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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.