Mains Paper 3: Economy | Inclusive growth and issues arising from it.
From UPSC perspective, the following things are important:
Prelims level: Basics aspects of income inequality in India.
Mains level: The news-card analyses the growing concern on income inequality in India and populist politics over it, in a brief manner.
- After Congress party promised a nationwide farm loan waiver if voted to power in the 2019 Lok Sabha elections, the ruling party is contemplating on a nationwide farm income support scheme.
- While the recourse to populism exposes the limited imagination of India’s political class, it also suggests an urgent redistributive urge in one of the world’s fastest growing economies.
- This urge seems to be shaped by the growing concern on income inequality in India.
Growing concern on income inequality in India
- Data from the World Values Survey (WVS) shows that among large economies for which consistent time series data is available for the past two decades, India has seen the highest increase in the share of people who think that incomes should be made more equal in their country.
- In 1989-93, barely 13% of Indian respondents said incomes should be made more equal.
- By 2010-14, this figure had increased to 48%—the highest in the world.
- The latest round of the WVS (2010-14) also asked respondents whether they thought “an essential characteristic of democracy is that the state should make incomes equal”.
- Once again, India, along with Turkey, had the highest share of respondents (32%) who replied in the affirmative.
- Thus, even before inequality became fashionable in the post-Piketty world, concern about inequality has been growing in the country.
- One big reason for this is the country’s high levels of inequality.
- Inequality in the country may not be as high as the French economist would have made us believe, but it is worryingly high.
- Even household surveys, which are likely to underestimate inequality, present a disturbing picture of inequality in India.
- Estimates of income inequality provided by the nationally representative India Human Development Survey (IHDS) suggest that income inequality is far higher than consumption inequality and is comparable to countries in Latin America, infamous for their high levels of inequality.
Estimates of growing inequality
- The levels of wealth inequality are higher, data from the All India Debt and Investment Survey (AIDIS) analysed by the economists Ishan Anand and Anjana Thampi show.
- Their estimates show that the top 1% in India accounted for nearly 28% of the country’s wealth in 2012, an increase of 11 percentage points since 1991.
- The rise in income inequality also manifests itself in the slowdown in wages across industries.
- Data from the Annual Survey of Industries (ASI) shows that wages of workers have lagged productivity growth even as managerial compensation has seen an impressive rise.
- Over the past three decades, the wage share of net value added has been declining even as the profit share has been rising, the data shows.
- In effect, the productivity growth in the industrial sector has benefited managers and owners far more than blue-collar workers.
Why upper castes tend to be more affluent?
- Given that white-collar workers accounted for less than a sixth of the workforce over the past two decades according to the ASI data, the gains from higher productivity and growth seem to have accrued only to a small minority.
- The distribution of such white-collar jobs is very unequal. Data from IHDS shows that it is the upper castes who account for a disproportionately high share of white-collar jobs.
- It is not surprising, therefore, upper castes also tend to be more affluent compared to other social groups.
- The key difference between upper castes and other social groups lies in their greater access to education.
- The rising premium on education in India’s job market and the absence of any discrimination against them has meant that upper castes have been able to access well-paying jobs more easily compared to other social groups and have, in turn, been able to maintain their position on the socioeconomic ladder.
- Research by a team of World Bank economists showed last year that despite the improvements in educational mobility in the country, India has one of the highest levels of inequality in access to education.
- As the inequities in opportunities across the country do not receive the attention they deserve, politicians are able to sell their populist cards and get away with that.