Why in the news?
- In 2022, 22.6% of the national income went to the top 1% of Indians. Cut to 1951, their share in the income was only 11.5% and even lower in the 1980s just before India opened-up its economy at 6%.
Context: India’s top 1% income and wealth shares (22.6% and 40.1%) are at their highest historical levels in 2022-’23 and the country’s top 1% income share is among the very highest in the world as per World Inequality Lab.
Key findings from the ‘Income and Wealth Inequality in India’ report by the World Inequality Lab
- Increase in Share of Top 10%: The share of the top 10% of Indians in national income rose from 36.7% in 1951 to 57.7% in 2022.
- Decline in Share of Bottom 50%: The bottom 50% of Indians earned only 15% of the national income in 2022, compared to 20.6% in 1951, indicating a decrease in their share.
- Decrease in Share of Middle 40%: The middle 40% of Indians experienced a significant decline in their share of income from 42.8% to 27.3% over the period.
- Rapid Widening of Income Gap: The gap between the rich and the poor has widened rapidly in the last two decades.
- Historic Peak for Wealthiest 1%: In 2022, the share of national income that went to the wealthiest 1% of Indians reached a historic peak, surpassing levels observed in developed countries such as the United States and the United Kingdom.
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Income group-wise share in national income, and the adult population in each bracket as of 2022-23
- Distribution Across Income Percentiles: Approximately one crore adults were in the top 1%, ten crore in the top 10%, 36 crore in the middle 40%, and 46 crore were in the bottom 50% of the income pyramid.
- Concentration of Wealth at the Top: The top 0.001% of the income pyramid, comprising about 10,000 richest Indians, earned 2.1% of the national income, highlighting extreme wealth concentration.
- High Shares of National Income: The top 0.01% and top 0.1% of income earners earned disproportionately high shares of the national income, accounting for 4.3% and 9.6%, respectively. This reflects significant income inequality, with a small segment capturing a large portion of the country’s wealth.
The year wise share of national income for the top 10%, bottom 50% and that middle 40% of the population:
- 1950s-60s: Negligible income gap between the top 10% and the middle 40% of earners.
- 1980s: Bottom 50% saw a slight increase in their share of national income, contributing to narrowing the gap.
- 1990s Onwards (Post-liberalization): The income share of the top 10% surged dramatically, while shares of the other two groups steadily declined. This trend persisted into the 2000s and early 2010s, stabilizing thereafter.
- In 2022: the top 1% of earners had a higher share of national income than the richest 1% during colonial rule.
- Income Disparities: The average annual income of the top 1% was ₹53 lakh, 23 times more than the average Indian’s income of ₹2.3 lakh in 2022-23. The average income of the bottom 50% and middle 40% stood at ₹71,000 and ₹1.65 lakh, respectively, during the same period.
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Richest 1% of Indians’ share in the national income
- Pre-Independence (1930s): The top 1% of earners had a significant share of national income, surpassing the 20% mark.
- Post-Independence: After independence and the merger of princely states with Independent India, the share of the top 1% steadily declined, reaching close to 6% in the 1980s.
- Post-liberalization: Following liberalization reforms, the income share of the top 1% surged again, presently hovering around the 22.5% mark.
- Comparison with British Rule: The current income share of the top 1% is much higher than their share under British rule, highlighting a return to historical levels of income concentration.
The income share of India’s top 10% and top 1%, compared with select countries in 2022-23
- India’s Income Growth: India’s income levels are not growing as rapidly as other comparable economies.
- High Share of Top 1%: Despite slower overall income growth, the top 1% of earners in India have a disproportionately high share of national income.
- Comparison with Advanced Countries: In 2022-23, the income shares of India’s top 1% were higher than those recorded in advanced countries like the United States, China, France, the United Kingdom, and Brazil.
China and Vietnam’s average incomes grew at a much faster pace than India’s
- Economic Policies: China and Vietnam implemented economic policies that focused on export-oriented growth, attracting foreign investment, and promoting industrialization. These policies contributed to rapid economic expansion and increased average incomes in both countries.
- Liberalization and Reforms: Both China and Vietnam underwent significant economic liberalization and reforms, allowing for greater market integration, privatization of state-owned enterprises, and relaxation of trade barriers. These reforms stimulated economic growth and led to higher average incomes.
- Investment in Infrastructure: China and Vietnam invested heavily in infrastructure development, including transportation networks, energy systems, and telecommunications. This infrastructure investment facilitated economic development and improved productivity, leading to higher average incomes
Income inequality in India can be attributed to various factors:
- Historical Factors: Historical disparities in wealth distribution, exacerbated by colonial rule and feudal systems, have contributed to persistent income inequality.
- Economic Growth Patterns: India’s economic growth needs to be more inclusive, with benefits disproportionately accruing to certain segments of society, particularly urban and educated populations. This uneven growth exacerbates income inequality.
- Structural Issues: Structural factors such as unequal access to education, healthcare, and employment opportunities perpetuate income disparities. Marginalized groups such as Dalits, Adivasis, and women often face barriers to accessing quality education and formal employment, limiting their income-earning potential.
- Land Ownership and Agriculture: Unequal distribution of land ownership and disparities in agricultural productivity contribute to income inequality, particularly in rural areas where agriculture remains a primary source of livelihood.
- Labor Market Dynamics: Informal employment, low wages, and lack of job security in the informal sector contribute to income inequality. Additionally, skill mismatches and technological advancements may widen the income gap by favoring skilled workers over unskilled laborers.
- Lack of Financial Inclusion: Limited access to formal financial services and lack of asset ownership, such as land or property, among marginalized communities further perpetuate income inequality.
- Corruption and Cronyism: Corruption, crony capitalism, and unequal access to resources and opportunities exacerbate income inequality by favoring vested interests and hindering equitable wealth distribution.
Conclusion: India witnesses unprecedented income inequality with the top 1% accruing a higher share of national income than under British rule. Structural factors, uneven economic growth, and limited access to resources perpetuate income disparities, requiring comprehensive policy interventions for equitable growth.
Mains PYQ
Q. It is argued that the strategy of inclusive growth is intended to meet the objective of inclusiveness and sustainability together. Comment on this statement. ( UPSC IAS/2019)
