No. 58, Sept. 2014

No. 58
(Sept. 2014):

A Middle-Class India?

A Middle-Class India?

III. The Reality: Gaping Inequality

Speculation about the future, based on dubious assumptions and fanciful models, ought not to distract us from the present reality, which lies before our eyes. That reality is of stark and rapidly growing concentration of incomes and assets in the top decile (i.e., 10 per cent), and even the top percentile (i.e., 1 per cent), of the population; and, on the other hand, a structure of employment that remains predominantly in the subsistence mode.

The Vanneman and Dubey study cited earlier gives us a table of Indian incomes by decile groups and income classes, based on the NCAER-University of Maryland survey.

Table 2: Income per capita (2005)

By decile groups


% of popn.

% of income









































Source: Online appendix at

As can be seen from Table 2, even at the seventh decile, the share of income is lower than the share of the population. Per capita income for the eighth decile is only marginally above the per capita income for the whole population. The top decile corners 43 per cent of all income; their per capita income is 43 times that of the lowest decile, and nearly 7 times the average income of the bottom 90 per cent. Most of the studies cited in the previous chapter place India’s ‘middle class’ in the top decile. The following chart by Vanneman and Dubey brings out visually the distribution of income.

Chart 2: Distribution of Indian Per Capita Incomes

Chart Two

Source: Reeve Vanneman and Amaresh Dubey, “Horizontal and Vertical Inequalities in India”, 2010. The x axis is income (Rs/yr); the y axis is shares of the population.

Lahiri claims, mistakenly, that India’s income inequality is lower than comparable countries.63 In fact, the income data from the NCAER-UM study show that, by the Gini measure of inequality, India’s inequality is very high (0.48), and comparable to notoriously unequal Latin American countries such as Peru (51), Colombia (51), Brazil (49), and Mexico (46).64 Such levels of inequality characterize the Third World (termed ‘middle-income’ and ‘low-income’):

What is striking in the cross-national comparisons is the stark discontinuity in inequality between the high-income and middle-income countries. The differences among all high-income countries or among all middle-income countries, while interesting, are not nearly as large as the gap between the most unequal high-income country and the most equal middle-income country.65

However, all survey data, including those of the NCAER-UM study, suffer from an obvious gap: Surveys are voluntary, and the well-off do not consent to be interviewed (not only because of the nuisance of an interview; more importantly, they do not wish to reveal more than necessary, for fear of information reaching the Income Tax department). Thus even the National Sample Surveys, which cover only consumption and not income, fail to cover the rich, and even the NCAER-UM survey misses the very richest. (Note that the highest income in the NCAER-UM sample is just Rs 12.5 lakh.)

Data regarding India’s rich
Data about the rich can be gathered by directly targeting them. One study (by Banerjee and Piketty) used income tax data from 1922 to 2000 to analyse what was going on at the top end of India’s income distribution. It found that over the period 1987-2000, real household consumption per capita grew 19 per cent, and GDP per capita grew by 52 per cent; but the real income of the top 1 per cent grew by 81 per cent; that of the top 0.1 per cent grew by 126 per cent; and that of the top 0.01 per cent grew by 266 per cent. Over the course of the 1990s, the shares of the top 1, 0.1, and .01 per cent in total income soared to the levels they had been in the 1950s, and were nearing the levels prevailing under colonial rule.66Significantly, the Indian authorities stopped releasing detailed income tax data in the early 2000s, even though such data had been published without interruption since 1922.67

Since the wealthy consume only a portion of their income, and save the rest, their wealth keeps accumulating. Indeed wealth inequality is much greater than income inequality (and in turn exacerbates income inequality, as Piketty has reminded us). The US magazine Forbes every year publishes a list of the world’s billionaires. In the mid-1990s, there were only two Indian billionaires on this list, with a combined net worth of $3.2 billion. This number rose by 2012 to 46, with a combined net worth of $176.3 billion; by 2014, it reached 55, with a combined net worth of $191.5 billion.68 (Forbes also separately publishes a list of India’s 100 wealthiest; it places their combined net worth at $258.7 billion in 2013.69) However, there is a major, unavoidable, lacuna regarding this data: it includes only disclosed wealth. We will return to this later.

Billionaire wealth

One academic study, by Gandhi and Walton,70 tracked Forbes’ lists of India’s billionaires. It found that the ratio of their total wealth to India’s GDP rose from around 1 per cent in the mid-1990s to about 22 per cent in 2008, at the peak of the boom. With the fall in share prices, the ratio fell to 10 per cent in 2012. (However, it would have risen again with the rise in share prices since 2012.) The social backgrounds of these billionaires is on expected lines: “28 of the 46 billionaires in 2012 are from traditional merchant classes – Banias (including Marwaris), Parsis and Sindhis. A number belong to upper caste communities, including Brahmins (Mallya, Murthy) and Khatris (Thapar, Munjal, Mahindra). A smaller group comes from other backward and lower castes such as Nadar, Jat and Reddy. There is one Muslim and no Dalit.”

In the case of billionaires who accounted for 60 per cent of total billionaire wealth in India, Gandhi and Walton found that ‘rent-thick’ sectors were the primary source of their wealth. (By ‘economic rent’, the authors mean profits in excess of what could be obtained in competitive conditions, attributable to monopoly power and manipulation of state control – for example in gaining control over natural resources such as spectrum, land, petroleum, etc.) They classify sectors such as real estate, infrastructure, construction, mining, telecom, cement and media as “rent-thick”, because of “the pervasive role of the state in giving licences, reputations of illegality, or information on monopolistic practices.” The study fears that these “distortions” may destabilize what it calls India’s “growth process”: “The interaction between the corporate sector and the state is an unavoidable feature of capitalism. In the past two to three decades this has bred both impressive business dynamism and even more impressive accumulation of extreme wealth in India. There is a real question as to whether an oligarchic business structure and a corruptible state will lead to the propagation of inequality and create distortions that hurt the growth process.” The authors’ framing of the issue in this way side-steps the very question that their findings give rise to, namely: Is the very nature of India’s “growth process” inequalising, such that it creates an oligarchy?

Studies of the very rich
There are a number of other studies which estimate the numbers and wealth of the very wealthy in India. Since these studies are carried out by firms which specialize in managing the wealth of the very rich, their estimates have some credibility, even when they do not reveal their methodology fully. Their sources include interviews with the wealthy (presumably their own clients), and interviews with luxury industries. (Note: different studies use different measures – financial assets, all assets, net worth; some data relate to individuals, others to adults, and others to households; and they have different cut-off points for defining the rich or high net worth individuals. )

(i) The financial asset firm Capgemini found that, in 2013, Indian individuals with investible assets of $1 million or more (excluding their primary residence, collectibles, consumer durables, etc) numbered 153,000. Their combined wealth was $589 billion.71

(ii) Boston Consulting Group found that in the year 2013 Indian households with assets of $1 million or more numbered 175,000; there were 284 households with assets of $100 million or more.72

(iii) Kotak Wealth Management carries out an annual study called “Top of the Pyramid.”73 Each year it estimates the number of Indian households with a minimum net worth of Rs 250 million (Rs 25 crore, or $4.13 million at 2013-14 exchange rates), and their total wealth.

Table 3: Kotak “Top of the Pyramid”
Reports of UHNWIs






Number of households

Total net worth (Rs. trn., i.e. Rs. lakh crore)

Col. 3 as % of India’s GDP in that year

















Source:; GDP from Economic Survey 2013-14.

As can be seen from the Table 3, this class has nearly doubled in size in the last four years. Despite this growth, even in 2013-14 it accounts for only 0.05 per cent of Indian households. The net worth of this class, which Kotak calls “Ultra High Net Worth Individuals” (UHNWIs), now is nearly the same as India’s GDP. It is true that wealth and GDP are distinct categories.74 Nevertheless, this comparison nevertheless starkly brings out the clout of this class. For example, if we assume that these UHNWIs earn annual returns of just 10 per cent on their assets, it means that 0.05 per cent of Indian households account for over 9 per cent of national income.

(iv) Among these firms, Credit Suisse provides the most information about its methodology.75 In its Global Wealth Report 201376, it estimates the wealth both of the elite and of the rest of the population, for the latter drawing on official data.77

It includes the worth of landed property and other real assets, which in India make up 86 per cent of household assets. It finds that 94 per cent of the adult population has wealth below $10,000. “At the other end of the scale, a very small proportion of the population (just 0.4 per cent) has net worth over $100,000. However, due to India’s large population, this translates into 2.8 million people.”

It finds 182,000 persons in India have wealth of $1 million or more; 1,760 with wealth over $50 million; and 770 with more than $100 million. Unlike China, which “has very few representatives at the bottom of global wealth distribution, and relatively few at the top, but dominates the upper middle section.... residents of India hare heavily concentrated in the lower wealth strata, accounting for a quarter of people in the bottom half of the distribution. However, its extreme wealth inequality and immense population mean that India also has a significant number of members in the top wealth echelons.”

Credit Suisse estimates India’s total wealth at $3.6 trillion; of this it estimates that the wealth held by the top 1 per cent is about $1.75 trillion (48.7 per cent), comparable to India’s GDP; and the share of the top 5 per cent is $2.35 trillion (65.3 per cent). The mean wealth (i.e., the sum of all the wealth divided by the number of adults) is $4,706, but the median wealth (i.e., the wealth of the middle person among all adults arranged in order of wealth) is a fraction of that, just $1,040. The combined wealth of the bottom 50 per cent is just 4.5 per cent of the total; of the bottom 80 per cent, 16.7 per cent of the total. Only the 9th decile has a wealth share approximating its population share.

Table 4: India: Wealth Shares and Minimum Wealth of Deciles, and Wealth of Top Percentiles, 2013

Wealth class

Wealth shares (%)

lowest 10%


2nd   "


3rd   "


4th   "


5th  "


6th  "


7th  "


8th  "


9th  "




top 10%


top 5%


top 1%


Source: Credit Suisse, Global Wealth Databook 2013, p. 146.

Illicit foreign assets
While the above estimates do give us some idea of the wealth inequalities prevailing, it appears that they base themselves on available data regarding disclosed wealth of individuals, and then use statistical methods to flesh out the estimate. However, disclosed wealth is only part of the picture. There is a large ‘black’ economy, which has two components: domestically held assets, and foreign assets.

The Washington D.C.-based research institute Global Financial Integrity (GFI) has made careful estimates of illicit financial flows from different countries, and of the size of foreign assets illicitly held by their citizens. One of these studies found that by 2008 Indians held at least $462 billion of illicit foreign assets (i.e., $213 billion of illicit outflows took place during 1948-2008; to this GFI added a conservative estimate of interest earned on these deposits over the period).

The principal author of the study, Dev Kar, points out that just half the above figure of illicit foreign assets could have liquidated India’s entire external debt at end-2008 ($230.6 billion).78 So, if illicit foreign assets were to be taken into account, India would not be a net debtor, but a net creditor. Kar admits that “there are strong reasons to believe that even this staggering amount is significantly understated.... The main reason is that economic models can neither capture all the channels through which illicit capital are (sic) generated nor reflect the myriad channels through which the funds are transferred.... Preliminary estimates obtained in a recent study on illicit flows from Africa indicate that just two factors [not captured in the estimate for India] ... increase illicit outflows by 46 per cent.”79

Moreover, Kar has recently revised his figures for 2002-08 and extended the series till 2011.80 Whereas earlier his figure for outflows during 2002-08 was $113 billion, his revised series shows it to be $162 billion. Illicit outflows have been growing rapidly in recent years: the total for 2002-11 comes to a staggering $344 billion (note: this is the figure of cumulative outflows in that period, and does not include interest accrued).

Table 5: Illicit Financial Flows (IFF) from India, and IFF as a Proportion of GDP, 2002-11


IFF ($ bn.)

GDP($ bn.)














































Source: Illicit Financial Flows from Developing Countries: 2002-11; GDP data from IMF, World Economic Outlook Database.

As can be seen from Table 5, the quantum of outflow has risen very steeply, from an average of $12 billion in 2002-04 to an average of $61 billion in 2009-11. For the whole decade, the study puts India at the fifth place in the world’s sources of illicit outflows, but for 2011 India is a bronze medal winner, at third place. Illicit outflows as a share of GDP rise from 1.5 per cent in 2002 to 4.5 per cent in 2011.

Neoliberal theory ascribes all such illicit outflows to the failure of the government to pursue neoliberal policies – deregulation, liberalization of trade, reduction of import tariffs, reduction of income tax rates, reduction of budget deficits, liberalization of capital flows, and so on. In other words, illicit outflows are merely the fact of money “voting with its feet” against wrong, restrictive, economic policies, and traveling to countries where policies are more neoliberal. However, Kar finds that it is during the post-1991 period, the period when every one of the neoliberal policies mentioned above has been pursued aggressively, that there has been a steep rise in outflows. In fact, “liberalization of trade and general deregulation led to an increase in illicit flows rather than their curtailment.... It seems that trade liberalization merely provided more opportunities to related and unrelated companies to misinvoice trade.”

More importantly, as inequality grows, so do illicit financial outflows: “more rapid economic growth in the post-reform period has actually led to deterioration in income distribution... A more skewed distribution of income implies that there are many more high net-worth individuals (HNWIs) in India now than ever before. Based on the capacity to transfer substantial capital, it is the HNWIs and private companies that are the primary drivers of illicit flows from the private sector in India (rather than the common man). This is a possible explanation behind our findings that the faster rates of growth in the post-reform period have not been inclusive in that the income distribution is more skewed today, which in turn has driven illicit flows from the country.”81 (emphasis added)

Since illicit foreign assets are held only by the very wealthy, a proper accounting of them would show inequality to be even greater than as captured by the other, already very grave, estimates we have cited.



63. Lahiri, op. cit. The Indian data he refers to, however, are of consumption inequality, not income inequality. (back)

64. Vanneman and Dubey calculate the Gini coefficient at 0.48 for India (0 being perfect equality, and 1 being complete inequality). This is comparable to Peru (0.51), Colombia (0.51), Brazil (0.49), and Mexico (0.46). (back)

65. Vanneman and Dubey, pp. 444-445. (back)

66. Abhijit Banerjee and Thomas Piketty, “Top Indian Incomes”, Centre for Economic and Policy Research, September 2004. (back)

67. Thomas Piketty, Capital in the Twenty-First Century, Chapter Nine. (back)

68. (back)

69. There is an unexplained contradiction: this list contains 65 billionaires, with a combined net worth of $231.78 billion in October 2013. (back)

70. Aditi Gandhi and Michael Walton, “Where do India’s billionaires get their wealth?”, EPW, 6/10/12. (back)

71. Capgemini and RBC Wealth Management, Asia-Pacific Wealth Report 2013. (back)

72. (back)

73. In 2010-11, 2011-12, and 2012-13, this report was prepared in collaboration with Crisil Research. In 2013-14, it was prepared in collaboration with Ernst and Young. (back)

74. Wealth is a ‘stock’, i.e. the value of assets at a particular point in time, and GDP is a recurring ‘flow’, i.e. income during a specified period, usually a year. (back)

75. Anthony Shorrocks and Jim Davies, Global Wealth Databook, 2013, Credit Suisse Research Institute. (back)

76. Anthony Shorrocks and Jim Davies, Global Wealth Report, 2013 Credit Suisse Research Institute. (back)

77. National Sample Survey, Report no. 500, Household Assets and Liabilities in India, 2003. (back)

78. Dev Kar, The Drivers and Dynamics of Illicit Financial Flows from India: 1948-2008, Global Financial Integrity, November 2010. (back)

79. Ibid., p. 47. (back)

80. Dev Kar and Brian Le Blanc, Illicit Financial Flows from Developing Countries: 2002-11, Global Financial Integrity, December 2013. (back)

81. Dev Kar, op. cit., pp. viii-x. (back)


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