Thursday, June 25, 2009

India’s wealth gap impedes growth

India needs to curb a concentration of wealth or risk becoming hostage to a corporate oligarchy that will depress its rapid economic growth.

A study funded by the Asian Development Bank found that, by early last year, India had 50 billionaires who together controlled wealth equivalent to 20 per cent of gross domestic product and, reportedly, 80 per cent of stock market capitalization.

The report warned that this concentration of wealth and influence could be a hidden time bomb under India’s social fabric.

India’s corporate sector is hailed as one of the most dynamic within emerging markets, with groups such as Reliance Industries leading the expansion of the country’s oil and gas sector and Tata Group acquiring overseas companies.

But critics say the greater prosperity from market-driven policies introduced since 1991 is also leading to glaring wealth disparities in India.

Per capita income is about $1,000 (€715, £625), but many in its population of 1.1bn scrape by on much less.

In Mumbai, where more than half of the population lives in slums, Mukesh Ambani, India’s richest man and chairman of Reliance, who is ranked seventh on the Forbes global rich list, is building a 27-floor family home at a reported cost of $1bn.

The report warned that the creation of oligarchies was a common trap in developing countries that often prevented them from realising their potential.

It said India needed to develop an effective competition commission and strengthen regulation to prevent crony capitalism as well as foster greater transparency in the allocation of land and infrastructure projects.

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