TOPIC: AN ANALYSIS OF THE “STATE OF INEQUALITY IN INDIA” REPORT

THE CONTEXT: The ‘State of Inequality in India’ report has been compiled by the Institute for Competitiveness and released by Economic Advisory Council to Prime Minister (EAC-PM) chairperson Bibek Debroy on 18^th May 2022. The report demonstrates the wide gap between the top and bottom earners which is getting wider and further states that income deprivation can increase the probability of descent into poverty. This article explains the findings and suggestions of the report.

• ABOUT THE REPORT:
• 1. The report compiles information on inequities across sectors of health, education, household characteristics and the labour market. Inequities in these sectors make the population more vulnerable and trigger a descent into multidimensional poverty.
• 2. The report stretches the narrative on inequality by presenting a comprehensive analysis that shapes the ecosystem of various deprivations in the country, which directly impacts the well-being of the population and overall growth.
• PARTS OF THE REPORT
•  The report consists of two parts – Economic Facets and Socio-Economic Manifestations which looks at five key areas that influence the nature and experience of inequality.
• FIVE KEY AREAS
•  These are income distribution, labour market dynamics, health, education and household characteristics.
• SOURCE OF DATA FOR THE REPORT
• The report is based on the data derived from various rounds of the Periodic Labour Force Survey (PLFS), National Family and Health Survey (NFHS) and United Information System for Education Plus.

 KEY HIGHLIGHTS OF THE REPORT

• WEALTH CONCENTRATION
• Urban areas have a 44.4% wealth concentration in the highest quintile (20%) compared to a meagre 7.1% concentration in rural areas.
• UNEMPLOYMENT RATE
•  India’s unemployment rate is 4.8% (2019-20), and the worker population ratio is 46.8%.
• In 2019-20, among different employment categories, the highest percentage was self-employed workers (45.78%), followed by regular salaried workers (33.5%) and casual workers (20.71%).
• The share of self-employed workers also happens to be the highest in the lowest income categories.
• The Labour Force Participation Rate (LFPR) has risen from 49.8% in 2017-18 to 53.5% in 2019-20.
• HEALTH
• The results of NFHS-4 (2015-16) and NFHS-5 (2019-21) have shown that 58.6% of women received antenatal check-ups in the first trimester in 2015-16, which increased to 70% by 2019-21.
• 78% of women received postnatal care from a doctor or auxiliary nurse within two days of delivery, and 79.1% of children received postnatal care within two days of delivery.
• However, nutritional deprivation in terms of overweight, underweight, and prevalence of anaemia (especially in children, adolescent girls and pregnant women) remains areas of huge concern requiring urgent attention.
• Additionally, low health coverage, leading to high out-of-pocket expenditure, directly affects poverty incidences.
• HEALTH INFRASTRUCTURE
• In the area of health infrastructure, there has been a considerable improvement in increasing the infrastructural capacity with a targeted focus on rural areas.
• From 1,72,608 total health centres in India in 2005, total health centres in 2020 stood at 1,85,505.
• States and Union Territories like Rajasthan, Gujrat, Maharashtra, Madhya Pradesh, Tamil Nadu and Chandigarh have significantly increased health centres (comprising Sub-Centres, Primary Health Centres, and Community Health Centres) between 2005 and 2020.
• HOUSEHOLD CONDITIONS
• By 2019-20, 95% of schools would have functional toilet facilities on the school premises (95.9% functional boy’s toilets and 96.9% functional girl’s toilets).
• 80.16% of schools have functional electricity connections with States and Union Territories like Goa, Tamil Nadu, Chandigarh, Delhi, Dadra and Nagar Haveli and Daman and Diu, Lakshadweep and Puducherry have achieved universal (100%) coverage of functional electricity connections.
• According to the National Family Health Survey-5 (2019-21), 97% of households have electricity access, 70% have improved access to sanitation, and 96% have access to safe drinking water.
• EDUCATION
• The Gross Enrolment Ratio has also increased between 2018-19 and 2019-20 at the primary, upper primary, secondary and higher secondary.

 MAJOR SUGGESTIONS BY THE REPORT

• UNIVERSAL BASIC INCOME (UBI) SCHEME
• The report has suggested that the Government should launch a guaranteed employment programme for the urban unemployed and roll out a universal basic income (UBI) scheme to reduce income gaps.
• RAISE MINIMUM INCOME
•  The report also recommended steps to raise minimum income to make vulnerable sections able to save and to set aside an asset with the idea of using it sometime in the future when it is needed.
• LABOUR FORCE PARTICIPATION
• Looking at the difference between the labour force participation rate in rural and urban areas, we can understand that the urban equivalent of schemes like MGNREGS that are demand-based and offer guaranteed employment should be introduced so that the surplus labour is rehabilitated.
• EXPENDITURE TOWARD SOCIAL SERVICES
• The Government must allocate more percentage of the expenditure towards social services and the social sector to make the most vulnerable population resilient to sudden shocks and stop their descent into poverty.
• MAPPING THE POVERTY
• The most important aspect of measuring poverty in a multi-dimensional context requires mapping the mobility in and out of poverty.
• PERIODIC LABOUR FORCE SURVEY (PLFS)
• The results of the three rounds of the Periodic Labour Force Survey (PLFS) noted that in the three years excepting for very marginal changes, the top 1 per cent of the population held 6-7 per cent of the total income earned, while the top 10 per cent held a third.
•  The report shows a relatively better picture of the country’s income pyramid than in the World Inequality Report (WIR) 2022
• ·         According to the WIR, India stood as a poor and very unequal country, with an affluent elite.
• ·         In 2021, the top 10% of the population had 57% of the total national income and the top 1% held 22%.
• ·         The bottom half of the population held just 13% of the national income in 2021.

SIGNIFICANCE OF THE REPORT

IMPLICATIONS OF RISING INEQUALITY

• LOWER INVESTMENT LEVELS
• Marginal propensity to save is high in upper-income levels while marginal propensity to consume is more at the lower levels. One cannot spend beyond a limit.
• The surplus goes into savings, which, in turn, get transformed into increased investments for the economy through financial intermediaries.
• HIGHER VULNERABILITIES TO EXTREME EVENTS
• Poor people have little to no savings or wealth which makes it very difficult for them to survive in extreme situations like pandemics, Disasters etc.
• UNDERMINES DIGNITY
• People with fewer resources have to work day and night, an off day may deprive them of a full meal for that day.
• They starve for food, clothing and other basic things which undermines their right to a dignified life under Article 21.
• HAMPERS PROGRESS OF FUTURE GENERATIONS
• Lack of access to income and wealth hampers the ability of the poor to access the levers (like education) that enable upward mobility.
• Children born in poor families remain trapped in poverty, perpetually.
• HIGH CRIME RATES
•  A study published in the journal ‘Nature’ showed that more unequal societies tend to have higher crime.
• Inequitable distribution of wealth leads to lower social trust.

THE CHALLENGES IN ADDRESSING INEQUALITY

• VICIOUS CYCLE OF POVERTY
• Poor health, education and skill set lead to low productivity and unemployment/underemployment, fewer savings keeping the vulnerable sections in the Poverty Trap perpetually.
• LOW FEMALE LABOR FORCE PARTICIPATION RATE
• Female LFPR still remains low. The Report notes that India’s FLFPR has increased from 23.3% in 2017-18 to 30% in 2019-20 (although PLFS survey has put this figure to 22.8% for 2019-20).
• Lack of Education, Early Marriage, household responsibilities etc. force women to opt-out of jobs which reduces their income.
• POOR COVERAGE OF SCHEMES
• A worrisome 85.9% of people from rural areas and 80% from urban areas are not covered under health schemes. The coverage is inadequate in other social sector schemes as well.
• HEATH LACUNAE
• Nutritional deprivation in terms of overweight, underweight, and prevalence of anaemia (especially in children, adolescent girls and pregnant women) remains areas of huge concern requiring urgent attention, as per the report.
• Additionally, low health coverage, leading to high out-of-pocket expenditure, directly affects poverty incidences.
• GLOBAL UNCERTAINTIES
• The continuation of COVID-19 and the Russia-Ukraine conflict have pushed the inflation levels in the country thereby creating more problems for the poor.
• A recent World Bank estimate shows that 1% increase in the food price will push 10 million people into extreme poverty.
• NO DATA TO MEASURE INCOME INEQUALITY
•  In India, we lack comprehensive data for measuring income inequality.
• The closest was NCAER data many years ago (2018).
• VERY OLD AND OUTDATED DATA
• The last comprehensive NSS data on consumption and expenditure is for 2011-12.
• NO EXACT POVERTY FIGURES
• In the absence of data on consumption expenditure, a clear articulation of the poverty line and also of poverty numbers is not possible.
• All kinds of extrapolation are done on the basis of 2011-12 data, on the basis of the assumed Tendulkar poverty line.
• The pandemic then led to a decline in national income in 2020-21
• Given the increased pace of formalisation of the economy during the last two years, many analysts reckon the income gap may have widened since 2019-20.

STEPS TAKEN TO REDUCE INEQUALITY

• PROGRESSIVE TAXATION
• A progressive tax is one where the average tax burden increases with income. High-income families pay a disproportionate share of the tax burden, while low- and middle-income taxpayers shoulder a relatively small tax burden.
• FINANCIAL INCLUSION
• Jan Dhan-Aadhar-Mobile Trinity (or JAM Trinity): It focuses on mobile numbers, Aadhar Card and post office accounts as alternative financial delivery mechanisms to ensure that benefits reach the poor households seamlessly.
• AYUSHMAN BHARAT
• It focuses on providing care through Health Wellness Centres (AB-HWC) covering child and maternal health services, non-communicable diseases, and free drugs and diagnostic services.
• SAMAGRA SHIKSHA ABHIYAN
• It is an Integrated Scheme for School Education. This programme subsumes the three erstwhile Centrally Sponsored Schemes of Sarva Shiksha Abhiyan (SSA), Rashtriya Madhyamik Shiksha Abhiyan (RMSA) and Teacher Education (TE).
• MGNREGA
• It guarantees work to every rural household with an aim to enhance the livelihood security of people.
• PRADHAN MANTRI KISAN SAMMAN NIDHI (PM-KISAN)
• To supplement the financial needs of the Small and Marginal Farmers in procuring various inputs to ensure proper crop health and appropriate yields, commensurate with the anticipated farm income at the end of each crop cycle.
• To protect them from falling in the clutches of moneylenders for meeting such expenses and ensure their continuance in farming activities.
• PRADHAN MANTRI GARIB KALYAN ANN YOJANA (PMGKAY)
• The scheme aimed at providing each person who is covered under the National Food Security Act 2013 with an additional 5 kg grains (wheat or rice) for free, in addition to the 5 kg of subsidised food grain already provided through the Public Distribution System (PDS).
• INITIATIVES FOR SKILL DEVELOPMENT
• Pradhan Mantri Kaushal Vikas Yojana: The flagship Pradhan Mantri Kaushal Vikas Yojana (PMKVY) scheme was launched in 2015 to provide short-term training, skilling through ITIs and under the apprenticeship scheme. Since 2015, the government has trained over 10 million youth under this scheme.
• SANKALP and STRIVE: The SANKALP programme which focuses on the district-level skilling ecosystem and the STRIVE project which aims to improve the performance of ITIs are other significant skilling interventions.
• THE ANALYSIS OF THE REPORT:
• The timing of the report and some of its recommendations are also crucial — for instance, one of its key recommendations call for introducing UBI. This is not a novel idea.
• The Ministry of Statistics and Programme Implementation had decided not to release the results of the all-India Household Consumer Expenditure Survey (CES) conducted by the National Statistical Office (NSO) during 2017-2018, citing “data quality issues”, the report shall be made public.
• The State of Inequality in India Report concedes that while earnings have risen over the years, the benefits of that growth have largely remained concentrated and this has marginalised the poor further. We have made some progress in the past but still miles to go
• THE WAY FORWARD:
• The government should raise the minimum wage rate, especially in the unorganized sector wherein people get very less social security benefits. Assurance of minimum wage can be done by proper implementation of MGNREGA and the introduction of a similar scheme in urban areas.
• The debate on Universal Basic Income has been going on for quite some time. The Government can now shift to action mode and take steps for a speedy rollout.
• There should be a higher allocation of money towards social services. India requires 6% of GDP in education and 2.5% of GDP in Health to ensure equitable development.
• There should be a greater focus on digitization and JAM usage in order to reduce inclusion and exclusion errors in schemes.
• THE CONCLUSION: B.R. Ambedkar had issued a grim warning in 1949 that if we continue to deny social and economic inequality for long, we could “blow up the structure of political democracy”. It is time to act on his advice for socio-economic equality. The findings of the inequality report clearly indicate that while there has been some improvement in the employment and income parameters in the recent pre-COVID-19 years, the benefit has been largely restricted to the dominant groups at the expense of the disadvantaged groups who have been marginalised and deprived of the gains.
• Mains Practice Questions:
• 1. Is inequality getting worse in India, and what does it mean for the poor in the country? Justify your opinion and suggest measures to reduce the inequalities.
• 2. While earnings have risen over the years, the benefits of that growth have largely remained concentrated and this has marginalised the poor further. Critically analyse and suggest measures to further the socio-economic equality.