The industrialists themselves do not believe in keeping the majority of their money in the banks; they either invest in profitable ventures or convert it into movable or immovable assets, the cost of which keeps on rising. These assets prove to be of great utility in procuring further loans. Their business continues to expand with the help of people’s money and the value of their assets continues to show an upward trend. Inflation, which is the outcome of the conspiracy by the industrialist and their cronies in the government, ensures that whatever they pay as interest on the loans (and taxes) is compensated and whatever the public gets as interest on their money is more or less recruited; inflation recycles the money back to the industrialists. The poor account holders, in effect, get virtually nothing, while with their money the big businessmen and of course the bank owners build palaces and companies. In short, banks have become mere vehicles for transferring wealth from the less-moneyed to the more-moneyed. Businessmen also run big financial companies where again the depositors’ money is used to give loans at much higher rates of interest to those seeking it. Finance companies do not only earn themselves but also help the industries by increase in sales of consumer items of all kinds including vehicles, air conditioners, TVs and refrigerators.
Dr. Javed Jamil
Level of Disparity in India
The economic disparity, both income disparity and wealth disparity, in India is growing at an ever-increasing pace. The general, region to region, urban-rural and community to community, all forms of disparity are growing, and growing fast. Here are some facts given in various reports:
1. One of the serious problems faced by India’s economy is the alarming growth rate of regional differences among India’s different states and territories in terms of per capita income, socio-economic development, poverty and availability of infrastructure. Economic disparity is easily visible in the country by the fact that 40-50% of the populations in Bihar and Orissa live below the poverty line while states such as Delhi and Punjab exhibit very low poverty ratios. There are in total 7 states of India which are lagging behind in the race of economic growth namely Bihar, Chhattisgarh, Jharkhand, Madhya Pradesh, Orissa, Rajasthan, and Uttar Pradesh. Annual growth rates of different states between 1999 and 2008 strongly reveals economic disparities in the country as per the data Gujarat (8.8%), Haryana (8.7%), or Delhi (7.4%) were much ahead in the race as compared to Bihar (5.1%), Uttar Pradesh (4.4%), or Madhya Pradesh (3.5%). Economic disparity in India can be compared by the fact that growth rates of the states of the single country varies to the greater extent. Rural Orissa (43%) and rural Bihar (40%) stands in the list of states with the poorest growth rates in the world while rural areas of other states of the same country India, lies well among the middle-income countries as rural Haryana (5.7%) and rural Punjab (2.4%).Though the Indian Govt. is constantly trying to improve the economic status of different states by implying different policies and programs yet the issue is of major concern. The five-year plans introduced by the Indian Govt. have proved to be useful in reducing regional disparities. 5 years plan emphasized on encouraging industrial development in the interior regions, but industries still tend to concentrate around urban areas and port cities while on other hand, union and state governments of backward regions are putting their efforts to bring the country under the state of economic equality rather than economic disparity.
2. Inequality in earnings has doubled in India over the last two decades, making it the worst performer on this count of all emerging economies. The top 10% of wage earners now make 12 times more than the bottom 10%, up from a ratio of six in the 1990s.
3. The Forbes list of billionaires featured 55 Indians in 2013. Strikingly, when the HDI is adjusted for inequality and every second malnourished child in the world is also an Indian.
4. There are in total 7 states of India which are lagging behind in the race of economic growth namely Bihar, Chhattisgarh, Jharkhand, Madhya Pradesh, Orissa, Rajasthan, and Uttar Pradesh. As per the recently released Human Development Report (HDR) 2013, India ranked 136th 134th the index loses its value by as much as 29.3 per cent.
5. Individual income inequality measured by the Gini index has also consistently risen, at 39.9 per cent in 2011. The Indian growth-inequality paradox is easy to pin down—the wealth that India creates is not evenly redistributed.
6. As per available data, a little more than 50 per cent of India’s population continues to be engaged in agriculture (which barely accounts for 14 per cent of GDP), while less than 30 per cent of the population works in the service sector, which accounts for more than 67 per cent of GDP.
7. Inequality in access to education is so glaring, that in HDR 2013, India’s education index loses more than 40 per cent of its value once adjusted for inequality. These have to do with misplaced policy priorities of the government that are only aimed at short-term benefits with an eye towards political gain.
8. Spending and consumption by the richest 5% zoomed up by over 60% between 2000 and 2012 in rural areas while the poorest 5% saw an increase of just 30%. In urban areas, the richest segments spending increased by 63% while the poorest saw an increase of 33%. The effect of inflation was removed while making these comparisons.
9. For one, the difference in the wealth share held by India’s poorest 10 per cent and the richest 10 per cent is enormous; India’s richest 10 per cent holds 370 times the share of wealth that it’s poorest hold.
10. India’s richest 10 per cent have been getting steadily richer since 2000, and now hold nearly three-quarters of total wealth.
11. India’s 1 per centers – its super-rich – have been getting richer even faster. In the early 2000s, India’s top 1 per cent held a lower of share of India’s total wealth than the world’s top 1 per cent held of its total wealth. That changed just before and after the global recession – though the world’s super-rich are recovering – and India’s top 1% holds close to half of the country’s total wealth.
12. Not surprisingly, India then dominates the world’s poorest 10 per cent, while China dominates the global middle class and the United States the world’s rich.
Apart from the region to region and urban-rural disparity, community to community disparity too has been growing in India with Muslims lagging behind other communities. Even within Hindus, the majority community, the disparity between various caste groups is quite high.
Causes and Solutions
There are multiple factors involved in the rise in economic disparity. Some are well-known, but others are intentionally concealed due to obvious reasons. It is these, which I will deal here:
The role of banks has to be re-examined
One significant step taken for the purpose of monopolising money in the hands of a few was the establishment of the banking system. The banking system– private or nationalised, has hardly helped, despite big claims, to bring about any significant economic betterment of the poor. It has done just the opposite. The little money that the labourers, the artisans, the peasant the clerks, the lower middle class people and the upper middle class servicemen are able to save by curbing their desires and curtailing even some essential expenses is mostly deposited in the banks. The businessmen get hold of this mammoth money, (which becomes mammoth because it is contributed by millions and billions of peoples) in the form of loans to establish mills, factories, agencies, departmental stores and companies. With this money, they earn huge profits, ranging sometimes from 50 to 300%. A very small portion, usually between 8- 15%, of what they amass is given back as interests to the banks, and a smaller portion, 4- 10 %, of that interest is distributed among the real owners of that money. This small interest is used as a decoy to trap the naive commoners. The common people have no other option as their money is not big enough to be turned into an asset (gold, property) or to set up any business, and the security problems compel them to put their hard-earned money into the reservoirs of banks. If the ordinary people even contemplate to start their own business with the assistance of bank loans, they either fail to fetch it on account of their inability to submit sureties or if at all they succeed in getting some loans, they have to run the great risk of getting entangled into a debt-trap; for their incomes are usually not high enough to simultaneously fulfil their routine requirements and pay regular instalments to the bank. In case their business fails, the probabilities of which are considerably high in the face of hard competition with the big businessman, they do not have sufficient financial backing to make up for the losses. They often have to clear their loans by selling whatever little assets they have. So, in effect, even if it is conceded that the banks do often give loans to small businessmen and professionals, it often ends up in their losing whatever wealth they had.
Moreover, the loans too are more likely to be given for activities that ultimately benefit the big industry, like for purchasing cars, motorbikes and other electronic items. The private banks, wherever they exist, accentuate this upward mobility; for, while the incomes from the nationalised banks is utilised, at least, partially for the welfare activities, the whole profits of the private banks are credited to the owners. The industrialists themselves do not believe in keeping the majority of their money in the banks; they either invest in profitable ventures or convert it into movable or immovable assets, the cost of which keeps on rising.
These assets prove to be of great utility in procuring further loans. Their business continues to expand with the help of people’s money and the value of their assets continues to show an upward trend. Inflation, which is the outcome of the conspiracy by the industrialist and their cronies in the government, ensures that whatever they pay as interest on the loans (and taxes) is compensated and whatever the public gets as interest on their money is more or less recruited; inflation recycles the money back to the industrialists. The poor account holders, in effect, get virtually nothing, while with their money the big businessmen and of course the bank owners build palaces and companies. In short, banks have become mere vehicles for transferring wealth from the less-moneyed to the more-moneyed. Businessmen also run big financial companies where again the depositors’ money is used to give loans at much higher rates of interest to those seeking it. Finance companies do not only earn themselves but also help the industries by increase in sales of consumer items of all kinds including vehicles, air conditioners, TVs and refrigerators. The insurance companies are also booming; these companies are able to compete with banks, because they cash in on the personal fears of the people. The common men are always wary of accidents and sudden deaths, and to ensure financial safety for their survivors, they oblige the insurance company despite the fact that these companies often pay interests even less than what the banks do.
It is also important to note here that banks can normally do a business ten times of the deposits they have. This is because Central Banks can provide them ten times the money they have as their deposits and also because the loan amounts given to the people are also mostly kept in the banks before being used. This means that if a depositor deposits 100 dollars in a bank, the bank can be earning 60-90 dollars from that money in one year. And out of this the poor depositor gets just 5-10 dollars, 4 to 10 percent being the normal “interest” in different categories. More often than not, this gain does not even cover the annual inflation rate. The net gain to the depositor is almost none. And when the depositor happens to be a Muslim, the clerics tell him that these few dollars are Haram for him, as they are “interest” forbidden by Islam. Instead of banks being told to give a substantial portion of their earnings to the depositors, depositors are told not to use this money for their personal needs; even if they give it to the poor, this money will neither be included as any form of charity nor should they hope for any reward in the Hereafter.
Furthermore, banks continue to take steps that increase their earnings at the cost of ordinary people. The charges on the bounced checks, the way the interests are adjusted in the repaid amounts; the maintenance charges for several kinds of accounts, the interest rates given to the depositors and the interests taken from the loanees, especially in the case of the loans taken by the ordinary people – all these issues need to be re-examined. It has to be calculated how much of the money of the banks directly benefit the ordinary people without benefiting the corporate. It will be seen below that the role of the banks in the flow of money – from below upwards or from above downwards, depends on the tax structure that exists in the country.
It can be seen that the international banking sector is a big vehicle in the upward transfer of money from the less moneyed to the more. It helps the big business by (a) giving them loans that help them swell their coffers; (b) giving loans to the common people for buying the luxurious products, which again help the big business; and (c) helping them in preserving their immovable assets, the value of which increases with higher rate than the rate of interest.
Dr Javed Jamil is India based thinker and writer with over a dozen books including his latest, “Muslim Vision of Secular India: Destination & Road-map”, “Qur’anic Paradigms of Sciences & Society” (First Vol: Health), “Muslims Most Civilised, Yet Not Enough” and Other works include “The Devil of Economic Fundamentalism”, “The Essence of the Divine Verses”, “The Killer Sex”, “Islam means Peace” and “Rediscovering the Universe”. Read more about him at http://www.worldmuslimpedia.com/dr-javed-jamil. Facebook page: https://www.facebook.com/drjavedjamil; also https://javedjamil.com/. He can be contacted at [email protected]