India’s potential appointment with ‘leaving the elite’ may come at the expense of the poor

Amidst all the talk of two Bharats, do we see a time horizon where India’s ‘elite’ might abandon India’s poor and vulnerable?

This is a question I’ve been thinking about for a few months now. Curiosity peaked a few days after the presentation of the recent EU budget, in the analysis of whichI argued, how the macro-fiscal priorities of the current government seem to be blindly indifferent to and/or ignorant of India’s ‘poorer’, ‘unorganized’ class of citizens.

For more evidence, see the expenses below par announced for essential social development priorities in the areas of health, child nutrition programs, MGNREGA, etc., as well as a massive reduction observed in overall expenditure, all with the aim of stimulating “growth at all costs “.

Getting the country on a high growth trajectory is of course essential, especially when India’s real growth has been weak every year in a row for the past 7-8 years. But the “quality of growth” and the processes we put in place for its “delivery” also matter.

For some time now, the social and economic safety net of the poor and vulnerable socio-economic classes across India has been gradually but surely eroding, even as the upper classes endowed with (or dependent on) corporate wealth continue to thrive on waves of profit maximization, even in pandemic years.

The real question is: doesn’t the “elite” care enough about the need for “redistribution”? Or is India’s business, economic and political elite, in their desired utility to visibly develop, eager to continue doing so at the expense of India’s poor or vulnerable class?

Before attempting to answer the question, it may be helpful to first explain what I mean by the words “visible” and “dropout” in the context of “elite” behavior (often explained as a group or class of people enjoying greater control over the creation-distribution of economic resources).

Thorstein Veblen (1899), economic sociologist, first conceived a theory (and idea) of “conspicuous consumption” in the context of understanding the behavior of the leisure class (/elite), their preferences.

Veblen argued that wealthy individuals often consume highly visible goods and services in order to publicize their wealth, thereby achieving higher social status.

According to Veblen, “To win and keep the esteem of (women) men, wealth must be demonstrated, because esteem is only attributed on proof”. By social custom, the proof consists of unduly expensive goods that enter into “accredited canons of conspicuous consumption, the effect of which is to keep the consumer at a level of high cost and waste in his consumption of goods and his use of time and effort”.

The details of Veblen’s arguments naturally invite the interpretation that conspicuous consumption reflects a useful signal to explain the behavior of the leisure class or elite in a given economy. The need to conspicuously consume luxury goods may increase further in deeply unequal societies where the wealth/income gap between the richest 10% and the poorest 50% is marked.

Veblen’s work distinguished two motives for the consumption of ostentatious goods: ‘disparaging comparison’ and ‘pecuniary emulation’.

“Disparaging comparison” refers to situations in which a member of a higher class ostensibly consumes to distinguish themselves from members of a lower class. While “pecuniary emulation” occurs when a member of a lower class conspicuously consumes so that he is seen as a member of a higher class.

In modern terms, these motivations are the essence of what explains elite consumer behavior among the upper and lower classes (including in India). Members of the upper classes voluntarily incur costs to differentiate themselves from members of the lower classes (odious comparison), knowing that these costs must be large enough to discourage imitation (pecuniary emulation).

What is happening in the Indian context?

Source: Jha and Lahoti (2021)

Given how badly private consumption and private income have been affected for the poorest 50% of the Indian population in recent years (see above: more than 77% reported having suffered a loss of income during the pandemic), arguing for the case of “pecuniary emulation” (members of the lower classes conspicuously consuming) would be inconclusive.

Yet, given the degree of inequality between the top 10% and the bottom 50% in recent decades (see figure below), the case of the upper classes voluntarily consuming more luxury goods, allowing travel abroad, sending their children abroad for education, investing abroad – all indicating an “odious comparison”, is found more prominently.

Source: Global Inequality Database (India)

Deep-rooted inequalities between income and wealth fueled “conspicuous consumption” among the elite. When there is social and economic mobility among other income classes, the aspiring middle class reorients the macro consumption basket. But, we have not seen a burgeoning ‘middle class’, or the same degree of levels of private consumption seen among lower-middle income groups over the period 2002-2010.

Even the surge in GST revenue this fiscal year is largely due to strong GST collections on “imported goods,” signaling the source of rising indirect tax revenue at the expense of the current account deficit ( the net balance of exports minus imports).

Towards an “elite abandonment”?

In the future, an overt consumption cycle fueled by greater inequality could shift the behavior of elites away from the poor. An undistilled faith in the neoliberal economic path has already ensured the permanence of structural inequalities. And “elite abandonment” can be seen as the result of exacerbated regimes of inequality over time.

In each nation, the “elite’s time horizon” determines how it governs. In deeply unequal societies, a question deserves to be studied: does the elite treat its country like a “luxury watch”, which it takes care of only for future generations, or like a “stolen wallet? full of money”?

It is difficult to say how confident the Indian elite is about India’s future. The poor and vulnerable have no choice but to believe in the vision of an ‘Amrit Kaal’.

But, one way to understand the behavior of the business elite is to study the level of growth of domestic private investment over a given period. Growth in domestic private investment levels in India – for almost a decade – has stagnated (see figure below).

The richest and creamiest 10% seem happy enough to sit on piles of money or accrued profits, but are not ready to invest big in India. “Big capital investments” in certain areas (like infrastructure) are increasingly monopolized or oligopolied, due to a few players in the mix.

A low rate of domestic private investment says a lot about India’s corporate ‘elite’: maximize profits in existing businesses, consume conspicuously, invest overseas for good.

These actions will naturally be at the expense of the poor, or worse an extensive appropriation/exploitation of labor for its own “gains”, which, in Veblen’s words, would aim to continue a cycle of overt luxury consumption. Given all that is going on in the government’s vision of pushing for ‘growth at all costs’, with little regard for its social welfare priorities, this outcome seems more inevitable than before.

Deepanshu Mohan is Associate Professor of Economics and Director of the Center for New Economic Studies (CNES), Jindal School of Liberal Arts and Humanities, OP Jindal Global University.

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