THE TYRANNY OF INEQUALITY

THE CONTEXT: The intricate relationship between income inequality and corruption in India, highlight how economic disparities have fueled corrupt practices at the intersection of government and business, particularly in the approval of large infrastructure projects.

THE ISSUES:

• Income Inequality and Wealth Concentration: There is a significant increase in wealth and income inequality in India. The top 1% of the population now controls more than 40% of total wealth, up from 12.5% in 1980. Similarly, the top 1% of income earners now make 22.6% of the total pre-tax income, up from 7.3% in 1980. This escalation places India among the most unequal countries globally.
• Corruption at the Intersection of Government and Business: The income inequality breeds corruption, particularly in the intersection of government and business. This is evident in the approval of contracts for mega infrastructure projects, where public officials may be influenced by bribes from wealthy investors. This relationship between inequality and corruption is supported by data from the Gallup World Poll (GWP) and the Centre for Monitoring Indian Economy (CMIE).
• Rent-Seeking Behavior: The greater income inequality leads to increased rent-seeking by rich investors. Rent-seeking involves using resources to gain monetary benefits from government or public agencies without contributing to societal wealth. This behavior diverts resources from wealth creation to wealth transfer, exacerbating economic inefficiencies.
• Speculative Investments and Wealth Accumulation: Income inequality in India has been largely fueled by speculative investments, such as in mutual funds, while savings in fixed deposits (FDs) and post offices have helped curb it. This speculative behavior contributes to wealth concentration and inequality.
• Judiciary and Corruption: Trust in the judiciary is identified as a factor that can curb corruption. The trust in the judiciary rises with conviction rates, but at a diminishing rate. This suggests that a strong and trustworthy judicial system can mitigate the effects of corruption.
• Policy Implications and Challenges: There are missed opportunities to address inequality through policy measures, such as taxing the rich at higher rates. It also highlights the lack of transparency and accountability in regulatory agencies. The challenges of creating a more competitive political system and fostering private business growth are noted as significant but necessary for India’s prosperity.

THE WAY FORWARD:

• Progressive Taxation and Wealth Redistribution: Implement more progressive tax policies to ensure higher income groups contribute proportionally more to public revenues. This can help fund social programs aimed at reducing inequality. Sweden’s tax reforms have been designed to balance efficiency and income distribution, despite challenges.
• Strengthening Anti-Corruption Measures: Enhance transparency and accountability in government processes by using technology and stringent anti-corruption laws. Transparency International supports robust legal frameworks and digital governance as effective tools to combat corruption. Estonia’s e-government initiatives have significantly reduced corruption by digitizing government processes and eliminating bureaucratic intermediaries, leading to greater efficiencies and improving its Corruption Perception Index score.
• Enhancing Judicial Trust and Efficiency: Improve the efficiency and trust in the judiciary by reducing case backlogs and ensuring timely justice, which can deter corruption. Judicial reforms can improve business environments by ensuring contract enforcement and reducing corruption. Addressing these delays is crucial for economic growth, as judicial efficiency is negatively correlated with GDP growth.
• Promoting Inclusive Economic Growth: Focus on policies that promote broad-based, labor-intensive growth to ensure that economic benefits are widely shared. China’s poverty alleviation programs have effectively reduced poverty by creating jobs in rural areas, demonstrating the impact of inclusive growth strategies.
• Improving Access to Quality Education: Invest in education to create equal opportunities for all, which can enhance social mobility and reduce income disparities. Emphasize the importance of education in providing upward mobility and reducing inequality, as seen in Kerala’s successful education model.
• Regulating Speculative Investments: Implement regulations to curb speculative investments that contribute to income inequality, while promoting stable investment avenues like fixed deposits. The Dodd-Frank Act in the United States restricts speculative trading and enhances financial stability through measures like the Volcker Rule.
• Implementing Universal Basic Income (UBI): UBI can provide a safety net for all citizens, ensuring a basic level of income that reduces poverty and narrows income gaps. It can empower individuals by providing financial stability and reducing dependency on precarious jobs. Pilot programs in countries like Finland and Canada have shown that UBI can improve well-being and economic security without significantly reducing work incentives.
• Enhancing Financial Literacy and Inclusion: By improving financial literacy, individuals can make informed decisions about savings, investments, and credit, which can help reduce inequality. Financial inclusion ensures that all citizens have access to banking services, enabling them to participate fully in the economy.
• Strengthening Whistleblower Protections: Protecting whistleblowers can encourage the reporting of corrupt practices without fear of retaliation, thereby increasing transparency and accountability in both public and private sectors. The United States’ Whistleblower Protection Act has been effective in safeguarding individuals who report misconduct, leading to significant recoveries of misappropriated funds.
• Promoting Fair Trade and Ethical Business Practices: Encouraging businesses to adopt fair trade and ethical practices can reduce exploitation and promote equitable growth. This includes ensuring fair wages, safe working conditions, and sustainable practices.

THE CONCLUSION:

The findings suggest that rising income inequality contributes to pervasive corruption, while increased trust in the judiciary can mitigate it, underscoring the need for greater transparency and accountability in regulatory agencies to foster a more equitable and prosperous India.

UPSC PAST YEAR QUESTIONS:

Q.1 In the light of the Satyam Scandal (2009), discuss the changes brought in corporate governance to ensure transparency, accountability. 2015

Q.2 If amendment bill to the Whistleblowers Act, 2011 tabled in the Parliament is passed, there may be no one left to protect.” Critically evaluate. 2015

Q.3 In the integrity index of Transparency International, India stands very low. Discuss briefly the legal, political, economic, social and cultural factors that have caused the decline of public morality in India. 2016

Q.4 Policy contradictions among various competing sectors and stakeholders have resulted in inadequate ‘protection and prevention of degradation’ to environment.” Comment with relevant illustration. 2018

MAINS PRACTICE QUESTION:

Q.1 Critically analyze the role of regulatory agencies and the judiciary in curbing corruption and suggest measures to enhance transparency and accountability in the Indian economic system.

SOURCE:

https://www.thehindu.com/opinion/op-ed/the-tyranny-of-inequality/article68542712.ece