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Sansad TV: Perspective- Inequality in India




State of Inequality in India Report was released by Dr Bibek Debroy, Chairman, Economic Advisory Council to the Prime Minister. Written by the Institute for Competitiveness, the report presents an analysis of the depth and nature of inequality in India. It compiles information on inequities across sectors of health, education, household characteristics and the labour market. While releasing the report, Dr Bibek Debroy said, Inequality is an emotive issue. It is also an empirical issue, since definition and measurement are both contingent on the metric used and data available, including its timeline”. He added that to reduce poverty and enhance employment, since May 2014, the Union Government has introduced a variety of measures interpreting inclusion as the provision of basic necessities, measures that have enabled India to withstand the shock of the Covid-19 Pandemic better. However, there are some indicators on which a lot of progress is to be made to reduce the prevailing inequities.

Reducing inequalities:

  • Reducing inequalities and ensuring no one is left behind are integral to achieving the Sustainable Development Goals.
  • Inequality within and among countries is a persistent cause for concern. Despite some positive signs toward reducing inequality in some dimensions, such as reducing relative income inequality in some countries and preferential trade status benefiting lower-income countries, inequality still persists.
  • On the economic front, the COVID-19 pandemic has significantly increased global unemployment and dramatically slashed workers’ incomes.

Key Highlights of the report:

  • Consisting of two parts – Economic Facets and Socio-Economic Manifestations – the report looks at five key areas that influence the nature and experience of inequality.
  • These are income distribution and labour market dynamics, health, education and household characteristics.
  • The report stretches the narrative on inequality by presenting a comprehensive analysis that shapes the ecosystem of various deprivation in the country, which directly impacts the well-being of the population and overall growth.
  • The report moves beyond the wealth estimates that depict only a partial picture to highlight estimates of income distribution over the periods of 2017-18, 2018-19 and 2019-20.
  • With a first-time focus on income distribution to understand the capital flow, the report emphasises that wealth concentration as a measure of inequality does not reveal the changes in the purchasing capacity of households.
  • Extrapolation of the income data from PLFS 2019-20 has shown that a monthly salary of Rs 25,000 is already amongst the top 10% of total incomes earned, pointing towards some levels of income disparity.
  • The share of the top 1% accounts for 6-7% of the total incomes earned, while the top 10% accounts for one-third of all incomes earned.
  • In 2019-20, among different employment categories, the highest percentage was of 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 country’s unemployment rate is 4.8% (2019-20), and the worker population ratio is 46.8%.
  • In the area of health infrastructure, there has been a considerable improvement in increasing the infrastructural capacity with a targeted focus on rural areas.
  • 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, as the report states.
  • Additionally, low health coverage, leading to high out-of-pocket expenditure, directly affects poverty incidences.
  • According to the report, education and household conditions have improved enormously due to targeted efforts through several social protection schemes, especially in the area of water availability and sanitation that have increased the standard of living.
  • It is emphasised that education and cognitive development from the foundational years is a long-term corrective measure for inequality.

Growing inequality due to Covid-19

  • Inequalities were increasing earlier also but the pandemic has widened them further. For example, the share of wages declined as compared to that of profits. The big companies and a large part of the corporate sector could manage the pandemic.
  • But the informal sector and workers have suffered a lot with loss of incomes and employment in the last one year. In other words, the recovery is more k-shaped with rising inequalities.
  • A new survey carried out by People’s Research on India’s Consumer Economy (PRICE), a think tank, attempts to fill the void.
  • As reported in this paper, data gathered in the survey indicates that the annual income of the poorest 20 per cent of households in India declined by around 53 per cent in 2020-21 compared to levels observed in 2015-16.
  • In comparison, incomes of the top 20 per cent households grew by 39 per cent over the same period.
  • A consequence of this divergence is that the richest 20 per cent of households (the top quintile) accounted for 56.3 per cent of total household income in 2021, up from 50.2 per cent in 1995.
  • At the other end of the spectrum, the share of the bottom 20 per cent of households declined from 5.9 per cent to 3.3 per cent over the same period.
  • Women lost more jobs and many are out of the workforce. Inequalities have increased in health care and education.

Measures to address the inequalities

A three-pronged approach for reducing inequalities. These are: focus on employment and wages; raising human development, and quasi universal basic income and other social safety nets.

  • First, creation of quality or productive employment is central to the inclusive growth approach. At the macro level, the investment rate which declined from 39% in 2011-12 to 31.7% in 2018-19 has to be improved. Investment in infrastructure including construction can create employment.
  • In labour market, correcting the mismatch between demand and supply of labour is needed (only3% of India’s workforce has formal skill training as compared to 96% in South Korea, 80% in Japan, and 52% in the United States).
  • Manufacturing should be the engine of growth. Here, labour-intensive exports are important and manufacturing and services are complementary.
  • Focusing on micro, small & medium enterprises and informal sectors including rights of migrants is important rather than providing 75% reservation to locals in private jobs.
  • Getting ready for automation and technology revolution such as IR 4.0. Workers need to be reskilled and up-skilled.
  • Social security and decent working conditions for all; raising real wages of rural and urban workers and guaranteeing minimum wages are key to reducing inequality.
  • Apart from spending on vaccines and other related measures, we need to move towards universal health care and spend 2%-3% of GDP on health. Education and health achievements are essential for reducing inequality of opportunities.

Way Forward

  • Enhancing tax and non-tax revenues of the government is needed to spend on the above priorities.
  • The tax/GDP ratio has to be raised, with a wider tax base. Richer sections have to pay more taxes.
  • Similarly, the inequalities between the Centre and States in finances should be reduced. State budgets must be strengthened to improve capital expenditures on physical infrastructure and spending on health, education and social safety nets.