We need a renewed conversation on economic inequality in India

News: Gaps of income and wealth have worsened after liberalization, causing various ramifications, including political ones.

A response is clearly necessary.

What are the stats to substantiate that the wealth gap in India is increasing?

World Inequality Report Data – Read here

What are the implications?

Unequal growth: The top 10% of our population has benefited more from economic reforms than the population as a whole.

Widening gap between the rich and the poor: Wealth gaps are self-reinforcing because rich people use their greater resources to expand their powers. They also influence the political system to their advantage and give greater privileges to their children.

Lack of equal opportunities: This can be seen in the fact that our labour force participation rate has been falling over the years. This means that many individuals who can’t find a job when they enter the workforce or even otherwise, simply stop looking for one. Further, this has impacted women much more than men. Data from the Centre for Monitoring Indian Economy shows that the female labour participation rate (FLPR) stood at 9.3% as of November 2021

How the income and wealth inequality in India is having political ramifications?

Demands are being made by land-owning castes across the country to be classified under the Other Backward Classes (OBC) category so that they are eligible for reservations in government jobs and educational institutes.

In 2019, the central government introduced a 10% reservation in government jobs for economically weaker sections.

In 2019, the Centre also decided to provide income support to land-owning farming households by paying them ₹6,000 a year, under the Pradhan Mantri Kisan Samman Nidhi scheme.

What is the way forward?

Long-term: The best way to reduce inequality is an environment where more enterprises can thrive and create jobs. This is ultimately likely to reduce inequality, at least at the household level, with more women working.

Short term: Direct support of the population through income support schemes or subsidies. This means both direct and indirect taxes are likely to remain high or possibly even go up.

Source: This post is based on the article “We need a renewed conversation on economic inequality in India” published in Live mint on 15^th Dec 2021.