A recent study ‘Income and Wealth Inequality in India, 1922-2023: The Rise of the Billionaire Raj’ by the World Inequality Lab (WIL), presents facts about ‘inequality’.
Key-highlights of the Report
Income inequality:6% of India’s national income in 2022-23 went to the top 1%, the highest proportion in the last 100 years.
Wealth inequality: The share of the top 1% in wealth was as high as 40.1% in 2022-23, also its highest level since 1961.
The share of wealth among the top 10% increased from 45% in 1961 to 65% in 2022-23.
Conversely, the share of the bottom 50% and middle 40% in wealth has declined.
Wealth concentration: India’s wealth inequality is not as extreme as Brazil and South Africa, but its wealth concentration has already increased threefold between 1961 and 2023.
Additionally, with India’s income inequality being the world’s highest, higher than South Africa, Brazil and the United States of America, it will only add to wealth inequality in times to come.
1: Dimension- Growing inequality and Concerns
Negative impact on growth: Income inequality negatively affects growth and its sustainability. Growth is critical to the reduction of poverty; the greater the inequality, the lower the impact of growth on poverty reduction
Inverse relationship: There is an inverse relationship between the income share of the rich and economic growth. (IMF Study).
If the share of the top 20% of the population increases by 1 percentage point, GDP growth is actually 0.08 percentage points lower in the following five years, suggesting that the benefits do not trickle down.
Instead, a similar increase in the income share of the bottom 20% is associated with 0.38 percentage point higher growth.
Affected policy-making: The super-rich affect decisions by being in and out of the corridors of power.
Cut on public goods: The enhanced power of the elite could result in a more limited provision of public goods that boost productivity and growth, and which disproportionately benefit the poor.
Inequality dampens investment, and hence growth, by fuelling economic and political instability.
2: Dimension- Policies to reduce inequality
Pro-poor growth: There is need of growth strategies that generate non-farm jobs (and promote structural change). It would lead to pro-poor growth, which would also be inequality-reducing.
Absorption of labour: The government needs to work for the absorption of surplus labour from agriculture, but also the rising share of the formal workforce, with access to social insurance.
Social security: Employment is key for poverty reduction. But employment should come with old age pension, death/disability insurance and maternity benefits if sudden shocks are not to push informal workers into poverty.
Progressive taxes: Progressive taxes on income, inheritance and property have been most effective in reducing inequality in industrialised countries. India’s Union government barely captures under 8% of the workforce in income tax; it does not have an inheritance tax and has abolished its wealth tax.
Property taxation (the responsibility of which lies with local governments) remains grossly inadequate and captures a minuscule portion of potential revenue.