GROWTH OBSESSION: ECONOMIC GROWTH AND INEQUALITY

Syllabus:

GS3 : 

  • Inclusive Growth and issues arising from it.
  • Indian Economy and issues relating to Planning, Mobilization of Resources, Growth, Development and Employment.

Focus:

  • Media outlets extensively cover the annual World Economic Forum, echoing the growth-centric narratives propagated by global leaders.
  • Notably, Indian leaders set ambitious economic targets, envisioning the nation as a $10 trillion economy.
  • Despite aspirations for economic prosperity, democratic principles advocate for a holistic approach that considers societal well-being beyond mere economic expansion.

Growth and Inequality

  • Recent economic growth in India has coincided with a surge in inequality, a trend that dates back to the 1980s.
  • The gap between the affluent elite and the marginalized sections of society has widened considerably, positioning India as one of the world’s most unequal societies.
  • While economic growth has been robust, its benefits have disproportionately favored the affluent, exacerbating social disparities.
Source: The India Forum

Testaments of Inequality :

  • Analysis of rural wage data reveals stark inequality in income distribution.
  • Real wage rates for agricultural labour have seen a marginal increase of 4.6% from 2014 to 2022-23.
  • Conversely, non-agricultural and construction workers have experienced a decline in real wage rates during the same period.
  • A significant portion of the rural workforce continues to grapple with stagnant or declining real wages, highlighting the unequal distribution of economic gains.

Causes of Growth Inequality:

Unemployment-Underemployment:

  • Low labour productivity due to unemployment and underemployment exacerbates poverty and inequality.
  • Planned economic growth fails to create sufficient employment opportunities, leading to stagnant income levels.

 Inflation Effects:

  • Inflation disproportionately benefits profit earners while wage earners suffer.
  • Real income declines during inflation, diminishing the purchasing power and standard of living of the poor.

Tax Evasion:

  • High personal income tax rates incentivize tax evasion, contributing to income and wealth concentration.
  • Rampant tax evasion fosters income distribution imbalances, reinforcing inequality.

Regressive Taxation:

  • Indirect taxes, the primary revenue source for governments, are regressive in nature, exacerbating inequality over time.
  • Dependence on indirect taxes increases income disparities.

 New Agrarian Strategy:

  • The Green Revolution primarily benefits wealthy farmers and landowners, widening income distribution gaps.
  • Landless laborers and marginal farmers face worsening economic conditions despite increased agricultural productivity.

Education Disparity:

  • Variations in educational opportunities contribute to income inequality.
  • High demand for skilled personnel in certain fields results in higher earnings, while lack of access to education leads to lower incomes.

Gender, Race, and Cultural Factors:

  • Gender, racial, and cultural disparities within communities exacerbate economic inequality.
  • Ethnic minorities and specific racial groups face higher levels of poverty and economic exclusion.
Source: Business today

Consequences of Growth Inequality:

  • Social Conflict:
  • Inequality fuels social conflict among different social groups, leading to violent clashes and unrest.
  • Ethnic movements and demands for reservations highlight disparities and provoke conflicts among various caste and ethnic groups.
  • Marginalization of Minorities:
  • Religious, ethnic, and gender disparities marginalize minority groups, hindering their engagement in mainstream society.
  • Economic exclusion of religious minorities impacts overall GDP growth.
  • Low Development Indices:
  • Socioeconomic disparities contribute to low development indices, including infant mortality rate, maternal mortality rate, and poor educational outcomes.
  • Public healthcare and education suffer due to economic disparities, affecting lower-income groups disproportionately.
  • Constitutional Contravention:
  • Growth inequality violates constitutional principles of equality, including status, opportunity, and wealth distribution.
  • Regional Disparities:
  • Regional imbalances jeopardize cooperative federalism by creating unequal development and opportunities across regions.
  • Corporate Influence:
  • Excessive corporate influence in policymaking and erosion of workers’ rights exacerbate income inequality.
  • Cost-minimization pursuits by corporations widen income gaps, prioritizing shareholder returns over equitable wealth distribution.
  • Social Maladies:
  • Inequality fosters social maladies like violence and mental health disorders, deepening societal divisions.
  • Disparities in income and opportunity hinder collective action for public goods provision, hindering progress in areas like sanitation and environmental conservation.
  • Undermining Democracy:
  • Economic inequality undermines democratic principles by perpetuating disparities and limiting socio-economic mobility.
  • Limited opportunities for advancement diminish prospects for inclusive societal growth and development.

Way Forward:

  • Skill Development:
  • Invest in skill development to capitalize on the demographic dividend and reduce inequality.
  • Transition to a skill-led economy to create more opportunities for youth.
  • Progressive Taxation:
  • Implement progressive taxation policies targeting the wealthy and luxury goods to reduce income disparities.
  • Allocate tax revenue to fund public programs aimed at lessening inequality.
  • Equal Opportunity:
  • Establish mechanisms for equal opportunity in employment and entrepreneurship.
  • Provide scholarships and stipends to enable access to education for economically disadvantaged individuals.
  • Promote Labour-Intensive Manufacturing:
  • Encourage labour-intensive industries such as construction, textiles, and footwear to absorb unemployed individuals.
  • Boost manufacturing sectors to create employment opportunities and reduce income inequality.
  • Inclusive Growth:
  • Promote and implement an inclusive growth agenda to address growing inequality.
  • Focus on human development indicators like healthcare, education, and social safety nets to minimize disparities.
  • Addressing Wealth Concentration:
  • Consider introducing inheritance tax targeting the super-rich to mitigate wealth concentration and promote more equitable distribution of resources.
  • Encouraging Private Sector Investment:
  • Improve the business environment and enact pro-enterprise policies to attract private sector investment, stimulating economic growth and creating opportunities for all segments of society.
  • Investment in Human Development:
  • Invest in healthcare, education, and social safety nets to minimize inequality.
  • Increase government investment in research and development (R&D) and innovation to spur economic growth and reduce disparities.

A more inclusive approach to development is essential for building a resilient and prosperous nation that upholds the values of democracy and social justice.

Source: 

https://www.thehindu.com/opinion/lead/growth-mania-can-be-injurious-to-society/article67790032.ece

Mains Practice Question:

Discuss the relationship between economic growth and inequality in India.