In the past week, it was in the headlines that India has replaced its old colonial ruler, Great Britain, and has risen to become the world’s fifth-largest economy. This is certainly cause for celebration. Or is it?
Being higher in the GDP ranking is obviously better than lower – but that’s all other things being equal. In this case, all other things are not equal. With a larger population, you can rank higher while your citizens are poor on average, and even particularly poor when population growth exceeds economic growth. While, again all things being equal, a larger pie is better than a smaller pie, the division of the pie can be marked by extreme inequality. Unfortunately, in the case of India, and perhaps inevitably, both conditions are true.
As Ruchir Sharma recently pointed out, India started becoming independent with the sixth largest economy in the world, falling to eleventh place and has since recovered to fifth place. Undoubtedly, the decline is worrying – if you fall in relation to the rest of the world and your population grows, in relation to the world, your citizens will become poorer.
So the fact that we’re on the rise implies that we’ve fixed something in our system since liberalization. In addition, there are public goods, defined as nonexcludable and noncompeting goods—goods whose consumption by me does not diminish that of others—like the military, which, regardless of population size, can be better funded and will provide better security for all in comparison bid to baseline. Another example is the fact that with larger treasuries, spending on infrastructure and other indivisible items is also larger. Of course, the larger the population, the more roads you need, but it’s not proportional.
On a more fundamental level, however, the question arises as to whether the life of the average person, or to use more contemporary terminology, the aam aadmi, has improved. Here, as the fifth-largest economy, you have to be more cautious when assessing the effects. First, our population growth is faster than in the countries we have overtaken.
Moreover, unlike in China, for example, growth in the West has been anemic. Even if our per capita income were to stagnate, we would eventually have overtaken it in terms of GDP due to population growth.
A better comparison might be with China, with which we were still on an equal footing in 1990. Second, India’s growth since liberalization has been highly uneven. According to the 2022 World Inequality Report, India stands out as a “poor and very unequal country with a wealthy elite” where the top 10% hold 57% of total national income, while the bottom 50% hold only 13%. It is clear that if the lion’s share of economic growth is taken by the top earners, we can become the fifth largest economy in the world even if the aam aadmi stagnate or become relatively poorer.
This is not meant to be criticism for criticism’s sake, but to critically question grandiose claims. A biased critic would claim that nothing has improved; a critical thinker would ask what has improved, and by how much, and for whom. In the case of India, population has increased and income inequality has increased, while poverty has decreased since liberalization. More than 270 million Indians were lifted out of poverty between 2005 and 2016, according to a study by the Oxford Poverty and Human Development Initiative (OPHI) in collaboration with the United Nations Development Programme. One can only imagine how many more people would have been lifted out of poverty if growth had been fairer and population growth slower.
This is of course all highly abstract and hypothetical. In practice, liberalization is accompanied by high growth and greater inequality. This has been observed in every country in the world, from China – whose liberalization has been even more successful than India’s – to Russia, which has had only the inequality of liberalization in the Yeltsin years and no growth.
The empirical regularity that economic growth leads to an increase in inequality was first noted by Simon Kuznets, winner of the 1971 Nobel Prize in Economics. In the early stages of development, when new opportunities arise, the wealthier make better use of them. At the same time, a large number of unskilled workers helps keep wages low. Therefore, inequality increases. However, this trend is unlikely to be an invariable feature of capitalist growth that cannot be tempered by the social and economic policies of particular governments. Bernie Sanders, for example, seems to be proof that even in the most advanced capitalist societies, movements for social justice and economic justice can make a difference.
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