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A solution for wealth inequality
Wed, 11 Feb Pre-Open

Time and again we have spoken out against income inequality. However, it is only when one considers the bigger picture of wealth inequality that the situation looks really dangerous. Consider this: as of 2012, the top 10% richest households controlled about 33% of the total wealth, according to Mint. Not just this, the top 10% was a staggering 50,000 times richer than the bottom 10%! Does this mean that capitalism has failed? We don't believe so.

Scary stats like the ones above are usually touted as a failure of capitalism. However, what most people fail to understand is that the problem is not capitalism but crony capitalism. Favoritism, corruption and nepotism have been a hallmark of policy making in India. But there is one sector which lies at the heart of the problem. It is no secret that most of the ill gotten wealth in India has found its way in to real estate. This has driven up prices of property and made owning a home nearly impossible in urban India.

It doesn't come as any surprise to us that as per government's data, states with the highest home ownership (Kerala and Punjab) have done better on the wealth inequality front. Conversely, an urbanized state like Maharashtra fares poorly in this regard. So does this mean that governments should actively encourage home ownership? Well the answer is not a simple one. It is true that home ownership will have a huge multiplier effect on the economy. On the flip side, it also leads to over indebtedness (especially if houses are brought at sky high prices) and can lead to a concentration of household wealth in one particular asset class.

Thus, a potential solution to the problem of wealth equality lies in reducing interference with market forces in the realty sector. If the market is allowed to find a realistic level for realty prices it would help curb speculation. This would automatically result in higher home ownership over time and result in a reduction of wealth distribution in India. While this would not be a cure for all ills, it would certainly be a step in the right direction we believe.

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Jan 24, 2018 01:39 PM