Creating a time series
In recent research, I try to answer this question for a particular historical phase in Indian history. The term “Hindu rate of growth” is not really religious — it meant a country made up mostly of Hindus that did not grow at the levels seen in other Asian countries undergoing development at the time. Given that people’s assets are disclosed to tax authorities at the time of death for the purpose of inheritance and because India had an estate tax in place until 1985, I was able to develop a series of top wealth-holders and a model called the Estate Multiplier Technique (Lampman, 1962). Due to the exemption limits, it turns out that the series could only start from top 0.1 per cent; this in itself is an indicator of how concentrated wealth was. Unfortunately, comparison with the wealth of the nation as a whole could not be made, because such aggregate series are not available. Sometimes the National Sample Survey Organisation (NSSO) conducts an assets and liabilities survey, but it is decennial at best and as with most surveys, underestimates the wealthy. To “normalise” values, I estimate the wealth of these top groups as a ratio of national income — in a sense capturing how many months’ or years’ worth of gross domestic product (GDP) could be financed exclusively by the Indian elite.
My findings show sharp trends which seem quite reasonable in historical context. The elite declined in importance relative to national income due to a series of (oil-driven) inflation shocks and targeted anti-elite policies (mostly attributable to Indira Gandhi) such as the abolition of the privy purse1 and nationalisation of private assets in banking and coal. In 1966, the wealthiest 200,000 families could have financed around two months of national income but their decline was so dramatic that the top 0.1 per cent could barely finance a few days of GDP (Gross Domestic Product) by 1986. The composition of portfolios suggests that land related properties (urban and agricultural) lost a lot of their inflation-adjusted values. On the other hand, movable assets such as equities, bonds, gold etc. were able to recover their real values by 1986 consistent with the eventual relaxation of a super aggressive tax policy (Acharya, 2005). All this points to the rise of a new kind of savvy wealthy class amongst the elite themselves, because disparity within the elite themselves began increasing (after a decline until 1972) and the decline of the top 0.1 per cent was mostly due to the decline of the top 0.01 per cent or the super elite. Thus on net, the gainers were the intermediate elite (just below the top 0.01 per cent).
One way to rationalise these results is statistical equilibrium reasoning, which suggests that wealth concentration increases with liberalisation of capital transaction activities. Aggressive control and regulation of capital activity hence plays the opposite role, causing a reduction of sharp disparities in wealth portfolios — as was the case during my period of study.
Amongst other things, my study contrasts the relationship between wealth concentration and economic growth in India against Piketty’s hypothesis for the industrialised world. During low-growth phases in today’s industralised countries, past saving made wealthy incumbents more important relative to the majority of the income-earning population. The opposite was seen for India during my period of study – modest growth and a demise of the assets of the rich and elite. Indian growth during this era was quite low and driven by national capital accumulation for the development objective (Nehruvian Socialism, as it is called), with simultaneous tax scrutiny of the elite. If national capital crowds out personal wealth, then it makes sense that wealthy classes lose their importance.2 At the same time, tax policies aimed at equalising wealth distributions also play a huge role in breaking the endless cycle of inheritance and accumulation which otherwise perpetuates inequality. As more data becomes available, longer time series of top wealth-holders will tell us if these trends have been (as expected) reversed and whether the Indian elite are back again.