Inequality has always been there in India. However, in recent times, it has skyrocketed especially after the COVID-19 pandemic.
A report by the UNDP (United Nations Development Programme) on human development in the Asia-Pacific region, during the time when India added 40 more billionaires, 46 million people in the country fell below the poverty line (BPL).
Why is it that India’s rich are growing rich and the poor are poorer? How is inequality accelerating when India is ranked as the fastest-growing economy in the world?
Here’s a detailed picture.
The 1991 Reforms:
India’s per capita income, that is the average income per person in the country, has increased from $442 to $2,389 in the past two decades. However, the reality is that this income is accrued by the top 1% of the population only while the poor have become poorer during the same time.
Moreover, the distribution of income among states is also uneven. The states that accommodate 42% of the total population comprise about 62% of those living under the BPL.
India is regarded as the fifth largest economy in the world, yet a report by Oxfam (an international confederation of agencies opposing poverty) published in 2017 reveals that 10% of the population in the country possesses 80% of the nation’s wealth.
After independence, socialism commenced in India, from the 1950s to the 1980s. This led to a decline in the concentration of economic power among the rich and the national income that went to the top 1 percent halved, from 12% in 1951 to 6% in 1982.
However, since the onset of the 1991 reforms that gave birth to liberalisation, globalisation, and privatisation in the country, inequality saw no bounds. The resulting policies gave the rich the power to earn profits from the underprivileged without any consequences.
This fact is supported by the data from the World Inequality Database (WID) which reveals that the growth in the share of national income of the top 1% was stable while that of the bottom 50% saw negligible growth, after the 1991 reforms.
Adding on, the WID data also shows that after 1991, the absolute income of the rich grew exceptionally while that of the poor was trivial.
Data from the Annual Survey of Industries (ASI) in India also proves that inequality increased manifold post the 1991 reforms. India’s formal sector in 1981-82 exhibited a net value addition, which is defined as the increase in the value of a product after subsequent manufacturing procedures, was Rs 14,500 crore, wherein approximately 30% of it was allocated as wages to the workers while 23.4% of it was earned by factory owners and shareholders as profits.
The share of wages earned by labourers sharply declined after liberalisation as shown by the ASI. By 2019-20, the net value added rose to 12.1 lakh crore, with only 18.9% of it allocated as wages of the labourers and 38.6% as profits by the owners.
Read More: Should Luxury Shaming Happen In India Too, Like In China?
The GST:
Data also suggests that the Goods and Service Tax (GST), introduced in 2017, is also one of the major drivers for widening the gap in income inequality in India.
The government has reduced direct taxes and increased indirect ones in recent years. Direct tax is the tax paid by businesses on their profits and by people on their income above a certain level whereas indirect tax is the tax paid by each and every citizen of the country, regardless of their income, on goods and services bought or sold.
GST has increased indirect taxes, thus placing the privileged and the less affluent on the same platform. This equal distribution of tax burden among all has been criticised by many.
For example, an Oxfam report called ‘Survival of the Richest: The India Story’, based on data from National Sample Survey Organisation (NSSO), Credit Suisse data and Forbes data on billionaires, calls the combined effect of GST and tax exemptions for the rich, the main reason for increasing income inequality in the nation.
The report also suggests the use of progressive taxation to deal with the ongoing inequality problem.
As India is moving towards its goal of becoming a $5 trillion economy by 2027-28, it is important to make sure that this is not the case for just one section of the society. This is where the difference between economic growth and development is to be interpreted.
The latter also includes the improvement in HDI (Human Development Index), living standards and per capita income for all. Therefore, the implementation of policies that benefit the entire society as a whole, is the need of the hour to solve this pertinent problem.
Sources: Deccan Herald, CNN, The News Minute
Find the blogger: Unusha Ahmad
This post is tagged under: inequality, Human Development Index, policies, government, society, income inequality, national income, India, Oxfam, report, Survival of the Richest: The India Story, data, National Sample Survey Organisation, NSSO, GST, Credit Suisse, Forbes data on billionaires, direct tax, indirect tax, progressive taxation, Annual Survey of Industries, wages, 1991 reforms, profit, shareholder, World Inequality Database, labourers, socialism, privatisation, liberalisation, globalisation, United Nations Development Programme, Asia-Pacific, human development, BPL, independence
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