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Growth and income inequality

Big rich-poor divide pose a new public policy challenge for India

Growth and income inequality
It is a matter of concern that economic inequality is far exceeding the economic growth rate in India. The growing income disparity, alongside the massive promotion of consumerism, is driving the deprived more to crimes as the latest report of the union government's National Crime Records Bureau would suggest. The increasing rich-poor divide poses a big challenge to the country's social and public policy formulation and implementation. Not only does it throw a challenge to public policy—particularly in terms of figuring out wealth redistribution trend — but, over a period, it could potentially trigger a social unrest in some of the states where the rich-poor divide is too wide. It may be time that organisations such as NITI Aayog or the National Council of Applied Economic Research undertakes a proper study on the growing economic inequality and income disparity in India. If two well-known French economists — Lucas Chancel and Thomas Piketty — could publish a book on 'India Income Inequality, 1922-2014: From British Raj to Billionaire Raj?,' based on the available income tax data, there is no reason why the country's eminent economic and social research organisations should stay away from making a more authentic study on the impact on the economic growth on income and wealth distribution in the society. Lukas Chancel is co-director of the World Inequality Lab and World Wealth and Income Database at the Paris School of Economics. Thomas Piketty is known for his 2013 best-selling book, 'Capital in the Twenty-First Century.' The book argues in favour of reform to reduce income inequality around the world.
A WEF survey, released on Monday, coinciding with Prime Minister Narendra Modi's Davos visit with the largest-ever Indian delegation, is more embarrassing. It said the richest one per cent in India cornered 73 per cent of wealth generated in the country, last year. Earlier, the World Inequality Report 2018, published by World Wealth & Income Database too highlighted income inequality in India that worsened over the past three-and-a-half decades. It pointed out that rising income inequality can lead to political, social and economic consequences. India's top 10 per cent of earners now corner more than half of the country's national income in 2016. The report is on line with the Chanel-Piketty research paper that noted inequality in India may be at its highest level since 1922, with the top 1 per cent of earners making 22 per cent of all income — a ratio that has increased rapidly over the last three decades. The paper concluded that the extent of income inequality in India at present is greater than it has ever been at any time in the last one hundred years. Their estimates went back to 1922 when the Income Tax Act first became operational in India. The share of the top 1 per cent of the population in total income at that time was around 13 per cent. Since India's first major economic reform in1991-92, the country's rich-poor divide has grown sharply. For instance, in the 1990s, there was no Indian on Forbes' annual list of billionaires. Now, over 100 Indians feature in that list. This would have been a delightful news if over 30 per cent of India's population were not pushed to live with a daily income of less than two dollars. A 2016 study by two Indian economists, based on the National Sample Survey report, showed that the richest one per cent of Indians hold 28 per cent of all the wealth in the country. Another report by international investment banker Credit Suisse said the richest one per cent held as much as 58 per cent of India's wealth.
According to the latest world inequality report, India's record on inequality is the worst among all major economic blocks barring West Asia. It called West Asia the frontier of income inequality as this group accounted for 61 per cent of national income. The income inequality level in India in 2016 matched that in sub-Saharan Africa and Brazil, where top earners accounted for a very high share of income. The report found Europe as the best performing region, where the top earners' group accounted for 37 per cent of national income in 2016, followed by China 40 per cent, Russia 48 per cent and US-Canada 47 per cent. The report advocated higher public spending in education to reduce income inequality and setting up an international registry of financial asset ownership for curbing tax evasion. One reason behind the diminished ability of national governments to effectively tackle income inequality is the transfer of public wealth into private hands, the report said. It pointed out that net public wealth (that is, public assets minus public debts) has declined in nearly all countries since the 1980s. "This arguably limits government ability to regulate the economy, redistribute income, and mitigate rising inequality. The only exceptions to the general decline in public property are oil-rich countries with large sovereign wealth funds, such as Norway," the report said.
Many think robust public policy intervention is required to address income inequality, for which India must have its own reliable data. The income inequality and growing rich-poor divide in most parts of the world are leading to increasing human trafficking and menace of terrorism. In India, it may be the reason behind the growth of such crimes as human trafficking, prostitution, child labour, terrorism, pornography and data hacking and cyber theft. Yet, it may be unfair to suggest that the government is not doing anything to reduce the social and income inequality. The proposed direct tax code, focus on large scale manufacturing in the organised sector to improve the quality of employment, direct benefit transfer to those entitled to government subsidies, GST, the Jammu and Kashmir state's proposed experiment with a universal basic income scheme from the next financial year and drive against tax evasion are expected to contain the level of social and income inequality. However, such small steps are certainly not enough to bridge the large rich-poor divide. IPA
(The views expressed are strictly personal)

Nantoo Banerjee

Nantoo Banerjee

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