The document analyzes the rising wealth inequality in India, attributing it to a 'closed loop' where business and state collude, and 'open borders' that facilitate capital flight. It discusses how privileged access to state resources and global economic integration have led to a significant wealth concentration among a select few. Additionally, it highlights that while India's wealth has increased, a substantial portion is being moved abroad, leaving the country with limited tax revenues and exacerbating poverty.

1. CLOSED LOOP,
OPEN BORDERS:
WEALTH AND
INEQUALITY IN
INDIA
Anthony P. D’Costa
Eminent Scholar in Global Studies and Professor of
Economics
College of Business, The University of Alabama in
Huntsville
E-mail: promothesdcosta@gmail.com
ICAS, Temple University of Japan
SETAGAYA-KU, TOKYO
January 20, 2020

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1950-511952-531954-551956-571958-591960-611962-631964-651966-671968-691970-711972-731974-751976-771978-791980-811982-831984-851986-871988-891990-911992-931994-951996-971998-992000-012002-032004-052006-072008-092010-11
Agriculture etc.
Manufacturing etc.
Services
F,I, R, BS
The Changing Structure of the Indian Economy (% share of GDP)
Source: Ministry of Finance, Government of India, Economic Survey, various years, http://indiabudget.nic.in/survey.asp
Note: F = finance, I = insurance, R = real estate, and BS = business services are a subset "services" category. For definitions of the different
categories see Economic Survey.
2The data series changes from 2011-12

4. THE ARGUMENT IN A NUTSHELL
The objective is to explain why Indian inequality is getting worse under economic
growth
I provide a political economy explanation of the changing contextual dynamics of
increasing wealth and inequality based on two analytical categories:
Closed loop
Open borders
Closed loop refers to changing state-business relationship in way that favors
business and the (agents) of the state in a quid pro quo arrangement
Open borders refer to the global economy that is receptive to wealthy people and
governments are complicit in encouraging capital and wealth flight from India (and
other countries)
Inequality arises because of the privileged access of select business to the state and
thus wealth creation, including the generation of “black” money and speculation and
the flight of wealth and income due to open borders, tax havens, rich-country visa
programs. Such flight is legitimate but not fair and illicit and unfair. 3

5. WEALTH AND INEQUALITY IN INDIA
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6. 5
2/3 Floor Size of
the Palace of
Versailles

7. 6
59
63
109
124
126
136
141
0 20 40 60 80 100 120 140 160
2012
2013
2014
2015
2016
2017
2018
NUMBER OF US DOLLAR INDIAN BILLIONAIRES
No. of US$ billionnairs
Source: Statista.com, https://www.statista.com/statistics/324237/india-number-of-billionaires/, Accessed 06/01/2018
2027: 357 billionaires?

8. WEALTH AND INEQUALITY IN
INDIA
•Globally 13.9 million millionaires in 2000, to 46.8 million millionaires in
2019
•India 34 $ millionaires in 2000 to 759 in 2019
• Collective wealth $110 b to $2.86 trillion, average $3.76 b per
millionaire (US average is $4.05 b, China $3.33 b, Brazil $4.61 b)
•100 wealthy Indians had total assets of $417 billion in 2017 (Crabtree)
• 1% of Indians own half of India’s wealth
•150 wealthiest Indians, 43 operated outside India, including US (9), UK
(6), Dubai (6), UAE (3), Canada (3), Indonesia, Hong Kong, the Gulf,
Tanzania, Thailand, Singapore, and Abu Dhabi (one each)
• Indians in US visible innovators and VC, HH income $89,000 vs.
$50,000, advanced degree 44% vs. 11% (US Current Population Survey
Results, 2009-13)
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9. INCOME POLARIZATION IN INDIA
India’s annual pci is $7,000 PPP in 2017
(World Bank)
Or $1,940 in 2017 current nominal dollars
Poverty rate is 22%
More than 200 million people living on less
than PPP $1.90
$0.30 per day rural poverty line and
$0.50 per day for urban poverty line
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11. 0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
Year 1950-2014
India’s Gini Coefficient (pre-tax national
income, total population, adults)
Source: Based on Data provided by Piketty and Chancel 2017 in Alvaredo, F., Chancel, L., Piketty, T., Saez, E., and Zucman, G. (2018). World Inequality Report (2018). World Inequality Lab.
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India’s GINI coefficient
0.37 in 2011
0.63 in 2016

12. EXPLAINING WEALTH AND INEQUALITY:
CLOSED LOOP AND OPEN BORDERS
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13. TIME
INEQUALITY
Colonial Phase
State-led Phase
Reform, Post-reform Phase
Background to Inequality Arising from the Interfacing of Late Industrialization with Globalization
Few Rich
Few More Rich
Many More Rich
Capitalist World Economy
Circumscribed by
Insulated from
Engaging with INEQUALITY
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18-early 20th Century 1940s-1990s 2000 and beyond

14. ECOSYSTEM OF WEALTH CREATION
Economic reforms led to greater economic and commercial space
Some transparency due to market reforms, greater profit opportunities
However, growth in profit spaces accompanied by growth in “rent” spaces (extractive activities)
Rents are profits above “competitive” profits (oligopolistic, first-comer advantage, political
manipulation of prices)
Corruption (but not all rents, at least legally, for example, patents), I don’t use corruption
Because state handing out licenses in a non-transparent way for economic activities such as
mining, real estate, infrastructure, liquor, telecom, education, etc.
These are rent-thick sectors, which generate black (unaccounted, untaxed) money
Black money in real estate, education, mixing (subsidized) kerosene with diesel
Black money reinvested in real estate, etc. or take flight internationally
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15. MECHANISMS OF CLOSED LOOP
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State-led Development
Patronage politics
License-Permit-Quota
Economics of Scarcity
Rent-seeking activities
Black money
Economic Reforms
globalization
Delicensing
New Economic
Opportunities,
Rent space
Rent-thick Activities
Real estate, cement, mining, media,
infrastructure, ports, edu., liquor
Non-rent: IT, pharma, bio-tech,
finance?, automotive
Patronage politics continued
Career politicians
Levels of corruption increased after
reforms (scams)
State incapacity became worse as
business more powerful
Business confidence increased
Fixers, lobbyists, subcontractors, graft,
kickbacks, corruption in extractive
industries, questionable land acquisitions,
EPZs, leakage in state welfare programs
Entrepreneurs becoming politicians
Campaign funds in exchange for access
Bureaucrats on the take
Quid pro quo
Black money, more opportunities,
Easy access to Heavy borrowing,
global expansion
Leading to NPLs (2.2 to 5.9 ratio)
Campaign contributions
Increase in MPS with criminal charges

16. OPEN BORDERS
Capital and wealth flight
Legal (global expansion) and illicit (black money, untaxed)
Hawala system of international money transfer (before Western Union!)
Borrowed funds but illegally siphoned out for personal or business expenses
Swiss Banks (Indian account holders are one of the largest)
Tax havens (worldwide)
Roundtripping (Mauritius, Cayman Islands): Vijay Mallya a liquor baron
Rich countries: UK, US, Singapore receptive hosts
­ In Singapore, 5-Indian origin business combined assets over $7 billion
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17. FACILITATING MOBILITY OF GLOBAL WEALTHY
Foreign government immigration policies toward the global wealthy
US EB-5 Immigrant Investor Program (employment-based preferences)
($1 million, 10 American workers)
Caribbean islands (citizenship for sale), Tax havens
Canada net worth CAD 2 million
Singapore SGD 2.5 million investment
Australia AUD 1.5 to 5 million investment
Even Modi’s India is trying with Permanent Residency Status Scheme, INR
10-20 crores, with employment creation (approx. USD 140-280,000)
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18. FROM CLOSED LOOP TO GLOBAL FUGITIVES
UK: 2018, all 21 of the richest Asians were Indians (Jet Airways GBP
540 m, Hinduja family GBP 22 b)
Jet Airways transferred borrowed money on fictitious grounds
Hindujas embroiled in Bofors armaments scandal
Vijay Mallya in the UK awaiting extradition
Gupta prevented from leaving the country (Augusta Westland defense)
Mehul Choksi and Nirav Modi (jewelers) pillaged PNB of $2 b
Similarly, Sandesara brothers (biotech) absconding with $2 b debts
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19. Richest 10 Indian Americans
Combined Net
Worth $20.2
billion
6 have engineering degrees
4 are from IITs (including the
one born in now Pakistan)
Sectors Present
• Airlines
• Private equity (tech)
• Computer systems
• Venture capitalists
• Investment in tech
• Pharmaceuticals
• Online retailer
• Software
• Computer networking
• Staffing company
4 born in India
3 born in the US
1 born in now Pakistan
1 born in the UK
1 born in Kenya
Patterns and Profiles of the Indian HNWIs in the US
Source: Compiled by Author from Nair 2018.
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20. IMPLICATIONS FOR INEQUALITY
Capitalism is not designed for egalitarianism, institutional capacity for redistribution is weak
Selected businesses have become more powerful rests on both prior inequality and privileged access to the
state
Inequality due to a few people and businesses becoming very wealthy (including with black money)
Many of the wealthy people exit with their capital or park their wealth abroad (global capital outflows in
2010: $21-32 trillion!!)
India estimate illicit outflows $213 b over 1948-2008 (probably an underestimate)
No tax revenues from black money, forgone investment with capital outflows, little employment growth
made worse by capital flight
Receiving countries: positive as more of the wealthy join, with welfare as buffer for those disadvantaged
Negative, if less welfare, and inflationary pressure set off, gentrification, homelessness
Need to have global regulatory oversight on inequality
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21. THANK YOU!
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