Why?
Growth is a legitimate aspiration in India where the majority of the population is yet to attain a reasonable standard of living. However, going all out for economic size may generate outcomes that are undesirable to all and an economic policy that privileges growth could exacerbate them.
Approach:
- Introduce your answer by defining income inequality, highlighting its current status in India using the World Inequality Report 2022.
- In the main body, address the relationship between rapid growth and increasing inequality by mentioning key dimensions such as the impact of economic liberalization, sectoral growth disparities, urban-rural divide, employment trends, education and skill gaps, etc. Next, emphasize the need for inclusive growth and suggest measures like inclusive education, progressive taxation, rural development, social safety nets, gender-inclusive policies, etc.
- Conclude with a forward-looking statement on the importance of equitable growth for India’s future.
Answer:
Income inequality refers to the uneven distribution of income among the population. India, despite its rapid economic growth, is marked by significant income inequality. The World Inequality Report 2022 describes India as “a poor country with an affluent elite,” highlighting the stark contrast between the wealthy and the impoverished.
Relationship between Rapid Economic Growth and Increasing Income Inequality in India:
- Economic Liberalization and Wealth Concentration: Post-1990s economic reforms led to rapid growth but also concentrated wealth among the top percentile, widening the income gap.
- The top 10% earn 57% of the national income and the top 1% alone earn 22%, while the bottom 50%’s share has declined.
- Similarly, the top 10% control 65% of the nation’s total wealth.
- Skewed Sectoral Growth: Rapid growth in sectors like IT and finance, which require skilled labor, has not translated into better income for the unskilled majority.
- Over the period 2014-23, real per capita income in India has increased by 37% while the real wage of agricultural labour has increased by less than 5%.
- Urban-Rural Divide: Urban areas, being the focal points of economic activities, have seen higher income growth compared to rural areas.
- The income growth in metropolitan cities far outpaces that in rural areas.
- Inadequate Employment Generation: High GDP growth has not translated into proportional employment opportunities, especially in the formal sector.
- Despite economic growth, high unemployment rates indicate a jobless growth scenario.
- Education and Skill Gap: The growth has favored those with higher education and skills, leaving behind a large unskilled population.
- Widening the income gap with the less educated.
- Policy Focus on Growth over Distribution: Economic policies have predominantly focused on growth rather than equitable distribution of wealth.
- Policies like tax cuts for corporations aim at boosting growth but often do little to address income inequality.
- Globalization and Inequality: Globalization has benefited skilled and capital-intensive sectors, widening the income gap with labor-intensive sectors.
Measures to Integrate Inclusivity into the Economic Development Model:
- Inclusive Education and Skill Development: Enhancing access to quality education and vocational training to bridge the skill gap.
- Pradhan Mantri Kaushal Vikas Yojana (PMKVY).
- Progressive Taxation: Implementing a more progressive tax system where the wealthy pay a higher proportion of their income.
- According to Oxfam, a 1% wealth tax could fund the National Health Mission for more than1.5 years.
- Boosting Rural Economy: Investing in rural infrastructure and industries to create employment opportunities in rural areas.
- Pradhan Mantri Gram Sadak Yojana (PMGSY).
- Social Safety Nets: Strengthening social security systems to protect the economically vulnerable sections.
- Expanding the scope of MGNREGA to provide more comprehensive coverage.
- Promoting Small and Medium Enterprises (SMEs): Encouraging SMEs through subsidies and incentives, as they are major employment generators.
- Micro & Small Enterprises Culster Development Programme (MSE-CDP).
- Gender Inclusive Policies: Addressing gender pay gaps and promoting women’s participation in the workforce.
- Female Labour Force Participation Rate in 2023 is only 37%.
While India’s aspiration for high economic growth is legitimate, it is crucial to address the accompanying rise in income inequality. The focus should be on inclusive growth, only then can India’s growth story be inclusive, sustainable, and beneficial for all its citizens.
‘+1’ Value Addition:
- More than 40% of the wealth created in the country from 2012 to 2021 had gone to just 1% of the population while only 3% had trickled down to the bottom 50% – ‘Survival of The Richest’ Report.
- Approximately 64% of the total goods and services tax (GST) in the country came from the bottom 50% of the population, while only 4% came from the top 10%.
