Editor,
The editorial “India shining?” (ST March 22, 2024) made interesting reading and one cannot disagree with the editorial that “poverty in the country is due to absence of effective governance.” “Income and Wealth Inequality in India, 1922-2023: The rise of the Billionaire Raj” by the World Inequality Lab Co-authored by economists Nitin Kumar Bharti, Lucas Chancel, Thomas Piketty, and Anmol Somanchi, sheds light on critical aspects of India’s economic landscape. The main takeaways from the report are:
1. The growth in average incomes between 1960 and 2022 in India grew at a rate of 2.6% (after adjustment for inflation). Notably, the period from 1990 to 2022 witnessed faster growth, with average incomes increasing by 3.6% per annum. The years 20025-2010 and 2010-2015 witnessed the highest growth rates at 4.3% and 4.9% per annum, respectively.
2. During 1990 to 2022 India experienced a rise in national wealth. The number of very high net worth individuals (those with net wealth exceeding $1 billion) increased significantly: from 1 in 1991 to 52 in 2011 and 162 in 2022.
3. The Economic reforms in 1991 led to a substantial increase in the share of the adult population filing income tax returns. By 2011 over 5% of adults were filing income tax returns, and this trend continued with around 9& filing returns during 2017-2020.
4. In 2022-23, 22.6% of India’s national income was captured by just the top 1% of the population. This is the highest level recorded since 1922. The top 1% also held 40.1% of the country’s wealth in the same period, reaching its highest level since 1961 when wealth data collection began. These levels of inequality surpass even those observed during the inter-war colonial period.
5. Policy recommendation: The report recommends several policy measures to address inequality in India. (1) Restructuring the tax code to account for both income and wealth. (2) Broad-based public investments in health, education, and nutrition.
The report’s findings underscore the urgency of addressing inequality and promoting social, economic, and environmental justice in India. It highlights the need for targeted policies to ensure a more equitable distribution of resources and opportunities.
Inequality in India is a multifaceted issue influenced by various factors. Some of the key reasons behind this disparity is:
(a) Historical factors: Discrimination against certain sections of society has persisted since ancient times. This discrimination affects their access to education, employment and health care. Unequal land distribution and social hierarchies established during the colonial era continue to impact wealth disparities.
(b)Economic structures and exploitations: Economic structures established during the Imperial era resulted in persistent wealth disparities. Exploitation, both historical and contemporary, contribute significantly to income and wealth inequality.
(c) Social and economic factors: Loss of jobs, informalization of work, low incomes restrict mobility and perpetuate inequities. Lack of assets or wealth further exacerbates disparities.
(d) Beyond caste, gender or family background, other factors play a role: Home sanitation, school facilities, and access to basic infrastructure (electricity, water and healthcare). Crime rate, political stability and environmental risk also contribute.
Why does it matter? Rising inequality has far reaching consequences: There is slower poverty reduction which undermines economic growth sustainability thereby compounding gender inequalities. This in turn impacts health, education, and life chances. The World Economic Forum recognizes “severe income disparity” as a top global risk. Addressing inequality requires policy choices, rejecting market fundamentalism, and changing systems to create a more equitable society.
Addressing inequality requires a combination of evidence-based policies and systemic change. Some policy solutions that can help reduce economic disparities and promote greater equity:
(a) Increase Minimum Wage: Research shows that raising the minimum wage for the lowest-paid workers has several positive effects: It can lift nearly 4.6 million people out of poverty and approximately $2 billion can be added to a nation’s overall real income. Contrary to concerns, increasing the minimum wage does not hurt employment or hinder economic growth.
(b) Expand the Earned Income Tax Credit (EITC): The EITC has proven effective in supporting families. It lifts roughly 4.7 million children above the poverty line annually. Expanding EITC can provide more economic support for the working poor, especially single parents entering the workforce.
(c) Build assets for working families: Policies that encourage higher savings rates and reduce the cost of building assets can enhance economic security for struggling families. Consider implementing a program that automatically enrol workers in retirement plans. Provide a savings credit or federal match for retirement savings accounts, particularly benefitting lower-income households.
(d) Redistribution and opportunity ladders: Ensuring a fair distribution of resources through progressive taxation and social safety nets. Widely available opportunities for education, skill development and upward mobility. Consider policies that address wealth concentration by imposing taxes on inheritances.
(e) Addressing social norms and discrimination: A comprehensive policy framework should tackle prejudice, stereotypes, and cultural norms that reinforce discrimination. Focusing on closing gaps in education, health and nutrition is crucial.
(f) International cooperation: Reducing both within-country and between-country inequality requires global efforts. Promote fair trade, equitable systems, and support marginalized groups.
Remember that public policy plays a vital role in shaping economic outcomes. By implementing evidence-based policies, we can work toward a more equitable society where everyone has a chance to thrive.
Yours etc.,
VK Lyngdoh,
Via email
