Inequality of Income and Wealth in India
Introduction: Both between countries and within them, deep disparities in human development remain. Poverty and inequality seem to be the talking point across the globe. In recent times, Thomas Piketty’s Capital in the Twenty-First Century (2014) has generated global attention toward the rise in economic inequality. Economic and social inequality is a major problem, implicated in poverty, ill health, and exploitation. Inequality in the world is increasing since the 1980s and it is also widely seen as unfair; yet, action against it has been sporadic and often ineffective. Three-fourths of the world’s wealth is concentrated in a few hands. Rich people hold the talisman of resource control. In the modern world, whoever controls the resources controls the fate of the earth and that of its inhabitants too. Inequitable and unjust development that started in the latter half of the 20th century is at its peak in the 21st century. Contemporary economic development is fast pushing the world to the brink of inequality. “Around 15.5 percent of the world’s adults live in India, while the country’s share in the global wealth is a meager 1 percent” (Jain 2018). To better understand why inequality has persisted, this chapter will look at various facets of inequality along with a set of policy options such as redistributive measures and eradication of corruption.
Concept: Inequality and poverty are very different things. The relative inequality measure is the Gini coefficient of inequality (a measure of the dispersion of incomes of the population). The Gini Index measures inequality across the world. At the policy level, poverty needs to be conceptualized in relative terms. It needs to be seen as inextricably linked to inequality. There are dimensions of inequality other than those based on consumption or income, such as inequalities associated with gender or caste; access to key social services, particularly health care and schooling; and access to credit markets. Economic inequality has increased and become much more extreme.
It is argued that some degree of inequality may not be a problem if it provides incentives for people to accumulate human capital (income drawn from efforts that enhance efficiency and bring acclamation from society, such as that of film stars, doctors, teachers). Tendulkar (2010) draws a distinction between inequity and inequality. Even if measured inequality increases, there may not be an increasing feeling of inequity as people observe high mobility and can aspire to move upward like others. According to him, social consensus with respect to social acceptability of a degree of inequality is feasible on the existence of three conditions: (a) the observation of merit-based income mobility; (b) the existence of equality of opportunity; (c) improvement in the living conditions of people at the lower end of distribution.
It is important to distinguish between undesirable versus natural inequality. The former emerges because the rich are given more opportunities than the poor, while the latter arises even when everyone is given good opportunities, due to differences in skill, effort, and enterprise. Under the former, one has a class society where one’s background governs one’s opportunities, while in the latter, people have a reasonable chance of doing well independent of their origins. Cross-sectional inequality can arise in a system that creates more opportunities, and therefore, winners and losers, while the intergenerational persistence of inequality occurs due to the unequal distribution of opportunities (Ghatak 2017). Of the three kinds of inequality—of income, opportunity, and power—the last two are the most important.
Poverty and inequality: It is important to distinguish between the two concepts of poverty and inequality. The former refers to lack of access to basic stuff like food, clothing, and shelter. The latter refers to how income or wealth is distributed in the society. The former is measured in terms of a poverty line, and what fraction of the population is below that line. The latter is measured in terms of the gap between the rich and poor. Poverty is an absolute concept, whereas inequality is a relative concept. Increases in inequality hurt the poor. Theoretically, it is possible to have zero poverty and high inequality (say in a rich country), or very high poverty but low inequality (say in a country like Cuba). Most countries fall in between and have both.
The NSS data point in the direction of rising inequality in India. In fact, cities are far more unequal than villages. Poverty involves absolute deprivation in terms of economic resources such as income, wealth, and access to public services; economic inequality involves relative deprivation, that is, where one stands in relation to others in one’s society (Weisskopf 2011). The gains of economic growth have not been distributed equally in India, and elsewhere as well.
Measurement of inequality: There is no doubt that measuring income and consumption inequality is a difficult enterprise, particularly in India where low data quality and availability raise problems. In India, there is no systematic data on the distribution of personal incomes, although the course of inequality in the Indian economy can be traced through the various rounds of the NSSO data of households collected every five years. Data on inequality does not adequately represent the real picture of the degree of inequality prevailing in the country. In India, the inequality data collected involves the distribution of expenditure on consumption rather than income. Because the rich tend to save a significant fraction of their income while the poor tend to use all of their income—and often some borrowed money as well—for consumption, the distribution of consumption is considerably less unequal than that of income. Income inequalities are much higher than that of consumption.
The Gini coefficient or other measures of inequality are used to examine trends in inequality. Income and wealth inequalities are much higher than consumption inequality. According to some estimates, the consumption Gini coefficient was 0.36 in 2011–2012 in India. On the other hand, inequality in income was high with a Gini coefficient of 0.55, while the wealth Gini coefficient was 0.74. The income Gini was, thus, about 20 points higher than the consumption Gini, while the wealth Gini was nearly 40 points higher than the consumption Gini. Inequality of income and wealth is, therefore, much higher than that of consumption. The database for computing income inequality is not as solid as the database for consumption expenditure (Rangarajan and Dev 2018).
NSSO’s household expenditure surveys cannot include the spending of households on many types of financial and real estate assets that are not properly reported or documented. Because the expenditure on such assets is systematically undervalued by both the buyers and the sellers, the survey data will necessarily underrepresent the expenditure levels of richer households. The inequality measure, therefore, will be underestimated by an unknown extent (Mazumdar et al. 2017a). Measures of inequality calculated for consumption in India significantly understate the actual degree of inequality in income. If one looks at data from the 1970s to the 2010s, one finds that the relative Gini displayed a moderately rising trend in urban India and no significant trend in rural India, so, given that the rural population predominates, the overall all-India trend was not an alarmingly increasing one.
Factors Contributing to Inequality
Inequality is not so much a cause of economic, political, and social processes as a consequence. Some of these processes are good, some are bad, and some are very bad indeed. Only by sorting the good from the bad (and the very bad) can we understand inequality and what to do about it (Deaton 2018). Piketty (2014) makes the case that it is in the nature of functioning of capitalism to increase inequality in society. Inequality is an inevitable part of society and a consequence of the competitive processes in any economy. Not everyone is equally endowed, either with capital, skills, or intellect. The competition and race of daily life will, therefore, create leaders and laggards. Inequality is often both the source and the consequence of economic domination by one group of people over another. Piketty (2014) emphasizes what he sees as a very long-term trend arising from a high return on capital—inherited wealth accumulating at a faster rate than earned income grows.
But most researchers believe that the sources of widening inequality lie primarily within earned income rather than arising from the difference between earned income (wages and salaries) and unearned income (return on capital). Earned income inequality has increased because of technological change, which raises the demand for skilled workers faster than the supply. The very high compensation of corporate executives, especially in the financial sector is not a return to services that are in demand because they are socially valuable (like having gone to medical school or having been born with acting talent). Rather, managers essentially get to set the terms of their own pay, through compensation packages that reflect failures of corporate governance, tax law, and financial engineering. Stock options, for example, have failed in their original goal of relating pay to performance. Because the rich have captured the levers of power, through campaign donations. The politicians they finance are only too eager to enact favorable policies. Money in politics is indeed a big problem (Frankel 2016).
In India, the rising level of wealth inequality is deeply linked to the growth strategy being followed since the beginning of economic reforms in 1991, by which the gains from growth have been redistributed among those who were already wealthy (Anand and Thampi 2016). Inequality rose along with the growth rate in the postreform period of 1991. The postreform period also aggravated the rural–urban inequality. The main sources of these unequal patterns in wealth accumulation were land and buildings.
Inequalities have taken root for a variety of reasons. In India, there are several possible explanations for growing income inequality—from the nature of technological progress to the lack of opportunities due to the caste system, to ineffective government spending programs and lack of infrastructure that connects people in the interiors to markets. Inequality in India has two extra facets that deserve attention. First, there is difference in productivity growth between urban and rural areas. Second, there is an income gap within the cities between those who have been able to connect to the global economy and those who have not.1 India’s big problem is poverty. The more poverty is reduced, the more likely will inequality increase. India should, however, accord priority to poverty and not worry much if inequality goes up in the process of poverty eradication.
There have been significant inequalities in labor markets in India. Inequalities can be found across sectors, wages, earnings, quality of work, labor market access and between the organized and unorganized sectors. Labor market segmentation is another important issue regarding inequalities. Wage differentials can’t be explained by economic factors alone in spite of increasing occupational and geographical mobility. The kind of social and political factors prevailing in the country are also responsible for increasing inequality. “Segmentation based on occupational skills, and consequently, industry and sectors is well known. Reducing labor market inequalities is important for the sustainability of growth, rise in human development, and reduction in overall inequalities” (Dev 2016a). Lack of quality jobs and increasing wage disparity are key markers of inequality in the Indian labor market.
Rising inequality can have social costs and lead to reduction in economic growth apart from the normative dimension to equality. It is also useful to distinguish between inequality of outcome and inequality of opportunity. Assets, income, or expenditure are generally used for outcomes. Inequality of opportunity is often measured by studying nonincome dimensions such as health, education, access to basic services, and human development. Individual circumstances are important for examining inequalities in opportunities. Circumstances such as gender, race, ethnicity, or place of birth are outside the control of an individual. The outcomes, however, also depend on the efforts the individual makes in education and the labor market, given the circumstances (Kanbur et al. 2014). Economic inequalities coexist and intersect with many other forms of equally striking social, political, and cultural inequalities. Intersectional inequalities, therefore, become important (UNDP 2015).
In India, caste has a peculiar role that separates it out from the rest of the world. Inequalities among caste or social groups become important. Similarly, gender inequalities are also high. Inequality takes the terrible form of a massive disparity between the privileged and the rest, with a huge deficiency of the basic requirements for a minimally acceptable life for the underdogs of society. The basic facilities of usable school, an accessible hospital, a toilet at home, or two square meals a day are missing for a huge proportion of the Indian population (Dreze and Sen 2013).
Corruption raises inequality and poverty through lower economic growth, biased tax system in favor of the rich, poor targeting of social programs, lobbying the government by the rich for favorable policies that perpetuate inequality in asset ownership, unequal access in education, and lower social spending. Some of the processes that generate inequality are widely seen as fair, such as earned income in the form of human efforts and labor. Getting rich by bribing the state for special favors is clearly unfair, and rightly resented.
Extent of inequality: Using Indian data over the decades—including the household survey of consumption, fiscal, and national accounts data; the newly released set of tax data from 1922 to 2014, UN statistics, and other Human Development Survey data collected between 2005 and 2012—to estimate the income distribution pattern of the population of India, as it evolved between 1951 and 2014, Piketty and Chancel reached the following findings:
Between 1980 and 2014, the share of the top 1 percent of India’s population in income increased from 6 percent to 22 percent. During the same period, the share of the top 10 percent increased from 30 percent to 50 percent; the share of the middle 40 percent (the middle class) fell from 43 percent to 30 percent; the share of the bottom 50 percent fell from 24 percent to 15 percent. More astonishingly, the top 0.1 percent of earners captured a higher share of the total growth than the bottom 50 percent. These are astounding figures. The period after the year 2000 saw the highest growth of the economy compared to the five preceding decades. In other words, the period 1980–2014 saw the top 0.1 percent grow at 550 times the rate of the bottom 50 percent. The top 1 percent grew at 130 times of the bottom 50 percent. The middle 40 percent grew at a three times higher rate than the bottom-half (Piketty and Chancel 2017).
“Prima facie, the conclusions appear to be compelling. It is important to note that Piketty has not referred to ‘black’ income in his computations—the income disparities would be sharply higher than estimated by him” (Subramanian 2017). Aiyar (2017) has raised questions about Piketty’s assumptions. The problem with Piketty’s estimates lies in his assumptions. Given that survey data often understates the extent of true incomes, Piketty relies on a combination of survey and tax data to estimate India’s income distribution. Tax data have so many distortions that they mislead rather than enlighten. They both understate and overstate incomes, mostly the latter. Household surveys cover only humans. Tax laws, however, cover artificial entities like corporations and trusts. The use of tax data instead of household survey data produces enormous illusory inequalities. Using tax data for the rich and survey data for the nonrich compounds the illusion. Inequality estimates based on tax return data would underestimate overall income inequality.
In brief, leaving aside measurement issues, the key finding is that the share of the very rich in the national income, after falling steadily since the late 1930s to the late 1970s, started rising from the early 1980s and steadily increased since then to reach a historical high in 2014. And, the share of the bottom half, as well as of those in the middle of the distribution, show the opposite pattern over the same time period (Ghatak 2017). Many would disagree with the findings, but the broad thrust of Piketty’s arguments is undeniable: Income inequality in India is unconscionably high, and worse, is increasing. The reality is that while “fast economic growth has helped in reducing absolute poverty, relative inequality has worsened.” “What is distressing about inequality in India, though, is the abysmally low levels of income at the bottom of the pyramid” (Bhusnurmath 2017).
Poverty declined faster but inequality increased in the postreform period (Dev 2016b). In terms of wealth inequality, India fares much worse. And, if one uses metrics like access to health care, basic quality education and sanitation, India is a very unequal society. Inequality is visible almost everywhere. It manifests whichever way one slices the stats, whether by region, income, wealth, education, caste, religion, or gender.
Available information on wealth inequality shows that the top 10 percent of households possess a little over half of the total wealth (whether measured in terms of assets or net worth) in the country, while the bottom 10 percent possess a mere 0.2 percent of the total wealth. The bottom 50 percent of the population own less than 10 percent of the total wealth. The wealthiest have tended to consolidate between the two surveys (the top 10 percent owned 51.94 percent of the wealth in 2002 versus 50.79 percent in 1991), while the bottom 10 percent have only lost their share (0.21 percent in 2002 versus 0.22 percent in 1991). Overall, there is a divergence in asset holdings as the rich have amassed huge assets compared with the poor, after liberalization. This “reflects a trend of consolidation of already concentrated wealth among the elites, a trend that might have significant consequences for the economy, society, and culture of India in the decades to come” (Jayadev et al. 2007).
India’s wealth has trended upward strongly since the turn of the century. Annual growth of wealth per adult averaged 8 percent over 2000–2018. Wealth per adult was estimated at $7,020 in mid-2018 after a year of slow growth in USD terms due to an exchange rate drop of 6 percent. Personal wealth in India is dominated by property and other real assets, which make up 91 percent of estimated household assets. This is typical for developing countries. Personal debts are estimated to be only $840, or just 11 percent of gross assets, even when adjustments are made for underreporting. Thus, although indebtedness is a severe problem for many poor people in India, overall household debt as a proportion of assets in India is lower than in most developed countries. While wealth has been rising in India, not everyone has shared in this growth. There is still considerable wealth poverty, reflected in the fact that 91 percent of the adult population has wealth below $10,000. At the other extreme, a small fraction of the population (0.6 percent of adults) has a net worth over $1,00,000. Owing to India’s large population, however, this translates into 4.8 million people. The country has 4,04,000 adults in the top 1 percent of global wealth holders, which is a 0.8 percent share. A total of 3,400 adults have wealth over $50 million, and 1,500 have more than $100 million (Global Wealth Report 2018).
The richest 10 percent of Indians own 77.4 percent of the country’s wealth and the bottom 60 percent own just 4.7 percent. The 1 percent superrich own 51.5 percent of wealth. Estimating wealth is not quantum physics and year-to-year changes in wealth shares are dependent upon asset prices and exchange rates. What is important is that, in a democracy, the top 1 percent has been able to keep its share so very high, while the majority meekly accepts destitution. India is fourth, behind the United States, China, and Germany, in the number of billionaires. India is among the most inequitable countries in the world. The wealth of Indian billionaires rose by ₹2,200 crore ($298K) a day during 2017, with the top 1 percent of the country’s richest getting richer by 39 percent as against a 3 percent increase in wealth for the bottom-half of the population. A total of 136 million Indians, who make up the poorest 10 percent of the country, have remained in debt since 2004. “The wealth of the top nine billionaires is equivalent to the wealth of the bottom 50 per cent of the population” (Oxfam’s India Inequality Report 2018). India now has a total of 119 billionaires, having added 18 new ones during 2018. Their total wealth crossed the $400 billion, around ₹28 lakh crore, mark for the first time. The country is also expected to produce 70 new dollar millionaires every day between 2018 and 2022.
By any measure of income distribution, India is currently neither among the most economically unequal countries of the world nor among the most equal. The most equal include most of the nations of Western and Central Europe, Canada, and Australia—all relatively affluent countries. Compared with other developing countries of substantial size, India is certainly less unequal than South Africa and Brazil and probably less unequal than China. Income inequality in India is more comparable to that in Argentina, Russia, Indonesia, Nigeria, Pakistan, and Turkey. Wealth inequality in India appears to be less unequal than in the United States, but more unequal than in most other affluent countries and China, especially in the distribution of land (Weisskopf 2011). India, however, has been ranked among the bottom 11 countries in a new worldwide index, on the commitment of nations to reduce inequalities. Oxfam International’s “Commitment to Reducing Inequality Index” ranks India 147th among 157 countries analyzed, describing the country’s commitment to reducing inequality as “a very worrying situation.”2
Impact of inequality: The issue of impact is related to the implementation of reforms that have resulted in the accumulation of economic wealth in limited geographical city centers where economic prosperity is enjoyed by the few who directly accrue the benefits, leaving the others entirely dependent on the government. Upward income mobility within these lower income classes remains an issue due to the lack of adequate education, health standards, and access to increasing productive job opportunities. Inequalities of income and wealth have a way of spilling over into other domains such as education and health. Economic inequalities are known to have stress and demoralization effects on workers. Inequality can thus dampen productivity, and so earning potential, and so productivity again in a vicious cycle.
Besides, elites in a highly unequal society would have a large say in the budgetary provisions made by a state for social sector spending and its financing through taxation. Public health and public education might be expected to be among the casualties of a system of self-centered vested interests wrought by large concentrations of economic resources and political power in the hands of a few. (Subramanian 2017b)
In short, extreme inequality leads to the following:
- Political tensions
- Social instability
- Frustrated aspirations
- Loss of trust in governments
- Breakdown of law and order
- Discouragement to investors
- Charges of crony capitalism
- Drying up of investment and eventually growth itself
As the pressure of population grew, with large migrations to urban areas, shortfalls in public services and the unwillingness of better-off sections of the citizenry to live with these infrastructural deficiencies led to the great secession. The year 1991 was the first window of opportunity for the Indian middle class. Money is the medium for the transfer of goods and services from the hitherto totally public domain to private enclaves of wealth and prosperity as living standards improve for a growing middle class with aspirations to the “good life.” There are a variety of reasons for this critical situation, best summed up as “the triumph of private greed over public need” (Ramani 2016).
Most unfortunate is that the islands of excellence in the country still float in a sea of mediocrity, a consequence of an unimaginative education system, blatant patronage based on ethnic and other considerations, and an acceptance of sloppy, disinterested performance. The problem with inequality is not only that it obstructs the pursuit of collective goals and the common good, it also erects structural barriers to development, for example, through meager or regressive taxation and underinvestment in education, health, or infrastructure. Dani Rodrik has argued that widening inequality can weaken public support for economic reforms, and thus, encourage governments to choose populist policies. This is a lesson that the economic strategists around the government should be sensitive to.3 High levels of inequality are also correlated with the possibility of political capture by elites, who defend their interests by blocking egalitarian reforms. It is morally outrageous that a few wealthy individuals are collecting a growing share of India’s wealth, while the poor are struggling to find their next meal or pay for medicines.
It is very unfair to see that globalization and technological change favor those who start out with skills, capital, and networks. An unequal distribution distorts consumption patterns in ways that inhibit economic growth. The important story is the ongoing disappointment of the bulk of India’s people (Singh 2018). It is true that rising inequality has adverse economic and social consequences. Many other inequalities go so far as to undermine the integrity of a society’s commitment to democracy.
The world has become increasingly aware of inequality’s pernicious effects on democracy, economic growth, peace, justice, and human development. It has also become clear that inequality erodes social cohesion and increases the risk of violence and instability. Whatever be the reasons, at the very beginning of the 21st century, India is characterized by large and high inequalities at the state and district levels. Regional inequality is seen in growth rates, investment, job creation, educational institutions, law and order, and governance. Economic development has enhanced divergence rather than fostering convergence. Inter- and intraregional disparity has accentuated. “Regional inequality among the different states of India can perhaps have a more adverse impact on the political economy of the country” (Chakravarty and Dehejia 2017).
Policy Measures for Tackling Inequality
Governments are often seen as the means for redressing unfairness. They have the capacity to redistribute income and wealth through policies of taxation, investment, and welfare. Despite the efforts of reformers, though, the divergence between the wealthy and the impoverished has continued within and between countries. Political concern about inequality is seldom as great as for economic growth, terrorism, crime, and a host of other topics (Engel and Martin 2015). The arguments for limiting economic inequality are of four broad kinds: moral, political, economic, and social (Weisskopf 2011).
The government’s economic policies can be oriented to reduce economic inequality without reducing economic growth. Weisskopf (2011) has identified the kinds of inequality-reducing policies that are least likely to have such adverse effects on economic growth. He has suggested limiting the economic gains of the rich through fiscal and direct measures. There is much that the government can do to reduce economic inequalities while promoting economic growth and combating poverty.
The most promising policies that limit the economic gains of the rich are those that tax their income and (especially) wealth progressively, that reduce ‘corporate welfare,’ that break up monopolistic market positions, and that shift ownership away from absentee asset-owners (especially of land). The most promising policies that expand the economic gains of the poor and the marginalized are those that improve their health, that increase their access to good-quality education institutions, that improve their access to credit markets, that promote higher employment, and that shift asset ownership to actual producers (especially cultivators). These policies are not pursued to a much greater extent nowadays, not on any iron laws of economics, but on the current constellation of political power (Weisskopf 2011).
Extreme income inequality is bad. It should be reduced by taxing the rich at a progressive rate, and providing safety nets and upward ladders to the poor. But such income redistribution needs sanction by a democratic regime accountable to citizens. Good policy can do an enormous amount to improve prospects. Hope should, however, be tempered by realism. India is blessed with a deeply entrenched democratic system, but that is no shield against poor decisions. Inequality is clearly a serious problem that merits political attention. But focusing on trade is not the way to resolve it.
Any policy to promote equality in income opportunity should be based on an understanding of the nature of the inequalities, which are very different in different parts of India. Thus, although education has an important income-enhancing power, a rural–urban disparity in returns to higher education is marked in the country. India has social protection programs at different levels: (i) universal capability enhancing programs (e.g., health and education); (ii) targeted programs for the poor and vulnerable to provide socioeconomic security; (iii) infrastructure (rural housing, rural drinking water, Swatch Bharat Mission [Sanitation]); (iv) social protection for the unorganized/informal workers. Ensuring greater work participation of women, boosting farm prospects, and providing universal basic income can make a dent. “Solutions to reducing income inequality lie in three aspects: (i) investing in women; (ii) investing in agriculture; and (iii) reforming workplace laws” (Mokkapati 2018).
The market creates income inequality; governments reduce it through taxes and social transfers. That’s the conventional picture—only it doesn’t work as well as it used to, and new ways of fighting inequality are needed, likely focusing on moving more people into better quality jobs. The poor and the have-nots must be assured a decent level of disposable income to spend on merit goods like education, medical facilities, insurance policy, and other social security measures, which, in a welfare state, should be government obligation.
To achieve a higher rate of poverty reduction, India will need to address the inequalities in asset and income distribution and in opportunities that impede poor people from participating in the growth process. In the quest for higher economic growth, we cannot afford to ignore inequality. Unfortunately, in India, the overall emphasis on redistribution has been singularly lacking and inequalities have tended to persist and increase with growth (Kapoor 2013).
The inequality problem has to be understood properly if it has to be dealt with successfully. Too much of the Indian debate is dominated by either ideological battles or vacuous moralizing. Inequality should be a central feature of every policy discussion. The question is how much inequality is tolerable. This is for every society to decide, collectively. In India, evidence is overwhelming, and there is need to have social and economic policy that focuses on reducing this inequality. The job of the government is to periodically redress inequality by redistribution. Not all anti-inequality measures have to be redistributive. Increasing supplies of public goods like roads, railway, public transport, quality educational institutions are all examples of where beneficiaries get more than what is borne by taxpayers.
Economic reforms should focus more on efficient delivery systems of public services. Many reckon that poor governance is the biggest constraint in achieving the aspirations of a new generation and reduction in poverty and inequality. A major institutional challenge is the accountability of service providers, particularly the public sector. Recent literature also focused on eradication of corruption for reduction in inequalities. Issues like electoral reforms, crony capitalism, election funding, and corruption should be part of the reform agenda to reduce inequalities (Dev 2016a). “The problem of corruption is sufficiently important and urgent to justify exploring all potential solutions and starting with imperfect ones. Waiting for a 100 percent solution to emerge only guarantees getting 0 percent” (Dixit 2016). Use of technology can be a game changer for some forms of corruption. There are many examples in India where the use of technology has reduced corruption, such as getting railway reservations, filing of income tax returns and getting the refund, getting pension and other such benefits are being transferred directly to the beneficiaries bank account.
The state must intervene where markets fail, as in the provision of health care, education, law and order, and clean air. Growth alone cannot guarantee equal access to public goods and high-quality services; deliberate policies are required. It is essential that the fruits of reform are distributed more equitably so that relative disparities are less extreme. The way to do this is not by giving the poor innumerable handouts but by empowering them. This is where the role of the state becomes important. The focus of modern, progressive policies should, therefore, be to create greater equality of opportunity, and not restrict opportunities to equalize outcomes. Growth is not the enemy. India has a major inequality problem, in terms of the distribution of gains of growth, reflecting differential opportunities. The present skewed income growth pattern needs to be sharply curbed. Policymakers need to be mindful about perceived fairness, equality of opportunity, provision of basic needs, and poverty alleviation. “Even if one is concerned only with poverty, inequality can’t be ignored as rise in inequality would adversely affect poverty reduction” (Dev 2016a).
Even before inequality became fashionable in the post-Piketty (2014) world, concern about inequality had been growing in the country. Inequality in the country may not be as high as the French economist would have us believe, but it is worryingly high. As the inequities in opportunities across the country do not receive the attention they deserve, politicians are able to sell populist palliatives and get away with that. Without intervention, today’s inequalities in education will become tomorrow’s inequalities in the distribution of wealth and wider opportunities for human development.
To sum up this discussion, very high levels of inequality are bad in themselves. Discussions of inequality often focus on income and wealth distribution. The first thing one has to do is to define inequality. Even income inequality turns out to be surprisingly ill defined. It is a melting pot that contains wealth inequality, wage inequality, inequality of opportunity, inequality of political power, and often rigidity of socioeconomic class; yet, these things cannot all be made into a single issue called inequality. They do not arise from the same source nor would they be eliminated by the same solution. Fixing one will not necessarily fix another, and there is no comprehensive solution that will fix them all. The issue is important and clear but solutions are very difficult. The government can do something—but it remains to be seen exactly what, and how much (McArdle 2016).
There should be objectivity in the analysis of the emotive and ideological subject of inequality. One is looking at the likelihood of a more equal India. Inequalities are much more than economic disparities. The ideas of equality and inequality also have noneconomic dimensions—norms, culture, and beliefs can also influence the level of inclusion/exclusion. An important issue is related to the exclusion of Scheduled Castes (SCs), Scheduled Tribes (STs), women, and minorities. Social and political factors are important apart from economic factors. Growth with redistribution efforts will not affect social behavior without social transformation. It is increasingly clear that the process of development must become more socially and economically inclusive. If we do not have a tolerant and inclusive society, severe social tensions can emerge. There are, thus, strong social, political, and economic reasons for reducing inequalities. The agenda of inclusiveness and equality has to be given highest priority for broad-based social and economic development (Dev 2016b).
There is need for political consensus to act with urgency to reduce the high levels of inequality that not only threaten the vision for sustainable development, but also grievously insult the functioning of democracy. Politics can respond to inequality, and the constitution is not set in stone. It is well to remember Milton Friedman’s dictum that it takes a crisis to bring real change, so that the job in the meantime is to develop alternatives to existing policies that would be ready for when “the politically impossible becomes politically inevitable.”4 The challenge ahead for central and state governments remains enormous.
Endnotes
- 1. MINT. May 9, 2016. “Inequality in India Is Far Worse Than Believed,” Editorial Comment. https://www.livemint.com/Opinion/GdqzdRPteRzQFnTWAwgLYI/Inequality-in-India-is-far-worse-than-believed.html, (accessed September 3, 2019).
- 2. The Economic Times. October 10, 2018. “India Ranks among the bottom 15 of Oxfam World Inequality Index.” https://economictimes.indiatimes.com/news/politics-and-nation/india-ranks-bottom-of-oxfam-world-inequality-index/articleshow/66137424.cms, (accessed September 3, 2019).
- 3. MINT. May 9, 2016. “Inequality in India Is Far Worse Than Believed,” Editorial Comment. https://www.livemint.com/Opinion/GdqzdRPteRzQFnTWAwgLYI/Inequality-in-India-is-far-worse-than-believed.html, (accessed September 3, 2019).
- 4. GoodReads. n.d. “Milton Friedman > Quotes > Quotable Quote.” https://www.goodreads.com/quotes/110844-only-a-crisis---actual-or-perceived---produces-real, (accessed September 4, 2019).