Economic Disparity In India
Written by Naveen Pratap 2nd Year LLB Student, Prof. Rajendra Singh (Rajju Bhaiya) University, Prayagraj
The state of inequality in India
Synopsis
In India, the Periodic Labour Force Survey for the years 2017-18, 2018-19 and 2019-20 shows that the top 10% earn approximately equal to the bottom 64%. The top 10 account for one-third of the incomes earned. While income disparity is not the only trigger to descent into poverty, it boldly outlines the everyday experiences of inequality and inequities.
There are different kinds of inequalities in India that are multidimensional and intersectional in nature. While multidimensional poverty has been an area of study in the field of developmental economics since the early 2000s, multidimensional inequality is a fairly new perspective. Such an approach focuses on the interrelationship between different variables like income, labour, education, health and household conditions in order to emphasise on the degree of deprivation. The interrelationship is such that lack of one kind leads to the household becoming deprived in other areas as well. This deprivation has both social and economic roots that reinforce oppressive structures that limit an individual’s (and by extension, the whole society) capabilities and liberties. Economic factors like loss of job, informalisation of work that takes away worker benefits, low incomes and having no assets or wealth transcend into the social lives by restricting their mobility and trapping the household in a vicious circle of dearth and inequities.
It is challenging to arrive at a singular definition of a deprived household or vulnerability, but we can assume that a household devoid of essential means of survival or not having the purchasing capacity to access life-saving or life-nurturing services can be called a deprived household. More important, the idea of multidimensional inequality, beyond a methodological intervention, proposes structural solutions to inequality. These solutions range from the inclusion of deprived households in the labour market so that the sources and opportunities of growth do not evade them to enhancing social security.
Economic variables like income and labour and socio-economic variables like health, education, and household conditions are highlighted as together these variables enhance the standard of living. It is observed that the correlation between income, health and education is such that lower incomes or loss of income leads to inaccessibility and unaffordability of services in the sectors of health and education. In India, the Periodic Labour Force Survey for the years 2017-18, 2018-19 and 2019-20 shows that the Top 10% earn approximately equal to the bottom 64%. The top 10 account for one-third of the incomes earned.
While income disparity is not the only trigger to descent into poverty, it boldly outlines the everyday experiences of inequality and inequities. Basic needs become luxuries, spilling over in the form of resources becoming inaccessible. The income profiles have highlighted a vast pay gap between men and women, calling attention to gender-based inequities in the labour market that further marginalise women and reduce their labour force participation rate.
Income inequality in India
Income inequality in India refers to the unequal distribution of wealth and income among its citizens. According to the CIA World Factbook, the Gini coefficient of India, which is a measure of income distribution inequality, was 35.2 in 2011, ranking 95th out of 157.[2] Wealth distribution is also uneven, with one report estimating that 54% of the country's wealth is controlled by millionaires, the second highest after Russia, as of November 2016.[3] The richest 1% of Indians own 58% of wealth, while the richest 10% of Indians own 80% of the wealth. This trend has consistently increased, meaning the rich are getting richer much faster than the poor, widening the income gap.[3] Inequality worsened since the establishment of income tax in 1922, overtaking the British Raj's record of the share of the top 1% in national income, which was 20.7% in 1939–40
Income gaps
According to Thomas Piketty, it is difficult to accurately measure wealth inequality in India because of large gaps in income tax data. Official data from 1997-2000 contained many inconsistencies, while no data was published between 2000-2012. Then, in 2013, official income tax figures showed that only 1% of Indians paid tax that year, while only 2% filed a tax return. This lack of reliable data makes it essentially impossible to make significant, numerical conclusions about income inequality in India.[5][6]
Since much of the population is not represented in income-tax databases, most of the calculations (such as NSSO) are based on consumption-expenditure data instead of income data.[7] According to the World Bank, the Gini coefficient in India was 0.339 in 2009,[8] down from previous values of 0.43 (1995–96) and 0.45 (2004–05).[9] However, in 2016, the International Monetary Fund, in its regional economic outlook for Asia and the Pacific, said that India’s Gini coefficient rose from 0.45 (1990) to 0.51 (2013).[10]
According to the 2015 World Wealth Report, India had 198,000 high-net-worth individuals with a combined wealth of $785 billion.
Inequality in India on the rise
Following the introduction of economic reforms in the early 1990s, India today is achieving unprecedented per capita growth rates. Poverty reduction has also accelerated and is justly celebrated. There is great concern, however, that this growth is being accompanied by rising inequality.
At the national level, inequality is broadly found to have risen in India between 1983–2012, particularly in the early 2000s. However, this has happened at differing degrees depending on the dimension being considered and the measurement method employed.
The evidence also suggests that while poverty has fallen, most of those who have escaped poverty continue to face a high risk of falling back into it. Moreover, those who remain poor are increasingly chronically poor, and may be particularly difficult to reach via the introduction or expansion of safety nets.
Different measurements, same trend
Distributional analysis in India is most commonly based on consumption data derived from India’s National Sample Surveys. Consumption inequality in India as a whole has been rising at a moderate pace since the early 1990s. The increase accelerated between 1993/4–2004/5 and then moderated somewhat — being most pronounced in urban areas.
Data on income inequality in India are less readily available. One recent, widely discussed, study produced a long historical time series of income inequality estimates based on the combination of multiple data sources and novel techniques (Chancel and Piketty 2017). The study suggests that income inequality in India declined sharply between the 1950s and 1980s but has increased thereafter. Since the 1980s, the income share of the top 1% has been increasing, reaching 22% for the most recent year for which estimates are available.
It is noteworthy that estimates of income inequality place India amongst the countries with highest inequality internationally. By 2016, India was second only to the Middle Eastern countries when measuring the income share of the top 10%.
The distribution of wealth provides a complementary perspective on consumption and income inequality. Wealth data points to much higher levels of inequality than either consumption or income data. The Gini coefficient for wealth based on The All India Debt and Investment Surveys (AIDIS) was 0.75 for 2012, rising from 0.67 in 2002
India has made substantial gains in health and education over the past few decades, but the picture is not uniformly positive. Disparities persist across social groups, states, and rural–urban areas, reflecting inequalities in opportunity to access basic services.
Characteristics of inequality in India
Local-level inequality within rural villages and urban blocks accounts for the bulk of overall inequality in India. Understanding what occurs at the local level is thus important for understanding overall inequality. Local-level inequality, and its direction of change varies considerably across India’s states.
National averages also mask disparities across social groups. Scheduled Tribes and Scheduled Castes have persistently worse outcomes across health, education, and monetary indicators.
Another dimension where India stands out is gender-based inequality. While gender gaps in education and nutrition have been closing over time the disadvantaged position of women is very visible in the labour market. But the true extent and impact of gender inequality remains difficult to establish because most economic indicators are household-based and they therefore mask the intra-household inequality between genders.
Inequalities of opportunity persist
Inequality trends are shaped by patterns of income mobility. Income mobility has been rising, but the large numbers who have exited poverty in recent decades remain vulnerable. And the poor today are largely long-term poor. Further poverty reduction will become increasingly difficult to achieve through growth alone if India fails to address the structural factors that prevent the chronically poor from escaping poverty.
Furthermore, intergenerational mobility is low and shows no clear sign of rising. This implies pervasive inequalities of opportunity. Tackling such inequalities would promote social justice, but it could also stimulate inequality-dampening inclusive growth. A plausible route through which this could occur is via rising education levels, particularly amongst the poor.
Types of Economic Inequality
There are three main types of economic inequality:
Income Inequality
Income inequality is the extent to which income is distributed unevenly in a group of people.
Income
Income is not just the money received through pay, but all the money received from employment (wages, salaries, bonuses etc.), investments, such as interest on savings accounts and dividends from shares of stock, savings, state benefits, pensions (state, personal, company) and rent.
Household income before tax that includes money received from the social security system is known as gross income. Household income including all taxes and benefits is known as net income.
Pay Inequality
A person’s pay is different to their income. Pay refers to payment from employment only. This can be on an hourly, monthly or annual basis, is typically paid weekly or monthly and may also include bonuses. Pay inequality therefore describes the difference between people’s pay.
Wealth Inequality
Wealth refers to the total amount of assets of an individual or household. This may include financial assets, such as bonds and stocks, property and private pension rights. Wealth inequality therefore refers to the unequal distribution of assets in a group of people.
India's Rich Have Got Richer During the Pandemic: Oxfam
Oxfam has released a report on economic inequality in India, which is found to have only deepened during the COVID-19 pandemic. This can be attributed to caste and class disparities, such as the physical remoteness of certain Scheduled Tribes (STs) from resources that foster upward social and economic mobility, or the inheritance of wealth and caste privilege.
A major indicator of economic inequality is income disparities. Oxfam has found that not only has the bulk of wealth is concentrated in the net worth of a small chunk of the population, but this has increased largely due to the pandemic. Particularly, the outbreak of COVID-19 has led to the diminishing of wealth for the bottom 50% of the Indian population. In 2020, their income share was only 13% of national income, and just 3% of national wealth. In other words, the pandemic has led to much contraction of the income and wealth of the bottom 50% of India.
Meanwhile, the top 30% owns over 90% of India’s wealth. Additionally, the top 10% own over 72% of wealth, and the richest 5%, nearly 62%. These figures top those of the pre-pandemic years (2018-19), which shows that the richest have only gotten richer during the pandemic.
A similar trend can be seen in absolute numbers; the number of poor people in India is 228.9 million, while the number of billionaires has increased from 102 (2020) to 166 (2022). Thus, the report has found that income inequality has only increased, and much of this could be attributed to the pandemic.
Another factor related to economic inequality in India is the hiking of the Goods and Services Tax (GST). Before the virus hit, the government had reduced corporate tax slabs from 30% to 22%, which resulted in a loss of 1.84 lakh crores in revenue. To compensate for this loss, excise duties and GST on the prices of petroleum and diesel were substantially increased. This was done in tandem with slashing down exemptions.
What this led to was an unequal impact on rural and urban areas of India, most tangible in inflation. It was found that inflation was 7.56% higher in rural India than in urban regions in September 2022. The absolute numbers of both dropped in October 2022, but the gap still showed an increase of 2.5 times within a month’s time. This is especially felt in the increase in food prices in rural and urban areas, with the hike in food prices nearly twice in the former cities. Once again, this case in the report goes to show that during the pandemic, economic fissures have further widened.
A major recommendation Oxfam puts forward to reduce economic inequality is taxing the rich. The report dedicates an entire section to putting forward reasons for this, which can be summarised as so:
1. 1% wealth tax on Indian billionaires is enough to fund the National Health Mission, India’s largest healthcare scheme. It would be able to provide Rs 36,960 crores for three years.
2. Taxing the top 10 billionaires at 5% would cover healthcare costs for tribal areas for five years.
3. Taxing India’s billionaires at 2% would support the nutrition of India’s malnourished for three years, through the Supplemental Nutrition Programme (SNP).
4. The finds from taxing India’s billionaires at 2% could be used to increase expenditure on health.
5. Taxing the wealthiest 10 billionaires at 1% would cover this shortfall between the amount requested for the Samagra Shiksha (centrally-supported scheme for school education) and what the ministry of education granted them, for three years. Taxing 4% would cover the entire amount of funds requested for two years.
6. Taking India’s top 100 billionaires at 2.5%, or the top 10 at 5% would yield an amount enough to bring out-of-school children back to receive quality education (Rs 1.4 lakh crore).
7. 2% taxes levied on the top 100 billionaires would fund the mid-day meals scheme that was proposed by the National Education Policy 2020 (NEP 2020).
8. The amount needed to fill vacancies in elementary schools (Rs 2040.3 crore) can be raised by taxing the 10 richest Indian billionaires at 1% (funding for 13 years), or by taxing the 100 richest Indian billionaires at 1% (funding for 26 years).
Overall, Oxfam has found that taxing India’s wealthiest, even in small proportions, is enough to fund major government schemes that could be instrumental in uplifting those from the lower economic strata. This would be a step in reducing economic inequality.
The report concludes with a list of recommendations. Taxing the wealthy (specifically the top 1%) is the first of these, mostly owing to the reasons elaborated on above. The impact of taxing the rich could perhaps help in breaking the connection between government policy and the interests of India’s wealth, which tends to make the latter even richer. Additionally, easing the tax burden on the poor and marginalised could aid in reducing economic inequality, along with improving access to public services (health and education). The latter could foster socioeconomic upliftment. The final recommendation Oxfam gives is to strengthen the safety and bargaining power of India’s labour force. This would entail ensuring social protection (as 90% of labour is part of the informal economy) through monitoring and tracking mechanisms.
Impact
India's economy continues to grow with its GDP rising faster than most nations. But a rise in national GDP is not indicative of income equality in the country. The growing income inequality in India has negatively impacted poor citizens' access to education and healthcare. Rising income inequality makes it difficult for the poor to climb up the economic ladder and increases their risk of being victims to poverty trap.[14] People living at the bottom 10% are characterized by low wages; long working hours; lack of basic services such as first aid, drinking water and sanitation.
Status of inequality in India
World Inequality Report 2022
India stands out as a “poor and very unequal country, with an affluent elite”, where the top 10 per cent holds 57 per cent of the total national income while the bottom 50 per cent’s share is just 13 per cent in 2021, according to the latest World Inequality Report 2022.
The average annual national income of the Indian adult population is Rs 2,04,200 in 2021. The bottom 50 per cent earned Rs 53,610, while the top 10 per cent earned over 20 times more (Rs 11,66,520), the report states.
Reasons behind Inequality in India
Failure of Labour Intensive Manufacturing in India.
Jobless Growth in India.
Regional and Inter-state disparities.
Lack of skill development.
Rigid social institutions like Caste.
Tax Evasion- undue concentration of incomes in a few hands.
Regressive Tax- indirect taxes give maximum revenue to the government.
Unemployment and underemployment and the consequent low productivity of labour.
Failure to develop Export oriented industries.
Corruption
Administrative Bottleneck: Certain government policies favour one sector over the other. Also, there is a lack of rule of law and enforcement of laws such as the Minimum Wages Act.
Nature of jobs: Approximately 56% of the total working population is in the agricultural sector. Which is marked by poor landholding, low productivity and disguised unemployment
Inadequate public infrastructure: Lack of accessibility to primary health care centres, quality public schools, research institutions, roads, waterways, rural markets, etc. act complementary to the rise and sustenance of inequality in India.
What can India do to reduce inequality?
Governments can start to reduce inequality by rejecting market fundamentalism, opposing the special interests of powerful elites, and changing the rules and systems that have led to where we are today. They need to implement reforms that redistribute money and power and level the playing field.
Specifically, there are two main areas where changes to policy could boost economic equality: taxation and social spending.
Progressive taxation, where corporations and the richest individuals pay more to the state in order to redistribute resources across society, is key. The role of taxation in reducing inequality has been clearly documented in OECD and developing countries. Tax can play a progressive role, or a regressive one, depending on the policy choices of the government.
Social spending, on public services such as education, health and social protection, is also important. Evidence from more than 150 countries – rich and poor, and spanning over 30 years – shows that overall, investment in public services and social protection can tackle inequality. Oxfam has for many years campaigned for free, universal public services.
Free up women's time by easing the millions of unpaid hours they spend every day caring for their families and homes.
Invest in public services including water, electricity and childcare that reduce the time needed to do this unpaid work. Design all public services in a way that works for those with little time to spare.
Increase the employment opportunities in the country.
Free high school education and an increased number of functioning health centres.
There is a need for Universal Income Support. Economic Survey 2016-17 has suggested replacing all current cash transfers with universal basic income. The survey wants UBI to replace and not supplement the existing social welfare, and anti-poverty schemes like MGNREGA, PMJSY etc.
Investments in human capital and public goods have significant positive impacts on private-sector productivity, with estimated rates of return ranging from 15% to upwards of 45%. The enhanced productivity of human beings or human capital contributes substantially not only towards increasing labour productivity but also stimulates innovations and creates the ability to absorb new technologies.
Measures should be taken to bridge the immense gap that remains in the distribution of wealth among different levels of society. A 99% one-off windfall tax on the wealth gains of the 10 wealthiest men in Covid19 alone will generate $ 812 billion.
Tax ranging from 1 per cent of wealth owned over $1 million to 3 per cent for global billionaires can generate 1.6 per cent of global income.
Wealth taxation in unequal societies
Eliminate caste discrimination.
Policymakers should focus on making technology cheaper and deepening its penetration.
Investing in women: IMF - If women’s participation in the workforce matched men’s, Japan could grow at 9 per cent per annum and India at 27 per cent. Stop the blame game: Instead of addressing the actual causes of inequality, we indulge in a blame game.
Reduce asset inequality through redistributive land reforms but also through inheritance taxes, preventing monopoly of control over water, forests and mineral resources and reducing financial concentration.
Investing in agriculture: As per the World Bank, agriculture can help reduce poverty for 80 per cent of the world’s poor who live in rural areas and work mainly in farming.
Create opportunities for youth and disadvantaged communities.
Encourage domestic resource mobilization and stimulate public and private sector development.
Support sectoral training, apprenticeships, and earn-while-you-learn programs.
Raise the minimum wage and index it to inflation.
References:
https://en.wikipedia.org/wiki/Income_inequality_in_India#
https://economictimes.indiatimes.com/news/economy/indicators/the-state-of-inequality-in-india
https://www.wider.unu.edu/publication/inequality-india-rise
https://thewire.in/economy/inequality-exacerbated-in-india-during-covid-19
Written by Naveen Pratap 2nd Year LLB Student,
Prof. Rajendra Singh (Rajju Bhaiya) University,
Prayagraj
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