Economic Inequality in India (Critical Analysis)

Economic inequality includes income inequality as well as wealth inequality. According to Oxfam India, income inequality is the inequality in which there is disparity in the incomes commanded by the top percentile of the population in comparison to the bottom percentiles, while wealth inequality measures disparities in wealth instead of income.

Status of economic inequality in India:

• Income Inequality: According to the World Inequality Lab report 2020, income inequality is substantially rising in India with the top 10% income share growing from 30% in the 1980s to over 56% in 2019.
• Wealth Inequality: Wealth inequality in India is rising with the Gini wealth coefficient having risen to 83.2% in 2019 from 81.2% in 2008.
• As per an Oxfam report, India's richest 1% of the population holds 42.5% of national wealth while the bottom 50% owns a mere 2.8%.
• India’s top 10% of the population holds 74.3% of the total national wealth.

Consequences of Economic Inequality:

• Low social mobility and slower poverty reduction: Extreme inequality inhibits social mobility and results in inequality in opportunities due to lack of proper education, training in skills, lack of connections and assets.
• Social unrest, as high inequality is likely to undermine democracy, promote corruption and cronyism. The gap between the rich and poor is helping to fuel authoritarianism.
• Inequality and the climate crisis are interwoven. Developing countries and poor communities have less capacity than their richer counterparts to adapt to climate change and severe weather events including access to new environmentally friendly technologies. Further, inequality can also influence the balance of power among those arguing for and against curbing carbon emissions.
• Income and wealth inequalities are often translated into political inequality and power asymmetries among various groups (which may be defined by ethnicity, language, gender or caste etc.) potentially leading to even more inequalities and even lead to breakdowns in institutional functions, weakening the effectiveness of policies etc.

Way forward:

• Policy reorientation:
• Progressive taxation, in order to redistribute resources across society.
• Social spending on public services such as education, health and social protection. Evidence from more than 150 countries shows that overall investment in public services and social protection can tackle inequality.
• Free up women's time by easing the millions of unpaid hours they spend every day caring for their families and homes. Invest in public services including water, electricity and childcare that reduce the time needed to do this unpaid work.
• Low-productivity workers should be incentivized to move to sectors that are more productive. Simultaneously, fundamental reforms like labor protections, institutional and policy support for social safety nets need to be delivered to increase the productivity of these sectors.

Several initiatives have been taken up by the Government to eliminate inequality and foster inclusive growth, such as: expanding the social security net through Pradhan Mantri Suraksha Bima Yojana (Accident Insurance), providing institutional support for entrepreneurship with the help of MUDRA Bank etc.