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THE CONTEXT: The Paris-based World Inequality Lab has released a paper titled “Income and Wealth Inequality in India, 1922-2023: The Rise of the Billionaire Raj” that analyzes data on income and wealth inequality in India over the past century. The paper finds that income and wealth inequality in India have reached their highest historical levels, with the top 1% owning 40.1% of the country’s wealth.
THE ISSUES:
- Income and Wealth Inequality: The income and wealth inequality in India have been rising sharply since the 1980s, with a particularly pronounced increase in wealth concentration between 2014-15 and 2022-23. The top 1% of the population now holds 22.6% of income and 40.1% of wealth, which are the highest historical levels for the country. This level of inequality is among the highest in the world, surpassing even South Africa, Brazil, and the United States.
- Regressive Nature of Income Tax: When it is viewed from the perspective of net wealth, the Indian income tax system may be regressive. This implies that the tax system could be placing a disproportionate burden on those with lower net wealth, as opposed to being progressive where tax rates increase with income.
- Poor Quality of Economic Data: The quality of economic data in India is notably poor and has declined recently. This raises concerns about the reliability of official statistics, including GDP figures, and the estimates of inequality might be understating the actual levels.
- Tax Code Restructuring: There is a strong and assertive argument for restructuring of the tax code to account for both income and wealth. This is proposed as a measure to address inequality and to ensure that the benefits of globalization are shared more broadly across the Indian population, rather than being concentrated among the elites.
- Public Investments in Health, Education, and Nutrition: The broad-based public investments in health, education, and nutrition are essential for enabling the average Indian to benefit from economic growth. Suggestion is that such investments could be funded by a “super tax” of 2% on the net wealth of the wealthiest families, which would create fiscal space for these investments.
- Contested GDP Data and Official Statistics: India’s GDP data is highly contested, with former chief economic advisor Arvind Subramanian expressing surprise at the reported growth rates. This issue is part of a broader concern about the credibility of official economic statistics in India.
- Government’s Response to Global Assessments: The Indian government has been refuting global assessments that point to negative economic indicators, such as hunger and malnutrition. It also highlights the government’s reluctance to make data available regularly, which has historically been the norm.
THE WAY FORWARD:
- Challenging Flawed Notions of Growth: The prevalent ‘growth at all costs’ agenda and rhetoric of ‘inclusive growth’ needs to be challenged as they hide structural inequities. The focus should be on equitable development for all groups.
- Ensuring Access to Basic Services: The stark disparity in access to quality privatized education, healthcare, housing, sanitation, technology for those who can afford it versus the poor public services for the rest needs to be addressed by improving public provisions.
- Building Assets for Working Families: Policies to encourage higher savings rates, provide retirement plans, offer savings credits/matches, enable access to fair financial services and home ownership can help working families build wealth.
- Making Taxation Progressive: The tax code needs to be restructured to be more progressive – increasing taxes on the wealthy, inheritance, capital gains, and corporations while providing benefits to low-income groups through EITC expansion, savings incentives, etc.
- Building Assets for Working Families: Policies to encourage higher savings rates, provide retirement plans, offer savings credits/matches, enable access to fair financial services and home ownership can help working families build wealth.
- Investing in Women and Agriculture: Investing in women’s participation in the workforce and in agriculture, where a large portion of the poor work, can significantly reduce poverty and inequality. Providing women with family-friendly policies and men taking equal responsibility at home is important. For agriculture, providing farmers access to services, climate-smart practices, and risk mitigation is key.
- Reforming Workplace Laws: Reforms like raising minimum wages with inflation adjustment, providing universal basic income, strengthening collective bargaining and labour standards like paid leave and overtime rules can help reduce the income gap.
THE CONCLUSION:
There is urgent need for the government to prioritize improving the transparency and reliability of economic data, as this is crucial for informed policymaking and addressing the pressing issue of inequality. Going forward, it will be important for policymakers, researchers, and the public to closely monitor the trends in income and wealth inequality in India, and to work towards implementing evidence-based policies that can effectively reduce the growing divide and ensure more equitable and inclusive economic development.
UPSC PAST YEAR QUESTIONS:
Q.1) Despite Consistent experience of High growth, India still goes with the lowest indicators of human development. Examine the issues that make balanced and inclusive development elusive. 2019
Q.2) Explain the difference between computing methodology of India’s gross domestic product (GDP) before the year 2015 and after the year 2015. 2021
Q.3) Explain intra-generational and inter-generational issues of equity from the perspective of inclusive growth and sustainable development. 2020
MAINS PRACTICE QUESTION:
Q.1) Discuss the key findings of the World Inequality Lab report on income and wealth inequality in India from 1922 to 2023. Analyze the implications of the rising “billionaire raj” and the concentration of wealth at the top. Suggest policy measures that the government can implement to address the growing income and wealth disparities in the country.
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