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Men distribute and sell Hindi and English newspapers in Old Delhi, India. The Indian newspaper business is thriving thanks to higher literacy levels, better infrastructure and an expanding middle class. (Candace Feit for The Globe and Mail/Candace Feit for The Globe and Mail)
Men distribute and sell Hindi and English newspapers in Old Delhi, India. The Indian newspaper business is thriving thanks to higher literacy levels, better infrastructure and an expanding middle class. (Candace Feit for The Globe and Mail/Candace Feit for The Globe and Mail)

'Middle class' in India isn't what you think Add to ...

India’s beleaguered central government took another hit this week with the release of a major report that found that inequality in earnings has worsened sharply in the country over the past 20 years, and is worst here of any emerging economy.

The report, called “Divided We Stand,” was researched by the Organization for Economic Cooperation and Development. Most of the attention it received in the West was for its blunt statements on rising income gaps in the United Kingdom and elsewhere in Europe.

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But it had grim news to share about India, and its findings are being read here as an indictment of the Indian National Congress-led government, in power for the last seven-and-a-half-years, which has had an overt focus on social welfare schemes and ending poverty – but apparently little to show for it.

The report says that the top 10 per cent of Indian wage earners now make 12 times more than the bottom 10 per cent, up from a ratio of six times more in the 1990s. And while much is made here of the “emerging middle class,” the report holds statistics that put hard numbers to what being a middle-income earner really means: The top 10 per cent of earners make almost five times more than the median 10 per cent; the median earns just 0.4 times more than the bottom 10 per cent.

The report laid much of the blame for the growing wage gap on the fact that a huge portion of India’s workforce – as much as 90 per cent by some estimates – continues to be employed in the informal sector. It also cited unequal access to formal education.

A further problem, the OECD said, is systematic problems with tax collection. India’s tax revenue as a proportion of GDP is less than 20 per cent, the lowest rate of any emerging economy and half of that of developed countries.

The Congress-led government has introduced signature social welfare legislation, including the U.S.$7- billion National Rural Employment Guarantee Act, which gives the rural poor 100 days a year of work at $2 a day. It is the largest public works scheme in the world. Nevertheless, India spends less than five per cent of its GDP on social protection schemes, the OECD says.

And those, the report suggests, work: Brazil, in contrast, spends more than 15 per cent of its GDP on social welfare – and in Brazil, household incomes have been growing faster among the poorest households than among the richest for the last two decades. South Africa – another country with a hefty public welfare budget as a share of GDP – is the only emerging economy to post worse earnings inequality than India. But in sharp contrast to India, South Africa halved this number since the last decade.

The report notes evidence of growing concentration of wealth among the Indian elite, saying consumption by the top 20 per cent of households grew at almost three per cent per year in the past decade, while the growth in consumption of the bottom 20 per cent of households remained unchanged at 1 per cent per year.

The proof of a widening gulf will come as a surprise to few Indians, but the report’s findings on poverty were disputed by government: the OECD says 42 per cent of Indians live below the poverty line, while government says the figure is 37 per cent and falling.

Just who is “poor” is a contentious topic here: new government guidelines say an individual income of 25 rupees (52 U.S. cents) a day gives a person adequate “private expenditure on food, education and health” in villages, while a city dweller needs 32 rupees a day (66 U.S. cents). A chorus of critics – from the opposition to a coalition of organizations working with the poor – have derided those figures, and said the government is merely seeking a way to rejig figures so that it appears that there are fewer poor people.

Using its own benchmark, the World Bank says that 42 per cent of India’s 1.21 billion people live on less than $1.25 a day, and that pervasive corruption and mismanagement are undermining anti-poverty schemes.

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