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Rising income inequality in Asia

The key findings of a recent study by the Asian Development Bank (ADB) relating to income inequalities across Asia ought to find a ready resonance in India where the economic and political discourses of the day are focussed on themes such as inclusive growth and growth with equity. In saying that in Asia the rich are growing richer faster than the poor, the ADB has reinforced the widely held view that in India the fruits of rapid economic growth are not reaching the poor i n a substantial measure is true of the rest of the continent as well. Relative inequality deals with proportionate differences in incomes and, as measured by the Gini coefficient, it has been rising in most of the 22 Asian countries covered by the study but significantly in China, Bangladesh, Nepal, and Sri Lanka between mid-1990s and 2005. A higher Gini coefficient indicates higher inequality. The ADB has found that absolute inequality — the actual difference in incomes reckoned in dollars — has also been increasing everywhere. That, in the context of the rapid economic growth these countries have been witnessing, has had one major consequence. The better-off sections have experienced considerably large increases in their standards of living than the least well-off. The expenditures of the rich forming part of the top quintile have increased much more than those at the bottom quintile. That the poor are not getting poorer is some consolation, though. However, the inference is obvious that there is a fundamental flaw in the patterns of economic growth in most of these countries and it needs to be addressed .

The widening rich-poor divide suggests that the emerging economies like India — unlike Japan, South Korea and a few other countries that managed to achieve growth with equity early on — will have to refashion their strategies to make inclusive growth a reality. The consequences of rising inequalities can be dire. The ADB report, citing Nepal which has one of the highest levels of income disparity, says that it can lead to political unrest. India’s Gini coefficient rose from 32.9 in 1993 to 36.2 in 2004. Although India does not figure at the top of the countries with high income inequalities, it ranks poorly on the basis of benchmarks in other areas such as land and health. The ADB report’s value is enhanced because of its inter-country comparisons. In particular, it makes out a strong case for increased public investment in the social sector and in infrastructure-supporting economic activities that benefit the poor.

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