India Enriched

IF 2022 WAS A BAD YEAR, 2023 WAS A SURPRISINGLY GOOD ONE for global wealth, with 2024 expected to have continued the trend. That may sound counterintuitive to most of us. If the Russian invasion of Ukraine in February 2022 had clouded the rest of that year, should not two wars—with a wider regional or even global conflagration looming—have made matters worse subsequently? Well, for one, the Gaza War following the October 7 attack on Israel had begun late enough in 2023. For another, while the widening con­flict has kept a floor under oil prices, it has not, so far, pushed them through the roof. No-brainers. But in the general gloom-and-doom, the obvious is often ignored. The recovery in global private wealth is all the more striking when seen against the back­drop of monetary tightening. Economies have been resilient. Markets have been generally healthy. There has been no recession in the US, which once seemed certain for 2023 or even 2024, and even the compounded uncertainty of an election year in the US—the same year seeing a record number of elections across the world—has not quite thrown developed and emerging economies off their tracks. Compounded uncertainty, because all the calculations in July went out of the window in August. The bottom line: global financial wealth in private hands rose by 7 per cent or above in 2023 after a decline of nearly 4 per cent the previous year.

For long, it was thought that getting the economy right would sort out the poli­tics, but it is a truism that politics determines economics and will continue to do so given the unevenness of polities, forms and practices of governance, the rise of neo-authoritarianism, and the fact that a wider swathe of the globe is today consid­ered under high geopolitical risk compared to the beginning of the last decade. Then there are newer complexities—or uncertainties—unleashed by climate change, cybercrime, cryptocurrencies, and the one triggering most debate, generative artificial intelligence (GenAI). On the whole, risk management, in order to persist in the accumulation and creation of wealth, has become as much the imperative of individuals—private individuals engaged in saving, investing, and diversifying their wealth baskets—as of institutions. Regulators cannot do with playing catch-up either. They have to plan ahead and anticipate the next level of threat.

The recovery in global private wealth has been powered by assets under management (AuM). Securities and pensions have ridden bullish stock markets. But significantly, bank deposits have fallen. Banks worldwide received 19 billion euros in 2023, according to the Allianz Global Wealth Report 2024, a slump of (-)97.7 per cent. The main reason for this was US households liq­uidating over 650 billion euros ($700+ billion) worth of deposits. But securities rose by 10 per cent from 2022 while pensions and insurance remained strong performers. All of this is seen to be part of the “normalisation of fresh savings” after the “pandemic-related boom years of forced savings”. The Allianz report’s figure of 7.6 per cent growth in private financial assets is corresponded by the Boston Consulting Group’s (BCG) Global Wealth Report 2024 which shows a 7 per cent increase in financial wealth which rose to $275 trillion, of which $72.5 trillion belonged to equities which rose by 15.8 per cent, testifying to the health of markets. The recovery was primarily in North America and West Europe. On the other hand, growth was subdued in China. At the end of 2023, global financial assets stood at $275.2 trillion according to BCG (239 trillion euros or roughly $260 trillion as per the Allianz report), up from $257.5 trillion in 2022. Net global wealth was $476.9 trillion, up from $457.4 trillion.

A big underperformer has been real estate whose value is about 40 per cent lower than that of financial assets given high construction costs and interest rates. North America and Japan in particular have seen de­pressed real estate values with equities outperforming and with much higher capital gains. At 1.8 per cent globally, according to Allianz, real estate has had the worst growth in a decade. This, of course, does not apply equally in all geographies as transi­tion risk owing to climate change and energy consumption of houses—heating—affects house prices in colder climates primarily but then, natural disasters seem to be wreaking havoc on a larger scale everywhere. In general, growth in the coming years will be moderate with a return to historical averages. Ceteris paribus, net wealth is expected to grow at 6 per cent annually through 2028 while, in the shorter term of 2024, given basic market stability and economic resilience, financial assets should grow by about 6.5 per cent. That assumes a lot of factors will remain more-or-less unchanged or stable and it can be safely said that everything will not hold its course.

The role of the Asia-Pacific (includes Central Asia here and thus it is not Indo-Pacific), minus Japan, in global private wealth is the story of the last two decades. In 2000, for instance, China had almost no presence in the global high wealth bracket. The bulging size of the middle wealth class shows how far things have changed: “The number of the members of the global middle wealth class has risen sharply by +78% to around 850mn over the past two decades. In this process, the share of emerging economies has climbed from 43% to almost two-thirds. One in three members of this class now comes from China and one in four from the rest of Asia” (Allianz). That means, 20 per cent of the Chinese population today belongs to the middle wealth class and about 9 per cent of people in the rest of Asia, minus Japan, up from 2 per cent in 2003. (The global middle wealth class is placed between the thresholds of 9,700 euros, about $10,500+ at current exchange rates, and 57,900 euros or about $62,900+.) However, it is the presence of emerging and poorer economies in the constitu­tion of the high wealth class that makes the picture of global prosperity clearer: “last year, the share of emerging economies amounted to 34%; 20 years ago, these coun­tries had virtually no presence in this class, with a share of 1%.”

Yet in a year North America accounted for nearly 50 per cent of all new financial wealth, financial wealth in the Asia-Pa­cific rose by only 5.1 per cent, higher than Western Europe’s 4.4 per cent but low on its own terms and the result largely of the slowdown in China. But no analysis sees this as negatively impacting the overall growth in financial wealth for the region through 2028, if the determining factors remain largely what they are today. (That is, a war over Taiwan or conflict in the South China Sea is not factored in.) On the current trajectory, by 2028, about 30 per cent of all new financial wealth in the world will be contributed by the Asia-Pacific. And this is where India’s presence is increasingly acknowledged. The BCG report says: “In addition to China, India is well positioned to drive wealth creation, having generated $588 billion in new financial wealth in 2023, its largest increase in history.” India is expected to add “about $730 billion annually to the overall growth of the region through 2028.” A connected scenario, as analysed by the Economist Intelligence Unit (EIU), is that by the mid- 2040s India will have enough economic heft to pull the BRICS economies above G7, when BRICS’ nominal GDP will match and cross G7’s at about the $100 trillion mark.

On the face of it, the concentration of global private wealth still remains very high, with the richest 10 per cent owning more than 85 per cent of all financial assets. However, that is a lot lower than the nearly 92 per cent 20 years ago. Interesting developments have been happening in the crossovers be­tween the high and middle wealth classes in emerging econo­mies. While North America has maintained its pre-eminence with its share of high-wealth individuals, Western Europe has seen a significant decline. In contrast, among the emerging economies of Asia (minus both Japan and China), Latin America and Eastern Eu­rope, there has been sharp increases in the numbers of high-wealth individuals. But the most striking development is seen in a group of countries where the middle class has actually shrunk. India belongs to this group. While this “deterioration” also characterises the UK and the US as well as Switzerland, where too the middle class has shrunk, the pull, especially in the case of the UK or even Germany, has been downward. For the “usual suspects” like China, India and Brazil, however, with wealth concentration increasing sharply, the push has been upward. In India’s case, a little of the middle class at least seems to be disappearing among high-net-worth people. In a transitioning economy, that is not necessarily a bad thing. The rich are getting richer, but the poor are not getting poorer. For the balancing of wealth distribution, there must first of all be enough wealth.

WEALTH, LIKE THE CAPITALIST, FREE-MARKET framework most conducive to its creation, takes the blows as they come but shows resilience and an ability to bounce back every time. In 2000, total global house­hold wealth was $125 trillion. In another 17 years, it was $280 trillion, according to Credit Suisse’s Global Wealth Report 2018. This resilience and the consequent rebound were despite the crash of 2008 and the global recession. And today, if India is universally expected to add more to global financial wealth and take a larger share of the pie while providing stability to wealth generation, it only shows how far the Indian economy has come from the Nehruvian “commanding heights” of public sector undertakings (PSUs) when wealth creation was a statist project. The suspicion of wealth creation and private industry did not subside with the liberalisation of 1991 or even the turn-of-the-century reforms. In fact, as recently as February 2021 the prime minister had to speak up in Parlia­ment for wealth creators and private industry: “The culture of damning businessmen and entrepreneurs as outright crooks… may have served parties well… in the past. But that has to stop. Wealth creators have a crucial role to play in the economy.”

Around this time next year, we will have a full picture of how wealth has actually fared in 2024. If the 2023 trends have held, and they should, given the fundamental fact of oil prices, to date, behaving calmly despite two wars and terrible uncertainty, the recovery of global wealth would have put the pandemic behind. But Russia, China—in terms of both its geopolitical designs and economic management—as well as the Middle East can change everything overnight. Geopolitics remains the big shadow looming over the global economy and the prospects of global wealth. According to the Economist Intelligence Unit’s ‘Global Economic Outlook, September 2024’, nearly 50 per cent of global geographies were assessed as under very high to high geopolitical risk in 2023. In 2010, almost 50 per cent geographies were assessed as under no or low geopolitical threat. Geopolitics can reconfigure the global economy negatively in 2024-28. The EIU report predicts: “The return of industrial policy—including sanctions, widening tariffs and the provision of incentives—will push firms to place re­silience above efficiency in shaping supply chains, stoke trade tensions in strategic sectors and make it difficult to compete across the global marketplace. These developments will drag on growth potential, if not cause the outright fragmentation of value chains. We forecast that global real GDP will expand by 2.6% a year on average over the next five years—below the 3% of the 2010s, which was hardly a stellar decade for the global economy.” And yet, none of this, including conflict and high interest rates, is likely to push the world into recession.

To all of this must be added the transformative potential of GenAI which is already bringing unprecedented efficiencies to businesses, seen especially in the banking sector, and contribut­ing to the health of global wealth in terms of manhours saved, errors avoided, perspectives widened, etc. But it can go the other way too, minus regulation and task-specificity. The jury will be out for a while. Nevertheless, AI is a new regulatory obligation for financial institutions. Along with cybersecurity and data privacy concerns, AI is now part of everyday risk management. Businesses and regulators will certainly spend more of their time battling cybercrime, especially with rising concerns about third-party vulnerabilities. Additionally, ESG (environment, so­cial and governance) compliance will continue to be a challenge to meeting these imperatives and sustaining growth.

Freedom, democracy, free market—there is a thread connect­ing these with wealth, its generous proliferation and balanced distribution. In his most recent book, On Freedom, historian Timothy Snyder distinguishes between negative freedom as in an absence, the removal of the barrier such as liberation from an oppressor, and positive freedom as in a presence wherein some­thing good and new is created. Rules and rebellion move human history. Individual choice is an ideal that must be a reality for the world to change. And we are all in it together.

When those conditions are met, wealth creation is the pursuit of the greater good. It is then an archetype of positive freedom. Despite all the uncertainties and obstacles, if history is anything to go by, the market will keep finding its way. But the market stumbles if its constituents are ignorant of the past and blind to danger.

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