WHY IN NEWS: A government press release cited a World Bank brief claiming that India is the world’s fourth most equal country based on its Gini index for consumption, which stood at 25.5 in 2022-23.
ABOUT GINI INDEX
- The Gini index, also called the Gini coefficient or Gini ratio, determines a nation’s level of income inequality by measuring the income distribution or wealth distribution across its population.
- The Gini index was developed in 1912 by Italian statistician Corrado Gini.
- The coefficient of the Gini index ranges from 0 (or 0%) to 1 (or 100%), with 0 representing perfect equality and 1 representing perfect inequality
PITFALLS OF RELYING SOLELY ON CONSUMPTION BASED GINI INDEX?
- Incomplete Picture: Gini Index based on consumption does not reflect income or wealth inequality, which are far more severe in India.
- Misleading Comparisons: Other countries’ Gini values often refer to income, while India’s is based on consumption, making comparisons invalid.
- Data and methodological limitations: Survey biases-Consumption surveys often miss the extremely rich (non-response bias) and may understate inequality .
- Insensitive to distribution extremes: Misses tail disparities- Gini doesn’t sufficiently capture changes at the upper or lower ends of the distribution, underplaying both extreme wealth and deep poverty .
ABOUT ECONOMIC INEQUALITY IN INDIA
- Wealth Inequality: India is one of the most unequal countries globally (Oxfam Report).
- Rich–Poor Gap: The rich are getting richer rapidly, while the poor still struggle to earn minimum wages.
- Income Inequality: Top 1% earned 22.6% of national income (World Inequality Database, 2022–23).
REASONS FOR RISING ECONOMIC INEQUALITY IN INDIA
1. Uneven Economic Growth: Economic benefits are concentrated in a few states (e.g., Maharashtra, Karnataka). The service sector, contributing ~60% of GDP, is not geographically inclusive.
2. COVID-19 Pandemic: Wealth of the bottom 50% declined, while billionaires increased from 102 (2020) to 166 (2022). Hunger increased from 19 crore to 35 crore people.
3. Regressive Tax System: Corporate tax reduced (30% → 22%) but indirect taxes like GST increased. Bottom 50% paid 64% of GST; top 10% paid only 4%.
4. Poor Public Services: Lack of quality education and healthcare restricts upward mobility.Bottom 50% stuck in low-paying jobs (World Inequality Lab).
5. Skewed LPG Reforms: Benefits went to telecom and aviation sectors. Agriculture and small-scale industries remained neglected.
6. Urban–Rural Divide: Urban areas attract investment; rural regions lack jobs and infrastructure.
7. Social Disparities: Gender and caste barriers limit access to education, jobs, and income.
8. Wealth Concentration: No inheritance or wealth tax allows rich to accumulate generational wealth.
MEASURES TO REDUCE ECONOMIC INEQUALITY IN INDIA
1. Promoting Inclusive Growth
- Deendayal Antyodaya Yojana–NRLM: Enables poor households to access self-employment and skilled wage opportunities.
- MGNREGA: Guarantees 100 days of wage employment to rural households.
- Skill India Mission and PM Awas Yojana: Enhance employability and housing for low-income groups.
2. Financial Inclusion
- Pradhan Mantri Jan-Dhan Yojana (PMJDY): Provides banking access, insurance, and pension services to the unbanked.
- PM Mudra Yojana: Provides collateral-free loans to micro and small enterprises.
- Stand-Up India Scheme: Supports SC/ST and women entrepreneurs.
3. Social Security for the Vulnerable
- Atal Pension Yojana: Provides pension for workers in the unorganized sector.
- PM Suraksha Bima Yojana and PM Jeevan Jyoti Bima Yojana: Offer affordable insurance for accidents and life coverage.
4. Promoting Gender Equality
- Beti Bachao Beti Padhao: Aims to improve child sex ratio and promote girls’ education.
- One Stop Centre Scheme & SWADHAR Greh: Provide support and shelter to women in distress.
- PM Matru Vandana Yojana: Offers maternity benefits to pregnant women and lactating mothers.
5. Strengthening Agriculture and Sustainability
- National Mission for Sustainable Agriculture (NMSA): Promotes climate-resilient and profitable agriculture.
- National Action Plan on Climate Change (NAPCC) & NMEEE: Promote energy efficiency and sustainable growth, benefiting marginal communities.
- 6. Direct Benefit Transfers (DBT): Ensures government subsidies and welfare benefits (e.g., LPG, scholarships, pensions) reach the poor directly, reducing leakages.
- 7. Education and Digital Access: Samagra Shiksha and PM eVIDYA: Improve access to quality education and digital learning, especially for marginalized groups.
- 8. Reservation and Affirmative Action: Constitutional provisions for SCs, STs, and OBCs in education, jobs, and political representation help reduce historic social and economic exclusion.
IMPACT OF ECONOMIC INEQUALITY IN INDIA
1. Stunted Economic Growth & Investment
- Low purchasing power among the majority suppresses aggregate demand, slowing growth .
- A widening inequality gap leads to monopolization in labor and capital, reducing competition .
2. Social Stratification & Reduced Mobility
- Rigid class and caste barriers limit access to education, reinforcing intergenerational inequality
- Only a few controls capital; the bottom 50% earn a mere 15% of national income, deepening social divide .
3. Health & Education Disparities
- Poor families rely on under-resourced public health services, leading to higher infant mortality and malnutrition .
- Quality of education heavily skewed—urban, privileged students outperform disadvantaged peers .
4. Rural Distress & Gendered Impacts
- Women in rural areas are increasingly burdened with farm work due to male out-migration, with limited alternative income .
- Agricultural stagnation and regional inequality trigger rural debt, migration, and heightened unemployment (e.g., Punjab crisis) .
5. Social Unrest & Political Instability
- Inequality fuels social discontent—seen in strikes and protests, notably the recent Bharat Bandh
- Studies show increased inequality correlates with higher chances of unrest and violence .
6. Environmental & Climate Vulnerability
- Disadvantaged communities lack resources to adapt, leading to greater exposure to environmental crises, e.g., water scarcity and pollution .
- Inequality undermines trust, impeding collective action on issues like climate change .
WAY FORWARD TO REDUCE ECONOMIC INEQUALITY IN INDIA
1. Foster Inclusive Economic Growth
- Promote rural entrepreneurship and job creation via infrastructure investment and MSME support.
- Strengthen skill development (e.g., Skill India) and formalize informal sectors for better wages and social security.
2. Expand Access to Quality Education & Healthcare
- Increase education spending to ~6% of GDP (NEP‑aligned), focusing on rural literacy and bridging the urban–rural gap.
- Enhance public healthcare via robust funding, rural clinics, and universal schemes like Ayushman Bharat.
3. Strengthen Social Security & Safety Nets
- Broaden social pensions (e.g., NSAP), cash transfers (e.g., PM‑KISAN), and work guarantees (MGNREGA) to cover informal and vulnerable populations.
- Ensure timely and leakage-free benefit delivery through DBT and rural infrastructure.
4. Implement Progressive Taxation & Wealth Taxes
- Introduce wealth/inheritance taxes on the ultra-rich (e.g., 1–2%), which could fund major public schemes like health and education.
- Strengthen direct taxes and curb evasion to ensure the affluent pay their fair share.
5. Address Social & Cultural Barriers
- Enforce anti-discrimination policies on caste, gender and marginalization. Promote girl child education and women’s employment.
- Strengthen schemes like Beti Bachao, maternity benefits, and One‑Stop Centres for women in distress.
6. Promote Decentralisation & Inclusive K HAUGovernance
- Empower Panchayats and local bodies to ensure bottom-up development.
- Encourage transparency and CSR initiatives to target local socio-economic needs.
7. Boost Digital & Rural Infrastructure
- Expand Common Service Centres and PMGDISHA to improve digital inclusion, access to financial services, and rural employment.
- Invest in roads, irrigation, and market linkages to connect farmers and rural entrepreneurs to national value chains.
8. Encourage Private Sector Participation with Safeguards
- Leverage CSR to drive investments in underserved areas—health, education, and skill training.