Have you ever wondered why the rich are becoming richer while the poor are becoming poorer, or why women are frequently paid less than men for the same job? This is due to underlying income and wealth inequality, income inequality is where the distribution of income is skewed among individuals, groups, and societies. However, wealth inequality is even more severe, involving the unequal distribution of assets such as inherited property and investments across various social classes.

Lately, the issue of income disparity has gained considerable attention, particularly after the publication of a major study by the World Inequality Lab, which focuses on the distribution of income and wealth in India, written by a team of distinguished economists. This study highlights the emergence of a “billionaire class” in India. Moreover, there is a review report by the Niti Aayog on the National Multidimensional Poverty Index, although this report does not directly address whether there has been a decrease or increase in income and wealth inequality. However, it does provide information on the number of people who have been lifted out of poverty, which, in an indirect way, suggests that income inequality is on the decline. This is because a reduction in poverty indicates an improvement in the standard of living and quality of life, which has likely been better than before.

This piece will thoroughly cover the problems related to the disparity in income and wealth in India, while also briefly touching upon global inequality.

Income and Wealth Inequality in India

The progress review of Niti Aayog highlights a significant drop in the number of individuals living in poverty, as measured by the poverty headcount ratio, which is the proportion of the population considered poor. This ratio fell from 24.85% in 2015-16 to 14.96% in 2019-21, indicating that 135 million people have been lifted out of deep poverty over this period. Additionally, the depth of poverty, which looks at the average level of deprivation among those living in poverty, saw an improvement from 47.14% in 2015-16 to 44.39% in 2019-21. This improvement is a notable success, showing that the policies were designed with a holistic approach to uplift the impoverished and marginalized groups in society and that these policies were effectively put into action.

But the World Inequality Lab’s study, titled “Income and Wealth Inequality in India, 1922-2023: The Rise of the Billionaire Raj,” presents a contrasting perspective to the Niti Aayog’s 2023 progress review report. 

This study reveals that, as per Forbes’ billionaire list, the count of Indians with a net worth exceeding USD 1 billion has seen a significant surge, increasing from just one in 1991 to 52 in 2011, and to 162 in 2022. Furthermore, the report points out that India’s top 1% earners have one of the highest income shares worldwide, even surpassing countries like South Africa, Brazil, and the US.

It is indeed clear, from 2011 to 2022, the number of Indians with a net worth over USD 1 billion has grown by more than 300%. But this notable rise can be linked to policies introduced in the last decade, including Make in India and Startup India. These programs have fostered an environment of entrepreneurship, enabling people to capitalize on their skills and thrive in various industries. As a result, India now hosts more than 130,000 startups and over 110 unicorns. The rise of startups and unicorns has naturally led to job creation across different sectors, such as suppliers, retailers, manufacturers, and advertising firms, thereby contributing to inclusive growth across all sections of society.

At the same time, the World Inequality Lab has found that the wealthiest 1% in India owns a larger portion of the world’s total wealth. This clearly shows the deep divide in wealth and income in India. Even though India boasts numerous high-value startups and has policies like Startup India and Make in India that have led to job creation, but the way income is distributed is still not equal. In many companies, there’s a big gap between what workers earn and what the owners make. For instance, if the typical worker earns Rs 100,000, the owner’s income is usually two to three times that much.

When income inequality increases, it leads to greater wealth inequality due to the positive correlation between the two. This is evident in the example of two individuals with significantly different salaries. Although higher incomes generally result in higher spending, the concepts of marginal propensity to consume (which decreases as income rises) and marginal propensity to save (which increases as income rises) are crucial. Due to the disparity in their incomes, there is also a noticeable difference in their wealth.

Global Scenario

The Forbes list of billionaires reveals that nine of the top ten wealthiest people in the world are from the United States. The International Monetary Fund notes that the wealthiest 10% of the population earn 52% of all income, while the bottom half only make up 8.5%. The gap in wealth is even more striking: the poorest 50% of the world’s population owns just 2% of the total wealth, while the richest 10% hold 76%. The World Bank states that “Approximately 700 million individuals survive on less than $2.15 per day, the threshold for extreme poverty.”

This situation shows that a portion of the world enjoys a life of luxury, with expensive designer handbags, dining at the finest restaurants, attending schools of international renown, and living in opulence, while others are so destitute they depend on foreign aid for just two meals a day to feed their families. 

It is observed, the countries where there is a significant gap between the rich and the poor, there is a higher incidence of social unrest. The gap in wealth often leads to poverty, pushing those at the bottom to turn to crime, which in turn, negatively affects their futures and that of their children, thereby perpetuating the cycle of inequality. The Crime Index shows that Honduras, one of the poorest nations, has a crime rate of 73.4%, ranking it sixth in the world. This suggests a direct link between income inequality and crime rates. Therefore, the equilibrium of society is at risk, which is detrimental not just to the less fortunate but to humanity as a whole.

As the concentration of power is increasingly in the hands of the wealthy, further upsetting the global balance with each passing year. Wealthy individuals have the ability to earn income from various sources and investments, including real estate, bonds, rental income, and stocks, in addition to their salaries from jobs or businesses. Meanwhile, those at the lower end of the economic spectrum often depend solely on their daily wages. The lives of the poor are marked by hardship and toil under the patronage of the rich.

How we can reduce Inequality?

To address the issue of social inequality, it falls upon the rich section of society, namely the affluent class, to be the primary agents in resolving this dilemma, as their home countries have afforded them numerous chances for advancement. Consequently, it falls on their ethical duty to contribute to the betterment of their country. Likewise, the middle class bears the responsibility to maintain the principle of equality, and they too are entitled to it. 

The resolution of this distressing condition of social inequality can only be achieved through the enactment of successful government policies.

1. Education: By making education free and of high quality for those from disadvantaged and low-income backgrounds, the government can significantly lessen the gap in inequality. This approach would allow these groups to enhance their living conditions. For example, the Right to Education Act in India requires private schools to provide free education to children from economically weaker sections, aiming to equalize educational opportunities and reduce inequality by ensuring every child, regardless of their financial status, receives a quality education. The government must increase its budget allocation for this purpose. According to the Kothari Commission, the government should allocate 6% of GDP to education, but we are currently at 2-3%.

2. Health Services: Ensuring access to affordable healthcare is essential for reducing inequality, as income inequality leads to health inequality. Ayushman Bharat, the flagship scheme, aims to provide health coverage of Rs. 5 lakhs per family per year but only covers the poor and vulnerable families that make up the bottom 40% of the Indian population. Meanwhile, rising out-of-pocket expenses are pushing middle-class families towards poverty, they are not covered under this scheme. The costs of treatment, pharmaceuticals, and accommodation further add to their financial distress.

To reduce health inequality, a comprehensive solution would include encouraging the use of generic drugs and ensuring that doctors prescribe them to make healthcare more affordable. Additionally, creating awareness about the importance of health insurance can help people protect themselves from financial distress due to high medical bills. This dual approach can make a significant difference in making healthcare accessible and equitable for all.

3. Taxation: The introduction of a progressive tax system can help diminish inequality by taxing the affluent at higher rates and using the funds to support the basic needs of the poor, such as food, education, housing, sanitation, and healthcare. The tax brackets should be more progressive, targeting the top 1% of the population, who have greater wealth, and less for the middle-income groups. This strategy ensures that the wealth generated by the economy benefits all members of society, especially those in need.

4. Employment: Generating jobs is key to reducing poverty and inequality. Employment offers individuals the means to support themselves and their families, deterring them from engaging in criminal activities and leading to greater economic stability. Empowering women, girls, and young people through employment opportunities can have a positive ripple effect, benefiting communities and future generations. Making sure that job opportunities are available to everyone, regardless of their background, is essential for promoting economic equality.

These measures would contribute to creating a world where everyone can enjoy a fair standard of living and a high quality of life. 

However, Income inequality can be reduced to some extent if the middle class curtails its extravagant spending, as the middle class often spends lavishly on birthday celebrations, with even greater extravagance on weddings. They frequently purchase expensive cars and phones using EMI, failure to make timely EMI payments can result in creditors seizing their assets, pushing these individuals closer to poverty. This trend also pressures the lower middle class to spend heavily on weddings to match the spending habits of those higher up in the social hierarchy in terms of income, wealth and status . Consequently, implementing stricter controls on extravagant spending for the sake of showmanship is necessary to prevent financial instability and social pressure.

Conclusion:

The per capita income in India has increased, but so has income inequality. 

Addressing wealth inequality requires a multifaceted approach, prioritizing the reduction of income inequality due to their intrinsic link.

While initiatives like free education and nutritious meals effectively lift individuals out of poverty, sustained and increased public investment in these areas is crucial. However, a critical gap remains in providing employment opportunities for the marginalized and poor. Job scarcity and skill mismatches often force educated individuals into low-skilled jobs, widening the gap between the affluent and impoverished. Moreover, current policies tend to focus on the impoverished, understandably due to their urgent needs, but they often neglect the lower middle class. Extending supportive policies to the lower middle class is essential for enhancing their living standards.

Various non-governmental organizations are actively involved in poverty eradication efforts. For instance, Akhil Bharatiya Sewa Samiti (ABSS) conducts medical camps and health awareness programs in rural and underserved areas, providing free medical check-ups, medicines, and health education. They also contribute to education by offering scholarships, distributing educational materials, and organizing skill development workshops.

Similarly, Rashtriya Sewa Bharati focuses on health, education, livelihood enhancement, economic empowerment, and disaster relief for marginalized communities. Their initiatives aim to foster social inclusion and improve overall well-being. Nitya Foundation specifically works on women empowerment, recognizing that empowering women economically is crucial for reducing income inequality.

These organizations and organizations working in these domains play a crucial role in eradicating poverty by providing free education, healthcare, and food to those in need. Their efforts are aimed at reducing income inequality and promoting a more equitable society. 

Despite these efforts, the disparity in income and wealth persists.

Addressing income inequality requires a comprehensive strategy. Simply raising wages is not enough, comprehensive public education is crucial for reducing poverty, enhancing opportunities, and fostering a democratic society. Education also promotes gender equality, which is crucial for narrowing income gaps. Affordable health services are essential because high costs of treatment, medication, and accommodation for medical care are significant factors driving people into poverty. Another key strategy is implementing redistributive tax systems, where high-income individuals pay higher taxes and lower-income individuals receive greater subsidies.

Tackling inequality is ultimately a political decision. Drawing lessons from successful policies in other countries and historical contexts is vital for creating fairer and more equitable development pathways.