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Plutocracy

 Plutocracy

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The rules made to develop Lower Parel had the sole objective of helping mill owners unlock land value, without a thought for how millions would navigate the area. Photo: PTI
The rules made to develop Lower Parel had the sole objective of helping mill owners unlock land value, without a thought for how millions would navigate the area. Photo: PTI
GENERAL DISEQUILIBRIUM

India’s new gene is called plutocracy

4 min read . 04 Oct 2017Rajrishi Singhal

India has been called a plutocracy for its manifest disposition towards the rich and the powerful

The stampede at Mumbai’s Elphinstone Road train station last week, which claimed 27 lives, holds up a mirror to India’s policy bias towards the rich and powerful. Many people (including this columnist) impulsively tweeted about the government’s penchant for bullet trains versus apathy towards basic infrastructure for daily commuters; the tragedy, though, showcases a much larger malaise, one that has been patronized by successive governments.

The catastrophe can be sourced to how politicians and industrialists colluded to develop Lower Parel, an erstwhile textile mill neighbourhood that has now been converted into malls, offices, TV studios, restaurants and residential blocks by tweaking rules and with complete disregard for the livelihood of its original residents, public transport or traffic growth. 

All cities around the world redevelop and rejuvenate urban areas but do so with some thought to forward and backward linkages. The rules designed to facilitate Lower Parel’s development had a sole objective: to help mill owners unlock land value without any thought of how millions of office workers and service providers would enter and exit the area. End result: the loss of lives at the Elphinstone Road station.

There is a name for this. India has often been called a plutocracy for its manifest disposition towards the rich and the powerful. Plutocracy, in short, can be defined as rule by the wealthy and the powerful, where policies and systems are designed to deliver greater benefits to the wealthy and powerful. Consequently, plutocracy eats away at the core of any democratic system.

A recent paper by Lucas Chancel and Thomas Piketty shows how India’s average real income growth accelerated post-2000. Simultaneously, it also shows how the top 10% grew at a much faster rate than the average, while income growth of the balance 90% fell below average. While the authors avoid offering any conclusions about the impact of economic reforms on inequality or poverty in India, their findings point to an uncomfortable truth: Post the 1980s, when the process of economic reforms began, the top 1% in India have seen their incomes and wealth grow at a much faster rate than the balance 99%.

Increasing wealth concentration among the rich is corroborated by Credit Suisse’s Global Wealth Report 2016: India’s top 1%, which owned 36.8% of the country’s wealth in 2000, now owns close to 58% of the wealth (the global average is 50%). An Oxfam 2017 report showed that 57 Indian billionaires own as much as the bottom 70% of the population.

Another paper by Dilip M. Nachane and Aditi Chaubal (goo.gl/gxLcwd) finds a plutocratic bias in the way India’s consumer price index (CPI) is constructed, by attaching greater weightage to items of expenditure consumed by higher income groups. This has enormous implications for policy design, especially when the Reserve Bank of India has selected CPI as its chosen benchmark for inflation targeting.

Plutocracy is also characterized by suborning of national institutions. Public-private partnerships (PPPs) are perhaps the best examples of how this financing mode was used to reward private sector partners with state resources (including valuable real estate) with the government (or government-owned institutions) shouldering the bulk of project risk. 

For example, in airport PPPs, private partners have been treating public land as private property. Of course, there were many PPPs that failed because of bureaucratic stasis or other extraneous reasons but the fundamental flaw in Indian PPPs was hard to miss.

Plutocracy can also be identified in the way institutions behave. India’s largest commercial bank, the State Bank of India (SBI), decided to step outside its sandbox and experiment with new revenue sources: it decided to penalize customers who failed to maintain the monthly average balance in their savings bank account.

This example was quickly emulated by some other private banks. SBI’s haste and poor planning in announcing and executing the new revenue stream came back to bite it: a torrent of protests has forced the SBI to exempt pensioners and minors (whose accounts typically empty out soon after money is deposited) and reduce the penalty amounts for other depositors.

Policy haste, without thinking through the consequences, is quite commonplace in India, whether in government or in institutions. 

The SBI example shows how policy moves when it does not take into account customer profile, feasibility options or its impact on various income groups. Demonetization is another example of how an autarchic policy decision affected livelihoods for a wide spectrum of the population. 

What’s more worrying is the bias in policy towards those with more money, power or both. Typically, by the time public policy emerges from drawing board to final design, political and business influences shape its biases.

It is instructive to note the role of politicians in plutocracy. The Supreme Court recently upbraided the Centre for the rapid—and, in some cases, inexplicable—rise in politicians’ assets. Interestingly, when one of their own was banned from flying for perpetrating violence against airline staffers, parliamentarians banded together to get him a reprieve. 

On the rebound, though, the aviation ministry has now empowered airlines to unilaterally ban “unruly" passengers, without offering citizens any means of contesting the one-sided rule. The odds are always stacked against ordinary citizens in a plutocracy.

Rajrishi Singhal is a consultant and former editor of a leading business newspaper. His Twitter handle is @rajrishisinghal.

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