Who can put the Gini in the bottle?

The Gini coefficient measures the level of inequality in any society. Inequality is what breeds discontent, especially if it is very pronounced, and, at the extreme, terrorism.

After 2008, central bankers started quantitative easing, pumping liquidity into their economies, hoping it will be used to spur both consumption (which accounts for 70 per cent of US GDP) and investment. Instead, the easy liquidity went most to those who least needed it — the upper crest of society — thus exacerbating the inequality.

The QE has had unintended consequences, often absurd and inhuman.

Houston city passed an ordinance in 2012 which prohibited distribution of food to more than five persons, without prior permission to do so. Last week, its police confiscated food and blankets being distributed to homeless persons by those with a conscience! If this is not human depravity at its worst, what is?

For a variety of reasons, the capital-output ratio has been rising, i.e., more capital is needed to produce a unit of output (GDP). So, in order to fetch a higher output, manufacturers are trying to cut costs (through outsourcing) or improve productivity (through greater use of automation, or robots). This leads to loss of jobs, which, ultimately, leads to the agony of homelessness.

As mentioned earlier in this column, there is also a risk that those who have saved up for their retirement, through pension funds, will be in for a rude shock when the funds state they are unable to meet their commitments.

India, too, has a lot of inequality in its systems and a high Gini coefficient. It is up to this government to try to reduce inequalities by attempting to put the Gini in the bottle.

Mention has been made of the fact that anybody can register a political party, and that donations upto ₹20,000 received by a political party do not require verification of donor — a perverse exemption to a class of people permitting them to launder black money.

Also, the unbelievably high amounts declared as tax-free ‘agriculture income’ in 2010-11 and 2011-12, which needs a proper investigation.

Globally, the banking industry has gotten away with a lot of misuse. Last week, two global banks settled with the Department of Justice (DoJ), US, with regard to mis-selling of mortgage-backed securities (a.k.a. sub-prime mortgages) — Deutche Bank and Credit Suisse. The question that arises is this — a large chunk of the settlement went to the DoJ, and a small part to the victims/investors in securitised mortgage loans. That seems to provide a weird incentive to DoJ to wink at wrongdoing.

PM Modi is expected to take further strong steps in his anti-corruption drive. Taxing agricultural income above a very generous limit should be one of them; removing exemptions to political parties from scrutiny of donors, another. Should such steps be announced, the stock market may dip.

That would present an opportunity. For, in the next Budget (beginning February, not end) the Finance Minister ought to bring down IT rates which would be welcomed. Perhaps, also introduce a banking transaction tax, much like a securities transaction tax.

India is also embarking on a long-overdue development of its 7,500-km long coastline, a project that would provide lots of employment opportunities. For this, and for our roadways and other infra projects, we need investors, both foreign and domestic.

(The writer is India Head, EuroMoney Conferences. The views are personal.)

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