The shape of the Indian economic pie must change

Source– The post is based on the article “The shape of the Indian economic pie must change” published in The Hindu on 15th November 2022.

Syllabus: GS3- Economy

Relevance: Issues related to current economic structure

News- The article explains the increasing inequalities and unfair distribution of wealth across the world. It explains the dominant position acquired by the financial sector.

With the decision of SUpreme Court on EWS reservation and recent debates on subsidies, the issue of inequality has come to surface.

What are the issues with the present economic structure?

Shape of the economy is disturbed. Decent jobs and social security are available to too few. Good education and health care is not available to all.

Issues about fair distribution of opportunities and the need for subsidies will become harder for the Government to resolve until the current pattern of economic growth continues.

Economic inequalities have been increasing in all countries, even the rich ones. Governments are struggling to meet conflicting demands for a smooth business climate  and decent living for common citizens.

Populism is on the rise. On the left, populism demands rights for all workers, across races and religions. On the right, populism wants to protect racial and religious majorities from immigrants and minorities competing with them for limited economic opportunities.

What are the viewpoints of Thomas Piketty about inequality?

He describes that societies were historically divided into three classes– a religious class, a noble and warrior class, and labouring class. Merchant and financial class later emerged and became dominant.

Every human society must justify its inequalities. Unless it does not do so, there will be social and political instability.

Modern inequality is said to be just because everyone enjoys equal access to the market and to property. It benefits automatically from the wealth accumulated by the wealthiest individuals.

How has the financial sector become dominant in the economy?

The financing of wars gave money-owning class power over governments. International trade provided another avenue for growth of the financial class. With the victory of neo-liberalism over welfarism, money became the master. Central banks with responsibility to look after the health of money, acquired independence from elected governments.

The role of banks and financial institutions was to provide lubrication to the wheels of the real economy, rather than making large profits themselves. By the 21st century, profits seem to have become the purpose of financial institutions.

What are the impacts of the dominant position of the financial sector?

Innovative ways of making money from money also became the fastest way to increase personal wealth. Inequalities have increased because a much larger share of wealth is sucked into the financial sector.

The rules of the economic game are now set by the wealthiest. They influence governments’ policies the most. They can determine the wages they will pay workers and prices for small enterprises.

Lives of common citizens have become precarious. Formal jobs in large enterprises are becoming fewer with the changing shape of the modern, post-industrial economy.

What should be the course of action?

The shape of the economic pie must change so that the majority benefits much faster than a tiny minority on top. This will require reforms of institutions and economic ideology.

The Government must listen and respond to the needs of common citizens more than to big business lobbies.

Ease of living for the majority must drive government policies more than policies for attracting big investments with ease of doing business.