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INEQUALITY REPORT RENEWS QUESTION ON GROWTH MODEL

Syllabus:

GS 3: Inclusive Growth and issues arising from it.

Why in the News?

• India’s income and wealth inequality have reached historic highs, placing it among the most unequal countries globally.
• The World Inequality Lab’s recent working paper, co-authored by notable economists like Nobel laureate Thomas Piketty, reveals alarming statistics about wealth concentration and income distribution in India.

Historic Inequality Levels

• Unprecedented Wealth Disparity: India’s income and wealth inequality have reached alarming levels, marking the country as one of the world’s most unequal nations.
• Wealth Concentration: The World Inequality Lab’s recent working paper reveals that the top 1% of India’s richest citizens own a staggering 40.1% of the nation’s wealth.
• Income Disparity: The same report indicates that the top 1% accounts for 22.6% of the total income, highlighting the growing income gap.
• Six-Decade High: The current wealth concentration is at its highest in the last 60 years, signifying a prolonged trend of increasing inequality.

Source: The Indian Forum

• Global Comparison: India’s income share disparity now surpasses that of traditionally unequal countries like Brazil and the US.

Extension of Previous Findings

• Piketty’s 2014 Study: The recent report builds upon Thomas Piketty’s 2014 study, which first brought attention to India’s severe income-wealth gap.
• Liberalisation Impact: India’s economic liberalisation in 1991 led to a dramatic increase in the number of billionaires, rising from a mere one in 1991 to an astounding 162 in 2022, as reported by Forbes.
• Widening Gap Confirmation: Multiple independent studies, including Piketty’s, corroborate the widening gap between India’s affluent and its rural poor.
• Growth Stunting: The disparity has been particularly detrimental to the growth of the middle and lower-income groups, hindering overall economic development.
• Consistent Trend: The continuation of such trends underscores the urgent need for policy interventions to address escalating inequality.

Debate Over Inequality Rankings

• Expert Disagreements: While the World Inequality Lab’s findings suggest India’s high ranking among unequal nations, some experts contest this claim.
• Methodological Critiques: Critics challenge Piketty’s numbers, pointing to issues with the methodology and selective sourcing from Forbes and Hurun rich lists.
• Alternative Indicators: Some experts favour using the Gini coefficient, a standard measure of income distribution, over Piketty’s approach.
• Positive Trend in Gini Coefficient: SBI Research reports a decline in India’s Gini coefficient from 0.472 in 2014-15 to 0.402 in 2022-23, indicating a reduction in inequality.
• Need for Comprehensive Analysis: The debate highlights the importance of comprehensive and transparent methodologies in assessing and addressing inequality.

Growth vs. Inequality: The Central Debate

• Growth for Poverty Alleviation: The central question revolves around whether prioritising growth can effectively reduce poverty, even if it leads to increased inequality.
• Historical Growth Patterns: Data from the 1960s to 1980s shows more equitable growth, with the bottom 90% experiencing higher growth rates than the top 10%.
• Post-Liberalisation Disparities: Following the 1991 liberalisation, growth rates for the top 10% accelerated at a much higher pace than the rest of the population.
• Recent Trends: Between 2014 and 2022, the middle 40% witnessed slower growth than the bottom 50%, while the top 10% continued to see rapid growth.
• Complex Relationship: The intricate link between economic growth, poverty alleviation, and inequality necessitates a balanced approach to development.

Factors Contributing to Rising Inequality Amid High Economic Growth in India

• Uneven Economic Distribution: Disproportionate growth benefits specific sectors or income groups, resulting in uneven wealth distribution.
• Regressive Tax Systems: Tax policies favoring the wealthy or lacking progressivity contribute to income disparities.
• Limited Social Safety Nets: Inadequate welfare programs leave vulnerable populations unsupported, widening the wealth gap.
• Wealth Concentration: Accumulation of wealth among a few perpetuates inequality across generations as advantages are passed down.
• Land Reform Shortcomings: Insufficient land reforms leave a large population landless or with inadequate land, leading to economic vulnerability.
• Crony Capitalism: Corrupt practices and favoritism lead to concentrated wealth among a select group, exacerbating inequality.
• Economic Focus on Finance: Overemphasis on financial markets and speculation over productive investments leads to wealth concentration in the financial sector.
• Wage Disparities: Wage gaps between skilled and unskilled workers and lower wages in informal labor markets widen income inequality.
• Weak Labour Regulations: Insufficient minimum wage regulations and limited collective bargaining rights contribute to income disparities.
• Caste-Based Discrimination: Social exclusion based on caste marginalizes certain groups, restricting their access to opportunities and resources.
• Gender Inequality: Gender-based discrimination results in unequal employment opportunities and wage gaps.
• Educational Inequities: Unequal access to quality education limits upward mobility, reinforcing existing disparities.
• Technological Disadvantages: Automation and technological advancements lead to job losses and wage stagnation for certain groups, exacerbating income inequality.

Policy Implications and Challenges

• Preventing Plutocracy: There is a growing concern that India could transform into a plutocratic society if wealth concentration continues unchecked.
• Inclusive Growth Strategies: Policymakers need to focus on fostering inclusive growth that benefits all segments of society, rather than a select few.
• Wealth Redistribution: Implementing progressive taxation and welfare policies can help redistribute wealth and reduce income disparities.
• Enhancing Social Safety Nets: Investing in education, healthcare, and social security can uplift the poor and bridge the income gap.
• Strengthening Governance and Transparency: Improving governance, transparency, and accountability in economic policies can help in creating a more equitable society.

Way Forward :

1. Comprehensive Analysis: Adopt transparent methodologies, incorporating alternative indicators like the Gini coefficient.
2. Wealth Redistribution: Implement progressive taxation and inclusive welfare policies.
3. Enhance Social Safety Nets: Invest in education, healthcare, and comprehensive welfare programs.
4. Labour Policy Reforms: Strengthen regulations, set minimum wage standards, and refocus on productive investments.
5. Combat Social Exclusion: Eradicate caste and gender-based discrimination, promote equal opportunities.
6. Governance Improvements: Foster transparency, accountability, and equitable resource distribution.
7. Balanced Growth Approach: Prioritize inclusive growth benefiting all societal segments.
8. Learn from Global Practices: Adapt successful strategies from countries with effective inequality management.
9. Public Engagement: Raise awareness and collaborate with civil society for collective commitment.
10. Continuous Monitoring: Establish evaluation mechanisms to refine and adapt policies based on outcomes.

Conclusion

The escalating income and wealth inequality in India require immediate attention and robust policy interventions. The focus should be on promoting inclusive and sustainable development that ensures equitable wealth distribution. Achieving a balance between economic growth and social equity remains a significant challenge for India’s policymakers. India’s experience with rising inequality offers valuable lessons for other countries grappling with similar challenges. The trajectory of India’s inequality will largely depend on the policy choices made today, highlighting the need for proactive and inclusive strategies.

Source:

https://www.google.com/amp/s/www.newindianexpress.com/amp/story/editorials/2024/Mar/22/inequality-report-renews-question-on-growth-model

Mains Practice Question:

Discuss the factors contributing to India’s rising income and wealth inequality despite high economic growth. Examine the debate surrounding inequality rankings and assess its implications for India’s growth model.