Rising inequality in India – Explained, Pointwise

Introduction

The latest World Inequality Report has pointed to rising inequality in India and the world. The inequality has worsened in terms of both wealth and income. As far as income is concerned, the richest 10% of the global population currently takes 52% of global income, whereas the poorest half of the population earns 8.5% of it. The picture is worse when it comes to wealth inequalities. The report also flags a drop in global income during 2020, with about half the dip in rich countries, and half in low-income and emerging countries. It attributes this primarily to the impact of “South and Southeast Asia, and more precisely” India.

Furthermore, India is one of the worst performers as far as inequality is concerned, as per the report.

This is further supported by the fact that there was a 35% increase in the net worth of the billionaires in India during the novel coronavirus disease (COVID-19) pandemic, when India’s growth was negative 10%.

What are the key findings of the Inequality report?

World

– Even as countries have become richer over the last 40 years, their governments have become significantly poorer, a trend magnified due to the pandemic.

– The rise in private wealth has also been unequal within countries and at world levels. The wealth of the richest individuals on earth has grown at 6 to 9% per year since 1995, whereas average wealth has grown at 3.2% per year. This increase was exacerbated during the COVID pandemic.

– The Middle East and North Africa (MENA) are the most unequal regions in the world, whereas Europe has the lowest inequality levels.

Global inequalities seem to be about as great today as they were at the peak of Western imperialism in the early 20th century. Moreover, inequalities within countries are now greater than those between countries.

– Global income and wealth inequalities are tightly connected to ecological inequalities and to inequalities in contributions to climate change. The top 10% of emitters is responsible for close to 50% of all emissions, while the bottom 50% contributes 12%.

– Large emerging economies such as China and India experienced faster increases than wealthy countries after they transitioned away from communism (in China and Russia) or from a highly regulated economic system (in India). In India, private wealth increased from 290% in 1980 to 560% in 2020.

For more: Read here

India

– India stands out as a poor and very unequal country, with an affluent elite.

– While the top 1% hold 22% of total national income, the bottom 50% share has gone down to 13%.

– The report also points to extreme gender and carbon inequality. For instance, at 18% the female labour income share in India is one of the lowest in the world and significantly lower than the average in Asia (21%, excluding China).

A person in the bottom 50% of India’s population is responsible for, on average, five times fewer emissions than the average person in the bottom 50% in the European Union.

– India’s middle class is relatively poor, with an average wealth of just 29.5% of the total national income.

– The quality of inequality data released by the government has seriously deteriorated, making it particularly difficult to assess recent inequality changes.

What are the different forms of inequality prevalent in India?

– Income and wealth inequality, as mentioned above in the findings of the World Inequality Report.

– Digital inequality: According to National Sample Survey (2017), only 6% of rural households and 25% of urban households have a computer. Only 17% in rural areas and 42% in urban areas have access to internet.

– Social inequality: It is the differential access to wealth, power, and prestige. Social inequality may exist on gender, race, age, ethnicity, religion, and kinship. This form of inequality is widely prevalent in India. For instance: India’s upper caste households earned nearly 47% more than the national average annual household income. The top 10% within these castes owned 60% of the wealth within the group in 2012, as per the World Inequality Database.

What are the reasons behind high inequality in India?

– The slow economic and GDP growth, which can help to reduce poverty and counter inequality, have been faltering for a while. GDP growth has been rather slow since the Global Financial Crisis of 2008 and has completely lost its momentum since the start of 2017. For a relatively poor country such as India, the most durable and dependable way to reduce inequality is to increase the size of GDP.

– Lack of digital access: Poor households are not able to afford devices to ensure digital access for their children. According to the Azim Premji Foundation, ASER and Oxfam report, between 27% and 60% could not access online classes, due to lack of devices, shared devices, inability to buy “data packs”, etc. For more: Read here

– Increased penetration of technology and industrialization: Some experts argue that as technology is skill biased, so those who are able to use technology experience an increase in productivity and wages compared to their less-skilled counterparts. The increase in productivity leads to the spread of technology, which, in turn, creates a higher demand for skilled workers. This self-reinforcing cycle increases wealth and income inequality.

– Large numbers of the labour force work in sectors with low productivity. Consider agriculture. It provides 53 per cent jobs, while contributing only 17% to the GDP

– COVID pandemic has also increased the economic inequality further. For more info, read here

What are the implications of inequality?

Inequality gives rise to a number of consequences:

– Research by Professor Pickett and Wilkinson found that inequality causes a wide range of health and social problems, from reduced life expectancy and higher infant mortality to poor educational attainment, lower social mobility and increased levels of violence and mental illness.

– High levels of income inequality are associated with economic instability and crises, whereas more equal societies tend to have longer periods of sustained growth

– Income inequality strongly influences people’s health and wellbeing. It further leads to a societal breakdown in trust, solidarity and social cohesion, reducing people’s willingness to act for the common good. For instance: social conflict among the social groups in India, like Patidar unrest and Jaat Andolan.

– Increase in wage inequality decreases productivity.

– Due to the prevailing inequality in digital access, the digital solutions offered for providing basic services such as health and education face failure.

– Greater inequality can lead to more rapid environmental degradation because low incomes lead to low investment in physical capital and education

What is the way forward?

– Levying a modest progressive wealth tax on multimillionaires. This can generate a sufficient amount of global income. For instance: A global effective wealth tax rate of 1.2% for wealth over $1 million, could generate revenues of 2.1% of global income.

– Raising the proposed global minimum tax rate on multinationals from the 15% to 25%. The present tax rate of 15% would lead to a race among countries to reduce their corporation tax rates to that level. This will lead to a €1.4-billion tax gain a year for India.

– A good starting point for India would be for the government to improve the quality of data on inequality within the country.

– In order to reduce inequality in India, Govt needs to take various measures. You can read about them here.

– Government also has to utilize the time to prioritize skill development: A skill-led economy is the need of the hour to completely utilize India’s demographic dividend towards equality. Read more here.