Measures to address Inequality in India

Synopsis: Inequality in India is increasing. It needs an immediate solution to enable sustainable economic growth.

Background

• According to a recent Pew Research Report, one-third of India’s middle-class has become poor due to the Pandemic. Whereas, poor people earning less than ₹150 per day have doubled.
• International organizations like the World Bank, the International Monetary Fund, and the International Labour Organization have also warned about rising inequalities in India due to the pandemic.
• Also, many economists suggest India is witnessing a k-shaped recovery with rising inequalities.

Why India is said to be witnessing a K-shaped recovery?

K-shaped recovery happens when, following a recession, different sections of an economy recover at starkly different rates or magnitudes. Some sections benefit from it and some bear a loss.

While the economy was slowing down even before the Pandemic, the impact of COVID-19 has further increased the inequality gap.

• First, the Covid-19 intensified the problems of unemployment, low incomes, rural distress, malnutrition, and inequality.
  • For example, the share of wages declined as compared to that of profits. The quarterly net profit of the BSE200 companies reached a record high of ₹1.67 trillion in the third quarter of FY21.
  • Whereas the informal sector and workers suffered the loss of incomes and employment in the last year. Women lost more jobs and many are out of the workforce. Inequalities also increased in health care and education.
• Second, the impact of the Pandemic is more on India’s large informal sector than any other sector.

Steps to reduce Inequality in India

To reduce inequalities, we need to concentrate on three basic parameters,

• • 1. Focus on increasing employment and wages,
    2. Focus on human development,
    3. Also, providing social security net through quasi-universal basic income

1. First, increasing employment and wages is central to the inclusive growth approach. Investment in infrastructure including construction can create employment. Further, we need to take measures to address the following seven challenges in employment,
   • 1. Creating 7 to 8 million productive jobs per year.
     2. Correcting the mismatch between demand and supply of labor. For example, only 2.3% of India’s workforce has formal skill training as compared to 96% in South Korea.
     3. Need to make manufacturing the growth engine to facilitate labour-intensive exports.
     4. Also, Focus on micro, small & medium enterprises and informal sectors including rights of migrants.
     5. Furthermore, Preparedness for automation and technology revolution
     6. Social security and decent working conditions for all.
     7. Raising real wages of rural and urban workers and guaranteeing minimum wages.
2. Second, improving human development by fixing the gap in health and education. Increasing public expenditure on health and education should be the way forward. Need to Prioritise universal health care and increase spending on health to 2%-3% of GDP.
3. Third, providing social safety nets to absorb shocks in the economy. It can be done by providing a combination of cash transfers and an expanded guarantee scheme. For example,
   • • Cash transfers to all women above the age of 20 years.
     • Expanding the number of days provided under the Mahatma Gandhi National Rural Employment Guarantee Act and a national employment guarantee scheme for urban areas.
4. Fourth, increase the income of small and marginal farmers. For that, Farmer producer organizations should be strengthened. States should have a bigger role in agri-marketing reforms.
5. Fifth, the tax/GDP ratio has to be raised, with a wider tax base to increase governments’ revenue. It can be used for spending for the above programs.
6. Sixth, resorting to fiscal federalism by reducing the inequalities between the Centre and States in finances. There must be strengthening of State budgets to improve capital expenditures on physical infrastructure and spending on health, education, and social safety nets.
7. Seventh, deepening democracy and decentralization can reduce inequalities. Unequal distribution of development is rooted in the inequalities of political, social, and economic power.

Reducing income inequalities is also important for improving demand that can raise private investment, consumption, and exports for higher and sustainable economic growth.

Source: The Hindu

[Answered] “Populist measures like highly subsidised food and goods although help poor but is an unsustainable policy measure and not a permanent solution.” Comment.