Income and Wealth Inequality in India

Source-This post on Income and Wealth Inequality in India has been created based on the article “Towards a less poor and more equal country” published in “The Hindu” on 24 April 2024.

UPSC Syllabus– GS Paper 1 – Poverty and Developmental issues and GS Paper-2- Issues Relating to Development and Management of Social Sector/Services relating to Health, Education, Human Resources.

Context – The World Inequality Lab, a global research center studying inequality and public policies, has recently released a paper called “Income and Wealth Inequality in India, 1922-2023: The Rise of the Billionaire Raj.”

What is the status of wealth and income inequality in India?

1) Income inequality – In 2022-23, the report reveals that 22.6% of India’s national income went to the top 1% of the population, the highest share in the last century. Further, the top 0.1% earned almost 10% of the national income in India. India’s top 1% share of national income is one of the highest globally.

2) Wealth inequality – In 2022-23, the wealthiest 1% owned 40.1% of the wealth, the highest since 1961. Meanwhile, the top 10% saw their share rise from 45% in 1961 to 65%. This implies that the rich got richer, and the poor got poorer in wealth.

3) Comparision with other countries-Brazil and South Africa have more wealth inequality than India.In Brazil and South Africa, top 10% hold 85.6% and 79.7% of national wealth respectively.
Whereas in China, in 2022, the share of the top 1% in income in India was nearly 50% higher than that of China

Moreover, as India’s income inequality is among the highest globally, even surpassing South Africa, Brazil, and the U.S., it may enhance wealth inequality further.

Read more- Status of Inequality in India

What is the significance of prioritizing human development over economic growth for reducing income inequality and wealth inequality?

1) Precedents from other countries – China and Vietnam have given precedence to human development to sustain their economic growth for a longer run.

2) Examples from other Indian states – States that have been able to maintain high growth rates over 3 decades (over 7% GSDP per year) were more developed in terms of human development at the national level. For ex- Kerala, Tamil Nadu, Delhi, Punjab etc.
However, states that fared low in Human Development Index were only able to register a growth rate of less than 5% per annum post-liberalization. For ex-MP, Bihar etc.

3) The Human Development Report– In the Human Development Report (HDR) 2023-2024, India was ranked 134th out of 193 countries. Despite being the fifth largest economy, India ranks lower than Sri Lanka, Bhutan, and Bangladesh in human development.Thus,in case of India, economic growth hasn’t led to similar growth in human development for India.

What should be the way forward?

1) Inclusive Growth-There should be more emphasis on human development and capacity building to promote inclusive growth.

2) Policy Reforms-Economic growth should not become the ultimate objective of policy makers. Without progress in human development, capability enhancement, functioning, and poverty reduction, economic growth won’t be inclusive and will only increase inequality.

Question for practice

Highlight the importance of human development for reducing income inequality and wealth inequality?