From UPSC perspective, the following things are important :
Prelims level : World Inequality Report
Mains level : Rich vr Poor divide in India
As per the ‘World Inequality Report 2022’, India is among the most unequal countries in the world, with rising poverty and an ‘affluent elite.’
World Inequality Report
- This report is published by Mr. Lucas Chancel, the co-director of the World Inequality Lab of the Paris School of Economics.
- It was coordinated by famed French economist Thomas Piketty.
Key highlights of the report
(1) Income divide
- The report highlights that the top 10% and top 1% in India hold 57% and 22% of the total national income respectively while the bottom 50% share has gone down to 13%.
- The average national income of the Indian adult population is Rs 2,04,200.
- The bottom 50% earns 20 times more than the top 10%.
(2) Decline in public wealth
- The report notes that the share of public wealth across countries has been on a decline for decades now.
- Public assets typically include public buildings housing administrations, schools, universities, hospitals, and other public services.
(3) Inequality during Colonial India
- Going back in time, the report shows that the income inequality in India under the British colonial rule (1858-1947) was very high, with a top 10% income share around 50%.
- After independence, due to socialist-inspired five-year plans, this share was reduced to 35-40%.
- Owing to poor post-Independence economic conditions, India embarked upon deregulation and loosening controls in the form of liberalization policies.
(4) Wealth inequality
- The average household wealth in India is around Rs 9,83,010.
- The bottom 50% of the nation can be seen to own almost nothing, with an average wealth of Rs 66,280 or 6% of the total pie.
- The middle class is relatively poor with an average wealth of Rs 7,23,930 or 29.5% of the total.
- The top 10% owns 65% of the total wealth, averaging Rs 63,54,070 and the top 1% owns 33%, averaging Rs 3,24,49,360.
(5) Gender Inequality
- Gender inequality in India is also considered on the higher end of the spectrum.
- The share of female labor income share in India is equal to 18% which is significantly lower than the average in Asia (21%, excluding China) & is among the lowest in the world.
- Although, the number is slightly higher than the average share in the Middle East (15%).
- However, a significant increase has been observed since 1990 (+8 p.p.) but it has been insufficient to lift women’s labor income share to the regional average.
(6) Poor States, wealthy population
- Countries across the world have become richer over the past 40 years, but their governments have become significantly poorer.
- The report shows that the share of wealth held by public actors is close to zero or negative in rich countries, meaning that the totality of wealth is in private hands.
- Following the pandemic, governments borrowed the equivalent of 10-20% of GDP, essentially from the private sector.
(7) Issue over data availability
- The report goes on to say that over the past three years, the quality of inequality data released by the government has seriously deteriorated.
- This has made it particularly difficult to assess recent inequality changes.
Conclusions from the report
(1) Wealth is mostly inherited and has a snowball effect
- People accumulate wealth across generations through inheritance.
- It has a snowball effect, wherein successive generations will gain more, but in their concentrated section.
- More capital incentivizes banks to lend. This is why the rich section’s wealth grows faster.
(2) Wealth management is necessary
- Public wealth has been declining for two reasons:
- First, governments have been privatizing assets and natural resources at low costs.
- Second, governments contract debt to the private sector, making it richer.
- Without assets, governments have low resources to invest and to mitigate climate change impacts, particularly in the energy sector.
- Currently, governments have more debts than assets. This calls for strategic management of the economy.