Cafe Economics | Niranjan Rajadhyaksha
It is common to hear the claim that inequality has increased because of economic reform and globalization. Most debates on this important issue end up as shouting matches. But is the claim really true?
Data I have seen this week show something eye-catching: The extent of inequality in India seems to have been remarkably stable over the centuries. The Mughal Empire collapsed. The British came and left. Independent India emerged from the pains of partition and now sees itself as an emerging superpower. Through this long cycle, the country seems to have maintained its level of equality/inequality.
First, let’s look at the immediate numbers. Mint reported last week that inequality in India had actually decreased between 1997 and 2005, going by the estimates published in the United Nations Development Programme’s human development reports. Inequality is usually measured with the Gini coefficient. A Gini of one means a country has perfect equality and a Gini of 100 indicates perfect inequality. India’s Gini coefficient has fallen from 37.8 in 1997 to 36.8 in 2005.
India is perhaps more equal today than it was around 10 years ago. That’s something that the critics of reforms have to deal with.
As with all such estimations, this one, too, can be questioned based on the quality of data and the definitions used. But that is not the point of this column. What struck me is that inequality in India has been surprisingly steady over the very long run. The data I will quote below are taken from an interesting new research paper, Measuring Ancient Inequality, by three economists—Branko Milanovic, Jeffrey G. Williamson and Peter H. Lindert. The original data that the three use is from economist Angus Maddison, whose work on world incomes since the dawn of history is incomparable. (A quick note: The main point of the Milanovic, Williamson and Lindert paper is quite different from the focus of this column.)
Let’s take an initial step back into history. The first official measure of inequality in independent India was in 1951, when the National Sample Survey field workers first went knocking on doors. The Gini then was 36, not too far from what it is today, according to the latest data. Inequality has stayed around that level through the ups and downs in the Indian economy over the next six decades and more.
But we could step even further back in time, all the way to the Mughal era. Naturally, data were scarce in those days. So, these are broad estimates. First stop: British India just before independence. The average Gini at that time was 48.9.
At first glance, it may seem that inequality dropped dramatically after the British left India. One possible reason is that the top British officials —from the viceroy to the judges to the district collectors—packed their bags. Maddison says that top British officials and businessmen made up just 0.06% of the total population of India, but they mopped up 5% of the national income. The Indian nobility and business class accounted for another 0.94% of the population and 9% of the national income. Thus, the 1% at the top of the income pyramid got 15% of total income.
However, Milanovic, Williamson and Lindert say that even without the British, the Gini would have been a high 45. Even so, there is a nine-point gap between inequality in 1947 and in 1951. The three economists offer four explanations. One, the 1947 Gini was based on incomes while the 1951 Gini was based on expenditure. So, is expenditure more equally distributed than income? Two, Maddison overestimated 1947 inequality. Three, he underestimated the incomes of India’s poor. Four, inequality did indeed drop after the British left and India became a free republic.
Let’s stick to reason number one for now and assume that there is a nine-point gap between income inequality and expenditure inequality. And then take another leap into history, back to the era of the Mughals. Around 1750, the Mughal nobility and zamindars accounted for 1% of India’s population and 15% of the total income. That’s remarkably similar to what the top 1% of the population—British officials, British businessmen, Indian nobles and Indian businessmen—got in 1947. The Gini in 1750 was 43.7%, very close to the “non-British” Gini at the eve of independence.
This is astonishing. The data shows that the extent of India’s inequality has been remarkably similar over the centuries, be it in Mughal India, British India or independent India. Of course, there must have been ups and downs depending on the economic and political circumstances. But the overall picture has not changed much. Is this our “natural” rate of inequality?
That’s a sobering thought amid the noisy debates.
The entire paper on measuring ancient inequality can be read at www.nber.com.
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