What do we know about the wealthy in India? A case study prior to liberalization

The first modern book in economics was called the “Wealth of Nations” because its writer, Adam Smith understood (and transmuted the idea) that the key to prosperity and growth was the generation and distribution of wealth – not just the flow of income. Recent interest in economics has started to return to this question especially in the context of today’s rich countries. The academic attention on the metamorphosis and concentration of wealth has so far excluded poor countries. In fact the study of the wealth of poor nations should be a core question in development economics (over income growth) because wealth tends to cumulate all past prosperity or disparity.

I found it notable that despite the detailed historical analysis in Piketty’s book Capital in the 21st Century, there was no mention of Indian wealth (Piketty did study top Indian incomes). To an extent this is understandable because data on India is so limited and unreliable that documenting it would require a book in itself. Till date, the Indian central bank (RBI) does not follow the tradition of publishing regular household and private sector balance sheets at market value, to assess accumulation and asset prices. And yet due to its sheer size and importance, India presents a unique challenge to the notion of prosperity – it is simultaneously home to some of the wealthiest and poorest global citizens. In the past, the question of India’s colonial subservience was related to the drain of wealth, rather than income – the British enriched themselves at the cost of their prized colony. What happened once India became independent?


My new paper “Capital and the Hindu rate of growth: Top Indian wealth holders 1961-1986” tries to answer this question for a particular historical phase in Indian history. The term Hindu rate of growth is not really religious, it just meant a country made up mostly of Hindus did not grow at the levels seen in other Asian countries undergoing development at the time. At death people’s assets are disclosed to tax authorities for the purpose of inheritance and because India had an estate tax in place until 1985, I was able to develop a series of top wealth holders using this information. Due to the exemption limits, it turns out that the series could only start from Top 0.1% – a further indicator of how concentrated wealth was in the first place. Unfortunately, comparison with the wealth of the nation as a whole could not be made, because such aggregate series are not available. Sometimes the National Sample Survey Organization makes an Asset and Liabilities survey, but it is decennial at best and as with most surveys, underestimates the wealthy. To ‘normalize’ values, I take the ratio of these “top” groups’ wealth against national income amongst other things.

My findings seem quite reasonable in historical context. The elite declined in importance relative to national income due to a series of (oil driven) inflation shocks and targeted anti-elite policies (mostly attributable to Indira Gandhi) such as the abolition of the privy purse and nationalization of private assets in banking and coal. In 1966, the wealthiest 200,000 families’ could have financed around two months of national income but their decline was so dramatic that the Top 0.1% could barely finance a few days of GDP by 1986. The composition of portfolios suggests that land related properties (urban and agricultural) lost a lot of their inflation adjusted values. On the other hand movable assets such as equities, bonds, gold etc were able to recover their real values by 1986 consistent with the eventual relaxation of a super aggressive tax policy. All this points to a rise of a new kind of savvy wealthy class amongst the elite themselves, because disparity within the elite themselves began increasing (after a decline until 1972) and the decline of the Top 0.1% was mostly due to the decline of the Top 0.01% or the super elite. Thus on net, the gainers were the intermediate elite (just below the Top 0.01%). One way to rationalize these results is statistical equilibrium reasoning which suggests that wealth concentration increases with liberalization of capital transaction activities.


Amongst other things, this study contrasts the relationship between wealth concentration and economic growth as Piketty hypothesizes for the industrialized world – during low growth phases, past saving made wealth more important. Indian growth during this era was quite low and driven by national capital accumulation for the development objective (Nehruvian Socialism, as its called). If national capital crowds out personal wealth, then it makes sense that wealthy classes lose their importance. On the other hand, tax policies aimed at equalizing wealth distributions also play a huge role in breaking the endless cycle of inheritance and accumulation which otherwise perpetuates inequality. As more data becomes available, longer time series of top wealth-holders will tell us if these trends have been (as expected) reversed and whether the Indian elite are back again.

Rishabh Kumar is a PhD student in Economic at The New School

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