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Therefore, it is important to sort them out and to refute them systematically with logic and facts.

Chapter 4
Reforms and Inequality
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    T he surge of the growth rate during the eight years beginning in 2003–2004 to 8.5 percent from less than 4 percent until 1980 has meant the creation of substantial wealth. While there were no billionaires in dollar terms in India as recently as 2000, the 2007 list by Forbes reported as many as fifty-five of them.
    This new wealth has in turn led to claims that reforms have generated massive income inequalities and that India has entered a state similar to the American Gilded Age in the late nineteenth century. But while such claims may appear superficially plausible, they crumble in the face of close scrutiny.
Myth 4.1: Reforms have led to increased inequality .
    At the outset, we need to emphasize that what is an appropriate measure of inequality is not simply a technical issue—for example, whether the index of inequality should be the economists’ measure of what is called the Gini coefficient (explained below and more fully in Appendix 2), which is widely used by economists studying inequality in India and elsewhere. An appropriate measure of inequality must also reflect broader questions of relevance to the popular concerns.
    Thus, for a measure to be relevant to the public-policy discussion, it must have political and social salience. For example, if incomes increase in Mumbai but not in the Ratnagiri district of Maharashtra, evidently inequality of income has increased between Mumbai and Ratnagiri. Butif those living in Ratnagiri are not comparing themselves to what is happening in Mumbai, why is this inequality measure of any relevance? So, measures of urban-rural inequality may have little relevance as well.
    On the other hand, when within -Mumbai inequality becomes more acute, the poor there are more likely to notice as they compare themselves with the rich in their own neighborhoods. Similarly, within our own university (Columbia University in New York), the inequality between the top salaries—the president enjoys the highest salary—and the lowest salaries is a salient issue, but (at least as of now) not the discrepancy between our salaries and those on Wall Street. 1 In short, an increase in inequality within one’s own village or institution is likely to raise hackles but not inequality between groups that have little relationship or contact with one another.
    Then again, the political and social implications of any increase in appropriately measured inequality would depend on the social context in which it occurs. Thus, if inequality increases and the rich spend money on conspicuous consumption, that could become socially explosive. But if mobility is high, the poor may react by celebrating the conspicuous inequality rather than resenting it, because they think that they too may someday “make it big” in that way.
    Keeping these caveats in mind, consider some general economic arguments that bear on income distribution between the rich and the poor in an economy such as India’s. First, some forms of inequality can be expected to rise in a rapidly growing economy. Growth involves wealth creation. Insofar as a small number of entrepreneurs lead this wealth creation, and those creating wealth are unlikely to redistribute all of it in an act of altruism, disparity among the richest and the rest of the population in both income and expenditure is likely to rise.
    Likewise, rapid growth is often led by the formation of a small number of agglomerations (i.e., concentrations of economic activity in limited geographical areas), which generally form in urban centers, leading to urban–rural as well as regional inequality. On the other hand, in a labor-abundant economy, pro-growth policies are also expected to lead to specialization in the labor-intensive goods, which raises employment and wages of the poor. The poor can move from lower-paid