The hidden threat to our fledging economic recovery

News: World Inequality Report (WIR) by World Inequality Lab has found that India has high and rising inequality. 

What are the important findings of the report? 

The top 1% of Indians account for 22% of national income, while the bottom 50% account for only 13%.  

For more: Read here 

What government official statistics say about inequality in India? 

All-India Debt and Investment Survey of the National Statistical Office (NSO), found that the top 10% of urban India held 56% of all assets. In rural India, inequality in wealth was less stark, with the top 10% reported owning 51%. 

Official data like multi-dimensional poverty data from the NITI Aayog or the recently released National Family Health Survey data points towards widening gap across states as well as across gender, rural/urban and caste and religion classifications. 

Why even these estimates may also be an underestimation? 

Most of the survey fail to capture assets like jewellery, real estate and thus give an underestimation. The actual real figures may paint even a grimmer picture. 

What are the implications of growing inequality? 

Impact on India’s post-pandemic recovery: Currently, Investment demand is weak and though exports are doing better, but they are still not at a good level. In this scenario rising inequality will be harmful for India’s economic recovery. 

Disproportionate impact of the pandemic on poor: The Pandemic has devastated the lives and livelihoods of most Indians at the bottom end of the socio-economic pyramid. Large numbers, particularly those engaged in casual manual labour and in cultivation, have seen their real incomes fall. 

Private consumption has declined, causing an economic slowdown. Falling income, high inflation, high unemployment in pandemic have led India into a vicious cycle. 

It is a cycle of low incomes leading to low demand and low employment, resulting in even lower incomes. 

What is the way forward?

Increase in income required to fuel demand -The above-mentioned vicious cycle can only be broken if there is substantial increase in the incomes of India’s bottom 50%.  

This will require a big hike in government expenditure that can generate demand and thereby employment.  

India’s economic strategy needs to be inclusive, sustainable and equitable. 

Source– This post is based on the article “The hidden threat to our fledging economic recovery” published in Livemint on 17th Dec 2021.