connections resulted in first-comer advantages and often little in the way of business competitors.

This is not to imply that the source of all wealth in India was illicit. Many businesses diversified their activities in a strategic fashion while others with the right connections made good on their licenses by entrepreneurially expanding to new economic activities. For example, Dhirubhai Ambani’s backwards integration to petrochemicals from synthetic textiles production and imported synthetic yarn is one well-known case of how access to an opportunity generated further economic spillovers that contributed to national development.

But this is all history. Exhausted by state-led development and watching East Asia surpass India economically and technologically, politicians and bureaucrats realised the importance of deregulation and outward orientation. By this time, many Indian businesses and individuals had piled up considerable wealth. Some businesses, having accumulated considerable wealth, felt stifled by regulations and emigrated to the UK and Singapore, both hospitable countries for those with money. Others parked their money in Swiss banks and trotted the globe seeking business ventures in various locations as governments around the world laid out the red carpet to welcome the wealthy.

Ordinary Indians responded to the new global economy too. Lack of employment opportunities at home and limited professional mobility pushed people out. Returning unskilled migrant workers from the Gulf and skilled professionals (engineers and doctors) from the US, UK, and Australia demonstrated a consumerist lifestyle that was hitherto denied to the Indian middle classes. Economic reforms in the 1990s changed all this. Businesses adjusted to liberalisation and new opportunities, while the IT and software revolution of the 1980s added to the pool of wealthy Indians. Engineers trained for an industrial economy were instead redeployed in the global offshoring business of software development for a deindustrialised America. Unlike wealth secured through inheritance, captive markets, or connections (rent-thick sectors), these professionals earned their money through hard work, technical skills, entrepreneurial zeal, commercial acuity, and the fortuitous development of the American and global information technology industries.

Exhausted by state-led development and watching East Asia surpass India economically and technologically, politicians and bureaucrats realised the importance of deregulation and outward orientation.

However, India’s gut-wrenching poverty remained stubborn until some of the fruits of the high growth of the 1980s and the subsequent reforms of the 1990s trickled down. Relative poverty fell significantly, although the standard of living of those below the poverty line was still abysmal, while income inequality became more pronounced. There was now an internationally visible group of rich Indians whose businesses prospered and spanned the world economy from Australia, Singapore, South and East Africa, to the UK, France, Switzerland, and North America.[2

Some businessmen borrowed heavily from government banks while leading extravagant lifestyles overseas as fugitives. Others remained beholden to the politically powerful by funneling campaign contributions for increasingly expensive parliamentary elections in exchange for (non-performing) loans. However, the vast majority of Indians eked out a living in the informal sector with no sight of ever becoming formally employed. In 2017, India’s GDP PPP per capita income was $7,000. The top 100 wealthy Indians had total assets of $417 billion, with about 1% of Indians owning half of India’s wealth. India’s high growth rates have not been a panacea for inclusive development, but certainly have been a recipe for the rise of the rich amidst deprivation.

The implications of higher mobility for wealthy Indians are that there are no winners other than the rich themselves. Briefly, their outflows to the rest of the world have a positive impact on India’s income distribution. But this does not really address inequality. The wealthy, because they have prospered on the backs of workers and state largesse, must be made to pay their fair share before moving on. But other countries must refrain from attracting them through preferential tax treatment, as this leads to beggar-thy-neighbour policies. Worst of all, by attracting the wealthy, sovereign governments reinforce the political power of the rich and introduce social disharmony by exacerbating their own countries’ conditions of inequality.[3]

Written by: Anthony P. D’Costa “Eminent Scholar in Global Studies and Professor of Economics, University of Alabama, Huntsville”

References

Crabtree, J. (2017). (2018). The Billionaire Raj: A Journey Through India’s Gilded Age. New York: Tim Duggan Books.

Davies, J., Lluberas, R and Shorrocks, A. (2017). Global Wealth Report 2017. Credit Suisse.

Retrieved from https://www.credit-suisse.com/corporate/en/research/research-institute/global-wealth-report.html.

D’Costa, A.P. (2005). The Long March to Capitalism: Embourgeoisment, Internationalization, and Industrial Transformation in India. Basingstoke: Palgrave Macmillan.

D’Costa, A.P. (October 31, 2018). Why Does an Impoverished India Produce a Globally Mobile Wealthy Class? Expert Commentary. Dialogue of Civilizations Institute. Retrieved from https://doc-research.org/2018/10/why-does-an-impoverished-india-produce-a-globally-mobile-wealthy-class/

Gandhi, A. and Walton, M. (2012). Where Do India’s Billionaires Get Their Wealth? Economic and Political Weekly, 47(40), pp.  10-14.

Maddison, A. (2007). The World Economy. Paris: OECD.

South China Morning Post (2019, February 8). Treatment of Huang Xiangmo by Australia will make Chinese more cautious. Retrieved from  https://www.scmp.com/comment/insight-opinion/article/2185488/treatment-huang-xiangmo-australia-will-make-chinese-more.

World Economic Forum Annual Meeting (2019, January 22). World Economic Forum Annual Meeting. World Economic Forum. Retrieved from https://www.weforum.org/events/world-economic-forum-annual-meeting#.

 

[1]  For a more elaborate, though still insufficient, discussion on latecomer experience, see D’Costa (2018).

[2] They also unreservedly flaunted their wealth. The recent wedding of Mukesh Ambani’s daughter to Ajay Piramal’s son in India was one such spectacle. Ambani and Piramal have a combined wealth of over $40 billion. Guests included Beyonce, the celebrity singer, Hilary Clinton, and John Kerry, among others.

[3] See the recent cancellation of residency of a prominent Chinese businessman by the Australian government (South China Morning Post, 2019).

 

You may also be interested in:

Capital attraction strategies to retain the super-rich

Global wealth mobility: Push and pull factors

Financial capitalism and the future

 

The views and opinions expressed in this publication are those of the original author(s) and do not necessarily represent or reflect the views and opinions of the Dialogue of Civilizations Research Institute, its co-founders, or its staff members.
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Anthony P. D’Costa

Chair and Professor of Contemporary Indian Studies and Director of Development Studies Program at the University of Melbourne,

Anthony P. D'Costa is the Eminent Scholar in Global Studies and Professor of Economics at the University of Alabama, Huntsville. For the last twenty-eight years he taught at the University of Melbourne as Chair and Professor of Contemporary Indian Studies and Director of Development Studies Program, at the Copenhagen Business School where he held A.P. Moller-Maersk Professor of Indian Studies, National University of Singapore, and the University of Washington where he was a Professor of Comparative International Development. He has written on the political economy of steel, auto, and IT industries covering themes of capitalism and globalization, state and economic nationalism, development, innovations, industrial restructuring, employment, international migration of professionals, and inequality. He has been a recipient of several fellowships, contributed to the research effort of multilateral organizations, and served on numerous academic and professional committees. His most recent books are: International Mobility, Global Capitalism, and Changing Structures of Accumulation: Transforming the Japan-India IT Relationship, (London: Routledge, 2016), and The Land Question in India: State, Dispossession, and Capitalist Transition (Oxford: Oxford University Press, 2017, coedited). His twelfth volume (coedited) Changing Contexts and Shifting Roles of the Indian State is forthcoming in 2019.