[A
recent study by the economists Aditi Gandhi, formerly of
the Center for Policy Research in New Delhi, and Michael Walton of the Kennedy
School of Government at Harvard attempts to parse the sources of the wealth of
India's billionaires as well as placing the Indian experience in comparative
perspective. The data reveals a staggering increase in billionaires' wealth as
a percentage of national income in India, from a low point of less than 1
percent in 1996 to a whopping 22 percent in 2008.]
The
strength and direction of the Indian economy may be up for debate, but one
remarkable fact is not: There has been massive growth in the number and wealth
of billionaires in India since the economic liberalization measures in 1991.
The
phenomenon has often been compared to the United States' experience in the
latter part of the 19th century. This was a period evocatively described by Mark Twain and Charles
Dudley Warner as America's "Gilded Age," a time characterized by
industrialists so wealthy and powerful that they came to be pejoratively called
"robber barons."
According
to the 2012 list of the world's billionaires, compiled annually
by Forbes, 48 of the 1,153 billionaires are from India, accounting for a little
over 4 percent of the total. This compares to India's share of global output at
2.6 percent when compared using nominal exchange rates, or 5.7 percent when
compared using "purchasing power parity" exchange rates.
By
this metric, India's share of billionaires in the global total seems comparable
to its overall share of the global economy. But look more closely, and a
different picture emerges.
A
recent study by the economists Aditi Gandhi, formerly of
the Center for Policy Research in New Delhi, and Michael Walton of the Kennedy
School of Government at Harvard attempts to parse the sources of the wealth of
India's billionaires as well as placing the Indian experience in comparative
perspective. The data reveals a staggering increase in billionaires' wealth as
a percentage of national income in India, from a low point of less than 1
percent in 1996 to a whopping 22 percent in 2008.
That
number has dropped off as a result of the global financial crisis and
plummeting stock markets in India and elsewhere, but as of 2012 it stands at
just under 10 percent.
How
does this compare to other countries? India is now on par with the United
States and Mexico, where billionaires' wealth in both countries is about 10
percent of national income. Among the large emerging economies known as the
BRICs, (referring to Brazil, Russia, India and China) India is more unequal
than China (where the comparable statistic is below 5 percent) and amazingly
even with Brazil (a little above 5 percent), historically a country noted for
wide disparities in wealth and income.
Among
the BRIC countries, only Russia has a higher share of billionaires to national
income (pushing 20 percent) - and that in a country famous for its oligarchs,
latter-day robber barons who emerged during the heady days of former President
Boris Yeltsin in the 1990s, when Russia held the dubious moniker of being the
"Wild East."
The
other important finding emerging from Ms. Gandhi and Mr. Walton's research is
that 43 percent of India's billionaires came from sectors that the researchers
classify as "rent-thick," that is, those enjoying what economists
would consider above-normal profits because the companies possess certain
privileges. What is more, these billionaires account for a majority (about 60
percent) of the total wealth of India's billionaires.
The
Forbes list of richest Indians, released last week, is
full of businessmen and women from "rent-thick" sectors: real estate,
construction, infrastructure, media, cement and mining. These are sectors in
which the government continues to play a large role, in the form of licenses
and other forms of control, and in which there's a presumption of a
government-business nexus - or collusion, to use a less flattering term,
according to Ms. Gandhi and Mr. Walton.
For
example, they contend that "the real estate sector is well known for the
large number of 'black' transactions, and the nexus between politicians and
realtors has been documented in recent scams."
An
obvious inference, although one difficult to prove rigorously, is that the
above-normal profits earned in industries like real estate or cement accrue
because of the cozy relationship between business and government.
There
is some heartening news, though, in the study by Ms. Gandhi and Mr. Walton.
According to their analysis, the majority of Indian billionaires are
"self-made," and around 40 percent represent wealth that is
"inherited and growing," like the Ambani brothers, Mukesh and Anil,
sons of the late Dhirubhai Ambani, founder of the family business empire.
Not
surprisingly, the self-made billionaires are in fields like information
technology, which are offspring of the 1991 economic reform measures, and not
holdovers from the era of the "license raj."
Why
might this be important? According to research, there is a positive correlation
between economic growth and the wealth of self-made billionaires, while there
is a negative correlation between growth and inherited wealth. It's impossible
to establish a conclusive cause-and-effect relationship, but the finding is at
least suggestive of the fact that economies populated by those whose wealth is
self-made are more dynamic than those that rely on the perpetuation of existing
economic elites and their descendants.
As
Jayant Sinha, an investment adviser, and Ashutosh Varshney, a political science
professor at Brown University, have argued in a column in The Financial Times, the current state
of the Indian private sector, which they dub "curry capitalism,"
requires sweeping reforms, intended to ensure that cronyism and corruption are
curbed while India's entrepreneurial ethos is given a much-needed boost.
What
is more, even in the United States, there is an increasingly urgent debate on
whether worsening income and wealth inequality, as captured by the importance
of billionaires to the economy and other factors, is helpful or harmful for
economic growth, the subject of a recent Times "Room for
Debate" feature.
In
an era of flagging growth rates and a renewed reform impetus from the incumbent
government, the possibility that excessive inequality could be bad for the
economy may be the most important lesson to come out of the Forbes billionaire
list.
Vivek
Dehejia is an economics professor at Carleton University in Ottawa, Canada, and
a writer and commentator on India. You can follow him on Twitter @vdehejia.
FORMER CHINESE DIPLOMAT SAYS U.S. IS USING JAPAN TO MAKE GAINS IN ASIA
[In the speech, which was organized by the
Chinese Ministry of Foreign Affairs and was attended by half a dozen Chinese
diplomats, Mr. Chen held out an olive branch by urging that discussions between
Japan and China should start on ways to reduce the risk of clashes between
Chinese and Japanese patrol vessels that have gotten perilously close off the
islands in the last month. ]
By Jane Perlez And Keith Bradsher
HONG KONG — A longtime
Chinese diplomat warned Tuesday that the United States is using Japan as a
strategic tool in its effort to mount a comeback in Asia, a policy that he said
is serving to heighten tensions between China and Japan.
The retired diplomat, Chen
Jian, who served as an under secretary general of the United Nations and as
China’s ambassador to Japan, said the United States should restrain Tokyo and
should focus its diplomatic efforts on bringing about negotiations between
China and Japan over the disputed islands in the East China Sea known as the
Diaoyu by China and the Senkaku by Japan.
In an unusually biting
assessment of the United States, Mr. Chen said: “It is in the U.S. interest to
quarrel with China, but not to fight with China.”
While Mr. Chen has retired
from China’s diplomatic service, his remarks were particularly significant
because they represent the most detailed public exposition of China’s views at
a time when Chinese officials have been wary of making comments because of the
approaching Communist Party Congress, which is scheduled to begin in Beijing on
Nov. 8.
In the speech, which was
organized by the Chinese Ministry of Foreign Affairs and was attended by half a
dozen Chinese diplomats, Mr. Chen held out an olive branch by urging that
discussions between Japan and China should start on ways to reduce the risk of
clashes between Chinese and Japanese patrol vessels that have gotten perilously
close off the islands in the last month.
But the thrust of his speech
was more hard-hitting, particularly regarding the United States. Some in China
and Japan see the issue of the islands “as a time bomb planted by the U.S.
between China and Japan,” he said. “That time bomb is now exploding or about to
explode.”Mr. Chen accused the United States of encouraging the right wing in
Japan, and fanning a rise of militarism.
“The U.S. is urging Japan to
play a greater role in the region in security terms, not just in economic
terms,” he said during his speech at the Foreign Correspondents’ Club in Hong
Kong. That “suits the purpose of the right wing in Japan more than perfectly —
their long-held dream is now possible to be realized.”
The United States has said
that, in the event of conflict, the disputed islands are covered by its mutual
defense treaty with Japan, a position that China has severely criticized since
the latest dispute flared last month.
Mr. Chen described what he
called the intervention of the United States in territorial disputes in the
South China Sea — where China has been at odds with another American ally, the
Philippines — as a way for the United States to expand its influence and
restrain the influence of China.
“Will these countries
misjudge and draw China and the United States into a confrontation?” Mr. Chen
asked. “The danger is apparent, and China needs to be aware of that.”
Mr. Chen, who is now dean of
the School of International Studies at Renmin University in Beijing, offered a
lengthy list of suggestions and assurances for how China hopes to resolve
tensions with its neighbors. “China does not seek to provoke incidents, and
will not be the one to do so first,” he said. He said that China had only sent
administrative vessels to the disputed islands, not warships from its navy.
Mr. Chen said major changes
in Chinese foreign policy were unlikely to follow the selection of a new
leadership team at the Party Congress. “I think it’s going to be a smooth
change, and the main tenets of our foreign policy will remain very much the
same,” he said.
By far the biggest threat to
stability in the region are the islands where Japan and China are at odds.
Little more than rocky outcrops in shark-infested waters, Japan won the islands
as the spoils of war in the Sino-Japanese War in 1895. The United States took
over administration of the islands at the end of World War II.
China expected that Japan as
a defeated nation would have to give up the islands, and that they would be
returned to China. But the islands were not returned, rankling China and Taiwan
ever since — a rare issue on which those two agree.
The San Francisco Peace
Treaty between Japan and the Allies in 1951 did not clearly establish
sovereignty of the islands.
In 1972, the United States
returned the disputed islands to Japan, and Japan has administered them since.
When China and Japan restored diplomatic relations in 1972, the leaders of the
two countries decided to shelve the question of sovereignty of the islands
until a future date.
The Obama administration has
stated that even though it would come to Japan’s side in the event of conflict
over the islands, it takes no position on the sovereignty of the islands.
The issue burst into the
open last month when the Japanese government announced it was purchasing the
islands from a private family that has owned them for some years. China
denounced the purchase as “nationalization” of the islands.
The government of Prime
Minister Yoshihiko Noda argued that it bought the islands to prevent them from
falling into the hands of the former governor of Tokyo, Shintaro Ishihara, a
right-wing politician.
Because the islands were
transferred from one Japanese entity to another, Mr. Noda’s government says the
status quo has not changed, and that there is no need to open negotiations with
China over the issue at this time.
Japan and China have both
had patrol vessels in close proximity to the islands and each other in recent
days. The Japanese Coast Guard and the Chinese State Oceanic Administration
each said in separate statements on Tuesday that their vessels had demanded that
the other side’s ships should leave the area.
Prime Minister Wen Jiabao of
China and Prime Minister Noda are scheduled to attend a meeting in Laos next
week. The Japanese news media reported on Tuesday that there were no plans for
the two men to hold a formal talks to resolve differences, although they might
have an informal meeting on the sidelines.
