Inequality in the booming Indian economy

    • By,
      Rehet Kaur – Student, Kautilya

After the introduction of the economic reforms during the 90s, the Indian economy has seen an upsurge in its growth, making itself an important player in the world economy. Although it is still a relatively poor country, its rapid economic growth has led to a significant fall in the number of people living below the poverty line, improving their living standards. However, despite a burgeoning economy and reduction in poverty, the inequality in terms of distribution of income and wealth tends to be on the rise. It should be a matter of concern for academicians and the government to reduce poverty and economic inequality; nevertheless, many economists suggest that economic growth is collateral. But to what extent are these inequalities fair and just?

The United Nations 2015 adopted 17 Sustainable Development Goals as a universal call to end poverty and reduce income inequalities; however, dominance by the affluent in market economies does not allow for such measures to take place effectively, and such policies are not pursued to a much greater extent by governments is a sad reality.

Historically, inequality has existed across marginalized communities of SCs, STs, OBCs and minorities living in an absolute deprivation of economic resources. It is noted that inequalities across religious and caste groups are far worse. Hindu Forward castes are much better than the national average; however, Muslims are worse off than the urban Dalits and Adivasis.

Speaking of gender inequalities, as discussed, women being more prone to precarious employment puts them a risk of oppression by men due to increasing inequalities.

The gap in income and consumption expenditure inequalities has been greater in urban areas than rural; nonetheless, in the post-reform period, it has widened in most Indian states and in India. As India’s single most important asset, the land is more unequally distributed than other economic resources.

It is also vital to note that consumption plays an important role in calculating inequality.

Consumption represents typical income and is considered more stable than measured income, which is subject to seasonal fluctuations. This usually happens as people try to balance out their spending overtime when their income changes by borrowing or saving.

The Indian government, in order to alleviate poverty, has stressed rapid economic growth, for growth has generated employment to alleviate poverty but has failed to address growing relative deprivation among individuals, which has pushed the downtrodden further down the road. According to the latest World Inequality Report 2022, India appears as a poor and economically unequal country with widening differences between the rich and the poor with an affluent elite with the top 10% of the population owning 57% of the total national income and the bottom 50% owning only 13%. These figures represent how focusing on absolute deprivation than relative deprivation of the poor leads to poor economic growth.

Therefore, a reduction in relative income inequality can help boost the economy. Focusing on economic growth to alleviate poverty and also stressing government intervention in reducing economic disparity can help achieve overall gains for the country.

To provide the economic benefits to all, progressive taxation of individual income and wealth of the rich and providing cash transfers and subsidies to the poor will expand the economic gains of the poor. Moreover, an increase in minimum wage during an increase in inflation can help boost the economy. The recent spread of COVID-19 disease has further exacerbated the trend of economic inequality by making the poor jobless. Many had to suffer severely because of poor public health conditions. Government expenditure on education and health care and social welfare is said to reduce inequality. Investing in health care for the poor and improving quality education for them can help boost the economy as it will open the door to opportunities which will have a positive impact on eliminating group based negative discrimination and promoting societal cohesion. Furthermore, providing equal opportunities for growth to the poor will help boost the economy and help limit the role of money in politics as the powerful often tend to influence policy-making and will help strengthen their trust in the legitimacy of the political system.

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*The Kautilya School of Public Policy (KSPP) takes no institutional positions. The views and opinions expressed in this article are solely those of the author(s) and do not reflect the views or positions of KSPP.