The 80/20 rule: Making sense of richest 1% Indians owning 58% wealth!

Published: January 19, 2017 at 9:48 am

Last Updated on September 20, 2021

The distribution of wealth cannot be even among the members of a society/country. This is just not practical. Oxfam International’s global inequality report released this month points to the world in which the gap between the rich and poor is alarmingly getting wider. In this post, I discuss how to make (statistical) sense of this wealth distribution. In later posts, I shall point out how this behaviour is identical to many other situations like stocks prices, coastlines, snowflakes and even the dust collection!

The data from the headline: 1% richest Indians own 58.4% of the country’s wealth is from Credit Suisse Global Wealth Report 2016 published last November (links below). Before we get to that, a couple of interesting quotes from another Oxfam report titled (Even it Up):

Despite being a country ravaged by poverty, the number of billionaires in India has soared from two in the mid-1990s to more than 60 today. A significant number of India’s billionaires made their fortunes in sectors highly dependent on exclusive government contracts and licenses, such as real estate, construction, mining, telecommunications and media. A 2012 study estimated that at least half of India’s billionaire wealth came from such ‘rent-thick’ sectors of the economy. The net worth of India’s billionaires would be enough to eliminate absolute poverty in the country twice over, yet the government continues to underfund social spending for the most vulnerable. For instance, in 2011, public health expenditure per capita in India was just four percent of the OECD country average in per capita terms. As a consequence, inequality in India has worsened.

And to give us an Idea about how rich some people are:

If Bill Gates were to cash in all of his wealth, and spend $1m every single day, it would take him 218 years to spend it all. In reality though, he would never run out of money: even a modest return of just under two percent would make him $4.2 million each day in interest alone.

Well, that is the way the cookie crumbles. Oxfam’s main point is not anti-capitalism but a wake-up call to our government:

India has, in recent years, become more unequal. If India were to stop its rising inequality, and instead hold inequality levels static, by 2019 they could lift 90 million people out of extreme poverty. Reducing inequality by 10 points, the equivalent of a 36 percent reduction, could almost eliminate extreme poverty altogether, by lifting up a further 83 million people.

In this post, I would like to focus on making sense of the above data: 1% richest Indians own 58.4% of the country’s wealth.

Vilfredo Pareto analysed centuries of tax and wealth records with an aim to find out how wealth was distributed in a society. His income essentially looked like this in 1909.

Yes, it looks like a restaurant bill holder! Wealth distribution has always been unequal. According to Oxfam, the base is getting wider and the tip thinner!

Pareto’s distribution had a “power law behaviour”. I will not get into details here, other than oversimplify the main result as:

20% of the population holds 80% of the wealth

This is referred to as the 80-20 rule and I suspect made popular by productivity experts and sales gurus who extrapolated this rule.

The following is a crude depiction of the 80-20 rule.

At first sight, “1% richest Indians own 58.4% of the country’s wealth” appears to be very different from the 80/20 rule.

However, the 80-20 rule is self-similar. That is:

20% of the population control 80% wealth.

Now if you consider only the 20% population, it is found that

20% of 20% of the population control 80% of 80% of the wealth. Or

4% control 64% wealth.

Now if you consider only 20% of 20% or 4% of the population,

20% of 20% of 20% control 80% of 80% of 80% of the wealth. Or

0.8% of the population control 51.2% of the wealth.

Notice how close this is the Credit Suisse Report.  Obviously, it is not exact. It need not be. The 80-20 rule is not really a rule. It is one of the outcomes of the Pareto distribution.

This behaviour in which the parts of a whole behave like the whole and parts of the parts behave like a whole is known as self-similarity or fractal behaviour.  Here is a crude attempt to depict this.

It is Benoit Mandelbrot, one of the greatest human minds ever, who detected the self-similar nature of wealth distribution. To his astonishment (and ours), he found that stock prices and commodity prices also exhibit such self-similarity – more on this soon.

I am not sure how many readers would find this topic interesting, but I assure you that it crucial to understand this to gain a better understanding of how the world works.


Oxfam report: Even It Up

Oxfam report: An Economy For The 99%

Credit Suisse: Global Wealth Report 2016

Credit Suisse: Global Wealth Databook

The physics of Wall Street by James Owen Weatherall

The (Mis)behaviour of markets by Benoit B Mandelbrot

You Can Be Rich Too With Goal-Based Investing

Now 23% OFF Rs. 307 at Amazon

Rs. 307  + additional 10% discount with code: Republic10 at Infibeam

  • Ask the right questions about money
  • get simple solutions
  • Define your goals clearly with worksheets
  • Calculate the correct asset allocation for each goal.
  • Find out how much insurance cover you need, and how much you need to invest with nine online calculator modules
  • Learn to choose mutual funds qualitatively and quantitatively.

More information is available here: A Beginner’s Guide To Make Your Money Dreams Come True!

What Readers Say

Where to Buy

Amazon.inRs. 375

You can also get it from Bookadda Rs. 371. Flipkart Rs. 359

The book is also available on Kindle at (Rs. 244.30) or at ($3.36 or Rs. 244.30).

Also at,  Google Play Store  (Rs. 244.30)

Do share if you found this useful

Use our Robo-advisory Excel Template for a start-to-finish financial plan! Now with a new demo video!  More than 640 investors and advisors use this!
Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! More than 2525 investors and advisors are part of our exclusive Facebook Group! Get clarity on how to plan for your goals and achieve the necessary corpus no matter what the market condition is!! Watch the first lecture for free!  One-time payment! No recurring fees! Life-long access to videos in an exclusive Facebook Group! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Our new course!  Increase your income by getting people to pay for your skills! More than 585 salaried employees, entrepreneurs and financial advisors are part of our exclusive Facebook Group! Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts you and pays you! (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos in an exclusive Facebook Group!   
My new book for kids: “Chinchu gets a superpower!” is now available!
Both boy and girl version covers of Chinchu gets a superpower
Both boy and girl version covers of Chinchu gets a superpower.
Most investor problems can be traced to a lack of informed decision making. We have all made bad decisions and money mistakes when we started earning and spent years undoing these mistakes. Why should our children go through the same pain? What is this book about? As parents, if we had to groom one ability in our children that is key not only to money management and investing but for any aspect of life, what would it be? My answer: Sound Decision Making. So in this book, we meet Chinchu, who is about to turn 10. What he wants for his birthday and how his parent’s plan for it and teach him several key ideas of decision making and money management is the narrative. What readers say!
Feedback from a young reader after reading Chinchu gets a Superpower (small version)
Feedback from a young reader after reading Chinchu gets a Superpower!
Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. - Arun.
Buy the book: Chinchu gets a superpower for your child!
How to profit from content writing: Our new ebook for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Did you know? We have more than 1000+ videos on YouTube to explore! Join our YouTube Community!

Want to check if the market is overvalued or undervalued? Use our market valuation tool (will work with any index!), or you buy the new Tactical Buy/Sell timing tool!
We publish mutual fund screeners and momentum, low volatility stock screeners .every month.
About the Author Pattabiraman editor freefincalM. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. since Aug 2006. Connect with him via Twitter or Linkedin Pattabiraman has co-authored three print books, You can be rich too with goal-based investing (CNBC TV18), Gamechanger, Chinchu Gets a Superpower! and seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation to promote unbiased, commission-free investment advice. He conducts free money management sessions for corporates and associations based on money management. Previous engagements include World Bank, RBI, BHEL, Asian Paints, Cognizant, Madras Atomic Power Station, Honeywell, Tamil Nadu Investors Association, IIST Alumni Association. For speaking engagements, write to pattu [at] freefincal [dot] com
About freefincal & its content policy Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on developments in mutual funds, stocks, investing, retirement and personal finance. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified from credible and knowledgeable sources before publication. Freefincal does not publish any paid articles, promotions, PR, satire or opinions without data. All opinions presented will only be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
Our publications

You Can Be Rich Too with Goal-Based Investing

You can be rich too with goal based investingPublished by CNBC TV18, this book is meant to help you ask the right questions, seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now. It is also available in Kindle format.
Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want Gamechanger: Forget Start-ups, Join Corporate and Still Live the Rich Life you wantThis book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.

Your Ultimate Guide to Travel

Travel-Training-Kit-Cover-new This is an in-depth dive analysis into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, how travelling slowly is better financially and psychologically with links to the web pages and hand-holding at every step. Get the pdf for Rs 199 (instant download)
Free android apps