Nepal's great income divide

It may seem like a contradiction: Nepal’s poverty rate has dropped from 42% to 21% in two decades, but the gap between the richest and poorest Nepalis has widened considerably.

While remittances from Nepali workers abroad has helped reduce overall poverty, 10% of rich Nepalis now own property worth an astounding 26 times more than the 40% of the poorest. The income gap has also become wider: earnings of the top 10% of richest Nepalis has grown three times more than the poorest 40%.

These and other statistics are part of Fighting Inequality in Nepal: The Road to Prosperity report released last month by Oxfam Nepal, Humanitarian Accountability Monitoring Initiative and South Asia Poverty Alleviation Forum.

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“The findings are very worrying, it is dangerous for the rich to keep getting richer and poor to remain poor,” says economist Dilli Raj Khanal.

To be sure, it is impossible to make everyone rich, and there will always be inequality in society because of individual capacity and ability. But an unnatural imbalance in wealth and income can lead to resentment, and be a precursor to social conflict.

Nepal’s Maoists waged an armed struggle from 1996-2006 arguing that the ‘objective conditions’ for revolution were ripe due to inequality, social injustice and discrimination. However, 13 years after the war ended, and with the former guerrillas having been elected to government multiple times, Nepal is more unequal than ever.

Nepal’s Gini index (see graph) was 0.43 in 1996 and increased steadily to 0.48 by 2011. Economic professor  Kamal Raj Dhungel warns: “If Gini exceeds 0.5 it means a society is in an explosive state. We are nearing that tipping point.”

Indeed, as far back as 2001 the then South Asia head of the World Bank Meiko Nishimizu in an interview with this paper had described Kathmandu as ‘an island of prosperity in area of poverty’. The only change since then is that gap between rich and poor has got wider. The last livelihood survey in Nepal conducted in 2011 shows that the benefits of economic growth has flowed to a few already-privileged sections of society.

According to the report, only 5% of Nepalis saw their income increase in the period between 2003-2011. Urban dwellers enjoyed double the income of the rural population. The top 20% of Nepalis own 56% of the wealth, and the bottom 20% own only 4%. In fact, the gap in ownership of land and property is even starker than income disparity between rich and poor.

There are many reasons why Nepali society is becoming more and more unequal. Some of it is historical: since the feudal Rana period royal families and their courtiers divided up the spoils among themselves, leaving little for the others. This inequality is still reflected in the gap in ownership of land. Oxfam also blames the neoliberal economic policy of governments since the 1990s that weakened regulatory interventions to keep inequality in check.

Even though two-thirds of the population is still dependent on agriculture, nearly half of Nepal’s farmer families own less than 0.5 hectares of land. Only 3% own land more than 3 hectares. There are 300,000 landless families, and nearly half of Dalits in the Tarai have no land at all.

Although the reduction in poverty has brought down malnourishment among children by half in the past 15 years, a third of children are still stunted and one in every ten children shows signs of wasting due to lack of food.

Land rights activist Jagat Deuja says at the root of Nepal’s inequality is unequal distribution of land. “Those who owned lots of property had most of the opportunities to study and earn income, while the descendants of those who had no land became poorer and poorer,” Deuja says.

Rising real estate value and the land price bubble in urban areas have fuelled inequality as the already rich have cashed in big time through property speculation and investment in prime real estate. The chaotic growth of Kathmandu Valley, Pokhara, and other urban areas is an indication of this trend. Nepal used to import 4,000 private cars a year till a decade ago, today that figure has soared to 14,000 vehicles.

Corruption, impunity, political instability have added fuel to the fire. Collusion between business, the bureaucracy and politicians have created a hydra-headed monster that means any attempt to distribute wealth and opportunity is fiercely resisted. Corruption in the agency created to curb corruption is a vivid indication of this nexus. Nepal dropped two points this year to rank 124 among 180 countries in Transparency International’s Corruption Perception Index.

Sociologist Pitambar Sharma says the state’s emphasis on economic growth must go hand-in-hand with distribution. “Prosperity does not mean a few people get rich, it means lifting those who are left behind. Social development and stability are at risk if we continue to ignore economic inequality while talking about prosperity.”

Measuring Inequality

The chief index used to measure economic inequality is the Gini Coefficient, named after an Italian economist, that compares the income or wealth distribution within society. A score of 0 would mean a society that is totally equal, while 1 represents complete inequality. Nordic countires, for instance, are below 0.3 and are some of the most egalitarian in the world. The country with the biggest gap between rich and poor is South Africa with an index of 0.63. The United States is the wealthiest country in the world, but also among the more unequal with a score of 0.45. Nepal's Gini Coefficient has been getting steadily worse, and is now at 0.49.

The other indicator is the Palma Index, which is the ratio of the richest 10% of the population's share of gross national income (GNI) divided by the poorest 40%'s share. When the poorest 40% of Nepalis earned Rs 1, the richest 10% earned Rs 3.32.