What Does India’s Inequality Report Card Tell?

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Is inequality getting worse in India, and what does it mean for the poor in the country? These are some of the questions that arise following the release of the State of Inequality in India report by the Institute for Competitiveness. Mint examines the report’s findings.

What does the report say?

The report states that while income deprivation can increase probability of descent into poverty, a multidimensional understanding is important to assess the degree of deprivation in terms of lack of basic necessities, such as quality education and healthcare, which can improve living standards. Raising minimum income, introducing a universal basic income scheme and an urban equivalent of the MGNREGS, allocation of a higher percentage of expenditure towards social services, equitable access to education and creation of more jobs with long-term growth are some of its key recommendations.

What are some of the findings?

As per Periodic Labour Force Survey (PLFS) 2019-20, the top 1% earns almost thrice as much as the bottom 10%. It also states that top 10% earn more than 30% of total income, while bottom 50% hold about 22% of the total income. While the Labour Force Participation Rate (LFPR) has seen a rise from 49.8% in 2017-18 to 53.5% in 2019-20, female LFPR still remains low and has increased from 23.3% to 30% in the same period. Also, a worrisome 85.9% of people from rural areas and 80% from urban areas are not covered under health schemes, and household income and savings remain the chief financing source.


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What is the trend in poverty ratio?

World Bank says India has made progress in reducing poverty since the 2000s. Poverty headcount ratio as a percentage of the population has declined from 37.2% in 2004 to 13.6% in 2015. Aided by higher economic growth, over 90 million people improved their living standards between 2011 and 2015. However, 176 million Indians were still below the poverty line.


What helped narrow the poverty ratio?

In short, economic reforms. For example, economic liberalization removed the ceiling on salary, giving employees a chance to earn in proportion to their productivity, unlike pre-reforms era when their return was limited to the ability of trade unions to negotiate. Also, robust economic and inclusive growth have aided socio-economic development. Thus, despite inequality, earnings at lower levels have improved drastically. Growing income inequality should worry if the rich become richer while the poor become poorer.

Do investments rise with higher incomes?

If the poor become better-off while the rich become richer, should that be a matter of concern? Marginal propensity to save is high in upper income levels while marginal propensity to consume is more at the lower rung. One cannot spend beyond a limit. The surplus goes into savings, which, in turn, get transformed into increased investments for the economy through financial intermediaries.

Jagadish Shettigar and Pooja Misra are faculty members at Bimtech.


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