India has more than its fair share of the super-rich. Which isn't necessarily a good thing
The Times of India recently reported, not without a certain self-congratulatory air, that the latest wealth index by New World Wealth has ranked India eighth in the global rich list, below countries such as the US, China, Germany and Britain, but above Singapore and Canada. The index looks at multimillionaires: individuals with net assets of at least $10 million.The ranking has sent Indian cyberspace into a tizzy. A common celebratory headline is: “India has more multimillionaires than Australia, Russia and France!” And given that the largest number of the world’s poor also live in India, a common admonitory reaction is: “Told you so! India is just a corrupt society.”
Make it Large
This isn't the first time we've been gobsmacked by the sort of numbers India can generate. Recently , farmer suicides did the rounds. And some participants in a recent BBC debate had it wrong by a factor of 10. All quite understandable. India is so large that nobody has a real sense of the numbers anyway . Which is why the following handy little motto should always be clutched close to heart and brain: when confronted by a large Indian statistic, consider dividing it by the population.
We learn from the same source (New World Wealth) that the world has 495,000 multimillionaires, and India has 14,800 of them. Divide, and India has just 3% of the world’s multimillionaires. However, it has 17% of the world’s people. Suddenly, it looks like India doesn’t have its ‘fair share’ of multimillionaires.
Now, of course, India is a poorer country. The real question is whether the country has more than its expected share of multimillionaires once we take into account this fact.
To do this in serious detail will take some real work, but there’s enough space on the back of the envelope to deliver this message.
Problem of Plenty?
In 2012, India's per-capita income stood at $1,550, and world per-capita income around $10,235, suggesting that the ratio of Indian per-capita income to the world average is a measly 0.15.Meanwhile, the multimillionaire ratio (India's share relative to its population) is 317 = 0.17. These two ratios are close, which suggests that neither self-congratulation nor admonition is quite called for at this stage. But we will need to dig deeper.
Let's think about millionaires for a moment: those with assets of $1 million or more. According to WealthInsight, India had 251,000 millionaires in 2012, which is around 0.02% of the population.
The corresponding number for the US stood at 5,231,000, around 1.64%. Thus, using the US as a benchmark, India's millionaire share in the population relative to the US is 1.22% (the ratio of 0.02 to 1.64). At the same time, India's per-capita income is only 3% of that of the US.
So, does India have too few millionaires relative to the US, after making the income correction? Not really. If two countries have the same level of relative inequality but different mean incomes, a halving of mean income predicts a change in the popu lation incidence of (multi)millionaires by a factor that typically comes down by more than half.
We use data on wealth distributions in the world to get an estimate of the drop. With the income correction in place, both the millionaire share and the multimillionaire share in India should be approximately 1.28% that of the US. Since the actual millionaire share in India relative to the US is 1.22%, which is remarkably close to the prediction, India does not appear to be out of line, as far as millionaires are concerned.
But Indian multimillionaires appear to be singing a different tune. Their share is 0.001% of the population, against 0.058% in the US. Taking ratios, the relative multimillionaire share in India is 2.06% of the corresponding share in the US. This number is surely high relative to the prediction of 1.28%.
Swiss Bank Millionaires
We would tentatively conclude that India, controlling for economic differences, has `more multimillionaires than it should'. This may generate applause in some circles. Therefore, we side with the admonitory warning bell sounded by RBI governor Raghuram Rajan on the dangers of cro ny capitalism.
If anything, our results may be underestimates. After all, the Indian rich are particularly adept at hiding their money . Our concerns are also reinforced when we remember that the US is a country with very high inequality . Countries such as Japan and Germany come in far below the predictions for multimillionaires, as does the world as a whole. Other countries that exceed their predicted values are Hong Kong, Singapore and Switzerland.
What are the takeaway points? India is poorer than the world average and, so, naturally has a greater percentage of poor people and a lower percentage of rich people. Yet, using the absolute numbers, India has more of almost everything, which is misleading. Indeed, correcting for income differences, India has the `expected share' of millionaires relative to the US. But looking at the multimillionaires, India has more than its expected share: something not too savoury is cooking on the very end of the right tail.
M Ghatak is professor of economics, London School of Economics, and D Ray is professor of economics, New York University
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