Why Covid-19 is increasing the wealth of some of India's richest people

The wealth of India's most affluent people increased by 20% in the 12 months to August 31, driven by the tech and pharmaceuticals sectors

A saleswoman stands next to gold necklaces at a jewellery store in Bangalore on July 5, 2019.
 India's newly re-elected government promised on July 5 an easing of foreign investment rules and more infrastructure spending in an effort to boost flagging growth rates and create jobs. India has been leap-frogged by China as the world's fastest-growing major economy, with unemployment in Asia's third-biggest economy at its highest since the 1970s.
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The Covid-19 pandemic has widened the gap between India's rich and poor, as the economic downturn hits the livelihoods of working class individuals, while some of the wealthiest people in the country have managed to grow their wealth substantially, analysts say.

The expanding wealth of India's richest individuals is highlighted by the recently released IIFL Wealth Hurun India Rich List, which listed 828 Indians with wealth of at least 10 billion rupees ($137m).

It revealed a 20 per cent increase in the cumulative wealth of these individuals last year, and their combined net worth of $823bn is equivalent to one third of the country's GDP.

“The pandemic has brought to the fore once again the disparity between the rich and the mid-income and poor people,” says Divakar Vijayasarathy, founder and managing partner at DVS Advisors, a professional services firm.

"The rich obviously depict more risk appetite in the backdrop of enormous wealth already accumulated, which allows them to multiply wealth, whereas the poor lack the financial bandwidth."
Sectors including tech and pharmaceuticals helped drive this growth, according to the report. The rise was led by Asia's richest man Mukesh Ambani, who controls Indian conglomerate Reliance Industries, which has diversified from oil to increasingly focus on the telecom and retail sectors in recent years. He has sold stakes in technology venture Jio Platforms and in Reliance Retail Ventures to some of the world's biggest investment companies over the past year, as well as to technology giants Facebook and Google.

“Twenty-eight per cent of the upswing in wealth on the list has been bestowed by Mukesh Ambani,” said Anas Rahman Junaid, managing director and chief researcher of Hurun India.

“A further 21 per cent of the additional wealth has been generated by pharma, mainly on the back of the rise in healthcare spends.”

Cyrus S Poonawalla of the Serum Institute of India, which is working on the development of Covid-19 vaccines, including collaborating on the AstraZeneca-Oxford University vaccine, climbed up two places to sixth position on the list with a wealth of 943bn rupees.

Harshad Chetanwala, the co-founder of MyWealthGrowth, a Mumbai-based financial planning firm, says that it is “difficult to generalise” that the wealth of all of India's wealthy individuals has grown, and that some have also seen steep losses.

But some of “India's wealthiest have seen a surge in their net worth despite the uncertain situation”, he says.

“One of the prime reasons being businesses that benefited due to the pandemic, such as IT, pharmaceutical, healthcare.”

The rising wealth in the country among some of its richest individuals comes as India continues to be hit hard by the coronavirus pandemic. India is adding more new infections on a daily basis than any other country, with almost 7 million confirmed cases in total and more than 107,416 deaths, India's health ministry said on Saturdau.

In an effort to control the pandemic in a country with a weak public healthcare system, the Indian government in March introduced one of the strictest lockdowns in the world. It left millions of daily wage labourers without work, and as many businesses largely stopped operations, the country's GDP contracted by 23.9 per cent in the quarter between April and June, according to official figures. Unemployment has also soared in the country.

One of the many poor individuals who are struggling financially during the pandemic is construction labourer Deepak Pawar. He lives in a slum and has a hand to mouth existence, normally getting by on jobs that pay just over $7 per day to feed his family. But with the lockdown, these jobs completely dried up. Now, even though restrictions have eased considerably, he says it is still difficult to find regular work.

“I'm managing by taking small loans from friends,” says Mr Pawar. “This money is used for food.”

He is also worried about the risk of getting infected.

“The rich people can afford to go to the hospitals, get medicine to feel better, but we are poor people. How can we afford the medicine for this disease?”

The trend of widening inequality can be found in other countries, too. But in India, the disparity is particularly stark.

Before the pandemic, there was already a large gap between India's wealthiest and large numbers of poor people. One in five Indians were already living below the poverty line, according to the World Bank. The organisation issued a forecast in May that the impact of the Covid-19 crisis could push 12 million more Indians into extreme poverty, which is defined as living on less than $1.90 a day.

FILE PHOTO: Mukesh Ambani, Chairman and Managing Director of Reliance Industries, attends the company's annual general meeting in Mumbai, India, August 12, 2019. REUTERS/Francis Mascarenhas/File Photo
Mukesh Ambani's sale of stakes in telecom and retail ventures contributed to his wealth increasing by 73% in the year to August 31. His increase in net worth equates to 28 per cent of the total increase in the wealth of the nation's richest people. Reuters

Kanika Agarrwal, the chief investment officer of Upside AI, an investment advisory firm, says even before the pandemic, there were growing “conversations around the wealth gap”. Now, “with economic hardships like the pandemic, a lot more people get pushed below the poverty line, erasing decades of progress”. She says the situation is more of a matter of the “poor getting poorer” than the “rich getting richer”.

“Broadly speaking, the pandemic has widened the gap between wealthy and poor on account of larger scale economic upheaval,” says Anurag Jhanwar, co-founder and partner at Fintrust Adviser.

Typically, poorer people's "savings are close to nil", he says, meaning they have no financial cushion to help see them through difficult times. Richer people often hold financial assets that they could use as collateral, if required.

"This, in turn leads to a wider disparity between these two segments.”

Although their problems may not be as severe as the poor, experts explain that there are many wealthy Indians who have suffered financially amid the pandemic, as sectors such as real estate have been negatively impacted and were suffering even before the pandemic.

Nikhil Kamath, co-founder and chief investment officer of asset management firm True Beacon and Zerodha, one of India's biggest stock brokerages, explains that wealth is “changing hands” in India.

“It has moved from the traditional land barons and industrialists onto newer, younger companies to a certain extent, primarily in the IT, pharma, and tech-based start-up circles,” he says.

“The traditionally wealthy, who typically have a large allocation to real estate and traditional family businesses, have lost significant portions of their net worth.”

For example, Ritesh Agarwal, the founder and chief executive of tech-driven hotel chain Oyo Rooms is on the Hurun India rich list, with a wealth of 45bn rupees. He is the youngest person on the list at just 26.

“To see first-gen entrepreneurs who have started from scratch do so well is restorative,” says Mr Kamath.

“The issue of multi-generational wealth disparity is systemic, and this change could be a step in the right direction. The younger wealthy seem to be conscientious and play larger roles in improving social constructs.”

The current crisis has brought to the fore a problem of wealth disparity, which many believe needs to be addressed.

Before the pandemic, the Indian government had set a target of becoming a $5 trillion economy by 2025. This has been thrown off course by the current situation, but analysts and economists still see scope for rapid growth in India once the crisis is over, and are hopeful that this could help close the gap between the rich and poor.

“A lot will depend on the pace of economic recovery,” says Mr Chetanwala. “There are no doubts on the growth potential of India as an economy for the coming couple of decades. The roadblock due to the pandemic could be there some more time, but in the long term this gap will reduce.”