Relevance: GS-3: Inclusive Growth and issues arising from it

Relevance: GS-2: Issues Relating to Development and Management of Social Sector/Services relating to Health, Education, Human Resources, Welfare Schemes for Vulnerable Sections of the population by the Centre and States and the Performance of these Schemes;

Key Phrases: World Inequality Report, Oxfam report, Financial Inclusion, Inclusive Growth; Thomas Piketty

Why in News?

• The World Inequality Report (WIR) 2022 shows that while domestic inequality (of India) has multiplied, global inequalities between countries have declined.

Key highlights of the article

• India’s share of the world’s poorest is higher than its share of the world population, according to World Bank data of 2020.
• The gap in average income between the richest 10% and the lowest 50% countries has narrowed from over 50x to under 40x.
• The most equal region (Europe) and the least equal region (Middle East and North Africa or MENA) have dramatically different levels of inequality.
  • In Europe, the top 10% of income earners account for roughly 36% of the total income, whereas in MENA it accounts for 58%.
• World’s most extreme inequality has been observed in India.
  • According to the WIR, the top 10% of the country’s population account for 57% of the national income, of which, 22% is held by the top 1%.

Effect of this rampant inequality:

• While a small section of India’s populace enjoys 5-star privileges, for the bottom 50% sustainability of life is still a challenge.
• This is due to a variety of factors
  • Loss of job opportunities
  • Erratic unorganised sector
  • Rising poverty
  • Rising inflation.

Has Covid made matters worse?

• The pandemic has severely affected the poor and hurt the middle class in terms of loss of accumulated wealth and savings.

Debate on whether the pandemic has caused a reduction in inequality.

• Increase in inequality
  • Most reports suggest inequality has risen because of a rise in poverty and shrinkage of the middle class.
• Decrease in inequality
  • The report by the National Bureau of Economic Research shows a decline in inequality
    • This is because Indians in higher percentiles of the income distribution saw larger relative income declines during the pandemic.
    • However, it fails to reflect the deprivations of poor households.
• According to an Oxfam report, billionaires’ fortunes increased 10-fold over the decade and their total wealth now is higher than the outlay of Union Budget 2018-19, which stood at ₹24,422 billion.
  • This shows how crony capitalism is on rise, leading to massive inequalities.

Lessons from abroad

• The rising inequality is linked to slower economic growth. Given that the five Nordic countries - Denmark, Finland, Iceland, Norway, and Sweden - are among the most equal in the world on a variety of criteria
  • Their best practises must be emulated
• Nordic countries have attained high levels of welfare and equality.
  • This is due to strong focus on social solidarity, taxation and higher spending on education and healthcare.
  • Unlike most other nations, these countries
    • Offer free higher education to their citizens
    • They also have a creative education system.

Thomas Piketty quote: “Over a long period of time, the main force in favour of greater equality has been the diffusion of knowledge and skills.”

Way forward for India

• Expenditure on improving human development indicators
  • Evidence suggests that expenditure on healthcare, education, and social safety reduces inequality.
    • For example, if a government invests in free and high-quality public services, poor people would not have to spend on them, allowing them to save money.
    • It is also essential for the government to spend more on R&D and innovation.
• Another way forward could be directly reducing income disparity by taxing the wealthiest more.
  • These taxes should be used to fund public services which will reduce inequality.
  • Providing tax benefits to companies that share more of the profits with their employees can also help in mitigating the disparity
  • It is imperative that India frees itself from the shackles of income inequality so as to ensure prosperity across all economic classes.

Source: The Hindu BL

Mains Question:

Q. Highlight the effects of the recent pandemic on Inequality in India and World. Also, suggest a suitable way forward.