Aug 2, 2006

Gini index

An interesting after-note to the previous post on Indian Economy.

Another load of bull we've heard recently is that Indian growth is very lop-sided. Some cities are growing with the force of IT, ITES, Finance etc, while 'the real India' that lives in villages isnt getting any better. This argument becomes most important during election time with Opposition parties championing the cause of the 'aam aadmi' and 'rural India'.

The rich-poor disparity is measured using an economic index called the Gini index which essentially measures the difference between a perfectly uniform income distribution and the actual distribution.

India has a Gini index of 33%, compared to 41% for the United States, 45% for China, and 59% for Brazil. This means the distribution of wealth in India is more even than any of these countries. So, the 'aam aadmi' and the 'gawar' in India are better off, compared to their counterparts in US, China and Brazil.

Im sure the parties in Opposition wouldnt agree :)

3 comments:

  1. I went through link you provided for Gini, and I agree that you have written well that India is growing...

    Yet I thought I could bring 3 points to your notice...

    1) Rich of US are someone like Bill Gates so even if you put indian rich against him they'll still show up as poor...
    2) There is no comparisions for purchasing power parity, between US & India...
    3) US welfae system is much stronger than India, so I argue thta 7000 indians who die every day due to starvation (bhookh.com) are far worse than US...

    Finally will you call real estate growth in India to be a part of India shining...??? Because a common man who earlier had to spend 20 years of salary to buy a house in Delhi, Mumbai might have more 3 years added into it despite increase in salaries...
    So consequentially Finance is actually booming due to realty market and share bazaar, which could be equally temporary...

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  2. Gini only tells you what your cumulative variation from the mean is. It doesn't tell you how low or high that mean is. Simply having a spread of income doesn't indicate injustice. Assuming that income disparity equals injustice is a truth that many people will dispute. I for one don't believe that is true.

    Gini is just one statistic out of a bucket-full that you can examine. I'm sure there are others which would not show India in such a rosy light.

    I lived in India for 8 years, and I backpacked around it for 6 months a couple years ago. I didn't stay in any fancy hotels, and ate in the same resteraunts that auto-drivers and other working men did (I caught a couple parasites and an undiagnosed lung-infection as a result--but that is neither here nor there). My observation was that regardless of the "paper" statistics, poor people in India are worse off than poor people in any part of America (Louisiana included).

    It doesn't matter that Bill Gates is 5 Million times richer than a poor man in New Orleans, while Ratan Tata is only 5,000 times richer than a beggar in Bombay. That's just a stat to keep Indian bureaucrats proud of the shitty job they've done, and gives them an excuse to centralize even more crap, fucking up the economy even further.

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  3. You seem to have missed the point. Either that or you are members of the 'opposition' :-)

    Economists generally talk about growth in terms of per-capita GDP. However, that measure hides the immense variation in the incomes of individuals. The Gini index looks, as you point out, at the variation to see how equal the 'income distribution' is. Clearly, it is not the only measure, but one not to be completely ignored as you do.

    As you point out, more equal income distribution is also not a direct measure of general equality or level of poverty in society. There are other elements such as welfare, education, and access to healthcare to account for.

    A related view one can take is to see how mobile a society is. Americans generally believe that their society allows people to move up. This 'american dream', unfortunately, is just that - a dream. European society is more economically mobile - the correlation between the income of a child and his/her parents is high in the US, lower in continental Europe, and lowest in Scandinavia. For more, you may want to pick up the May 25 issue of the Economist.

    The point being made here was just that India's growth has not exacerbated income inequality to the extent it has in other countries.

    Nobody would go so far as to say India has no poverty. To do so based on one measure would be silly. But equally, it would be silly to condemn India, while ignoring facts such as those presented, based on your experience in India, without having spent the same amount of time among the poor in the USA (e.g. in New Orleans).

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