Thomas Piketty has the right diagnosis, the wrong prescription

French economist Thomas Piketty has it right Inequality is not a “rich country concern”. And India certainly shouldn’t wait to get rich before tackling serious issues. An important point is whether inequality is increasing in India. The Official Household Consumption Expenditure Survey shows a decline in the Gini coefficient between 2011-12 and 2022-23 for both rural and urban areas. In other words, consumption inequality has decreased. The same may not be true of income and wealth inequality, which has increased over the past decade or so. If so, it is good not only from a moral, social or political point of view, but also from an economic point of view. Tapping the market potential of India’s large population cannot happen without increasing incomes at the bottom of the pyramid. Less inequality and more money for the aspiring poor to spend is desirable even from a hard-nosed business perspective; Ask any FMCG, two-wheeler or micro-finance company executive.

Piketty is equally correct with his diagnosis. Real inequality is an opportunity. A large section of India’s population suffers from lack of access to quality education, health, nutrition and sanitation facilities. This makes them less productive. Income is ultimately a function of productivity—how much output and value workers add from economic activity. Income cannot increase without improving productivity. If, as Piketty notes, large parts of the labor force are “trapped in low productivity,” they can neither contribute to growth nor reap its benefits. This is all the more reason, then, why India needs to reduce inequality – in this case, of opportunity – soon enough. It calls for increased public investment in good schools, hospitals, clean drinking water systems, human waste disposal and sewage treatment systems, and other physical and social infrastructure – much more than the Center and states are currently doing.