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Closed Loop, Open Borders: Wealth and Inequality in India

Closed Loop, Open Borders: Wealth and Inequality in India

Closed Loop, Open Borders: Wealth and Inequality in India
Speaker:
Anthony P. D’Costa, Eminent Scholar in Global Studies and Professor of Economics College of Business, The University of Alabama in Huntsville

Closed Loop, Open Borders: Wealth and Inequality in India
Speaker:
Anthony P. D’Costa, Eminent Scholar in Global Studies and Professor of Economics College of Business, The University of Alabama in Huntsville

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Closed Loop, Open Borders: Wealth and Inequality in India

  1. 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
  2. 2. 1
  3. 3. 0 10 20 30 40 50 60 70 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. 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. 5. WEALTH AND INEQUALITY IN INDIA 4
  6. 6. 5 2/3 Floor Size of the Palace of Versailles
  7. 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. 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) 7
  9. 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 8
  10. 10. 9
  11. 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. 10 India’s GINI coefficient 0.37 in 2011 0.63 in 2016
  12. 12. EXPLAINING WEALTH AND INEQUALITY: CLOSED LOOP AND OPEN BORDERS 11
  13. 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 12 18-early 20th Century 1940s-1990s 2000 and beyond
  14. 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 13
  15. 15. MECHANISMS OF CLOSED LOOP 14 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. 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 15
  17. 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) 16
  18. 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 17
  19. 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. 18
  20. 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 19
  21. 21. THANK YOU! 20

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