Inequality Paradox

The inconsistencies seem absurd. In the midst of the country’s 30th year of reforms, the successes on the income parameters are visible. The number of poor declined substantially, which reflected in the country’s income hierarchy. In 1991, its shape was a standard pyramid with a broad base. The bulk of the population was poor, a lower percentage was middle class and a sliver was rich. Today, a bulge has appeared in the middle, the base has thinned and the top widened.

If one looks at the numbers, 60 per cent of the population, or 500 million, were considered poor in 1991. Today, the figure is less than a fifth, or not more than 250 million. Some studies, like the 2015 Brookings report, claim that the deprived class constitutes a mere 50 million. The middle class, although the figures are disputed, is on the march. India has more millionaires and billionaires. The Forbes real-time global list of the rich counts more than 100 Indian dollar-billionaires.

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Yet, studies conclude that income inequalities sharpened in the past three decades. Indian incomes zoomed across socio-economic sections, but there were huge differences between the rich and poor, says the UN Human Development Report (HDR) 2019. Between 2000 and 2018, on an average, incomes grew by a massive 122 per cent. However, those of the bottom 40 per cent scaled up by less than half: 58 per cent. The figure for the top 1 per cent of the rich was a whopping 213 per cent.

A similar narrative was repeated across nations. Between 1980 and 2016, the overall global correlation with per capita earnings showed an elephant-like curve. It was, says the HDR, like the “silhouette of an elephant with a raised trunk”. It implied that the incomes of the bottom 45 per cent of the planet’s population grew remarkably by more than 75 per cent, or the hump of the elephant. For the next 45 per cent of the people, the pace was slower at generally less than 50 per cent, or the flat back. This was followed by the raised trunk, or huge jumps of up to 240 per cent for the next 10 per cent. “Inequality has reached obscene levels in India and acquired multiple dimensions,” says Amitabh Behar, CEO, Oxfam India. “From economic inequality, it gets accent­uated to other forms of deprivations.” This can prove suicidal, in political and social terms, as it can lead to a complete breakdown of society. To achieve the dream of Aatma Nirbhar Bharat, it is imperative to focus on both wealth generation and capital distribution.

To do the latter requires an analysis of three aspects of disparity. The first is the bitter realisation that reforms, which elevated the lives of millions, are responsible for the rich getting richer, and faster than the poor. The trickle-­down theory has limits. It helps the weaker sections, but enables the capitalists to gain the most. As per the HDR, the bottom 50 per cent of the world’s citizens captured just 12 per cent of the growth between 1980 and 2016. The figure for the richest 1 per cent was 27 per cent.

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“I don’t see a paradox,” says K.P. Kannan, author of Interrogating Inclusive Growth: Poverty and Inequality in India. “Growth is invariably accompanied by economic inequality. This is because growth favours those with inherited wealth, and access to skill and education. This results in ‘inequalising growth’, i.e. those at the upper end of the socio-economic spectrum benefit more than those at the bottom.”

At the global level, this results in equality differences between nations due to factors such as extent of development, rise in productivity and adoption of new technologies. At the same time, there are fractures and fissures within each nation. According to the HDR, “Both forces have been at play over the past four decades, but the latter (intra-nation trends) appears to have dominated.” Policy-makers need to be aware of what is happening in their own economic backyards as national policies are more important than broader factors like globalisation in countering wealth gaps. A few experts feel this is an area where India lags behind. “It will not be wrong to say that we have accepted inequality,” says G.K. Karanth, former head (sociology), Institute of Social and Economic Change. “Until the 1980s, there was at least an attempt to pay lip service to it.”

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Oxfam’s annual report on global trends in inequalities agrees that the chasm between the rich and poor cannot be resolved without deliberate and considered inequality-busting measures. Over the past few decades, the policy spotlight was on urban areas and, hence, on the middle and rich classes. This warped geographical and class differentiations. In addition, investment, tax  and labour policies were explicitly pro-corporate and pro-capital, which favoured the well-to-do.

Politicians and civil servants argue that the importance given to equitable and inclusive growth, through better opportunities, can address these problems. Coupled with better education, health services and skill development—enhanced through a slew of schemes—it will enable the weak and poor to rapidly climb up the economic ladder. Critics say this doesn’t work in practice. Take the three recent farm bills, for example, which may negatively impact farmers. As a percentage of national income, there is a decline in public expenditure on agriculture and rural infrastructure. A national minimum daily wage of Rs 202, applicable to MGNREGA, is more of a “starvation wage”, and cannot uplift the poor.

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Even the decisions to directly tackle poverty cannot bridge the economic gulf. Karanth points out that we spend huge time, energy and intellect to eradicate poverty, but it doesn’t have the same impact. The reason: poverty is an extreme form of inequality. Thus, as Kannan puts it, poverty alleviation “only addresses the deficiencies in basic needs” within specific sections. “It is an attempt to save people from destitution and, in this respect too, our success is partial,” he adds.

Such policy interplay plays out in different ways in various countries and regions. The rise in income inequality in the US is the highest among developed nations. Between 1980 and 2014, the average income of Americans in the bottom half grew by less than 2 per cent, and that of the top 1 per cent more than tripled. This coincides, says the HDR, with “a gradual decrease in the progressiveness of the US tax system”.

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Europe, as a whole, fared better, although there were variations among its constituent nations. In 2017, the poorest 40 per cent Europeans collectively earned more than the top 10 per cent. Experts say that this divergence between the US and Europe cannot be explained by broad explanations like global trade and technology. Instead, they can be understood in terms of national and regional policies. As the HDR puts it, it is “more the outcome of policy choices and institutional arrangements”.

For example, pre-tax inequality—­income measured before direct taxes—is more marked in the US than in Europe. Between 1980 and 2017, this ratio went up from 7 per cent to 8 per cent in Europe, even as it doubled to 14 per cent in the US. Another reason is social spending—higher in Europe than in the US and the rest of the world. Another contrast is between the minimum wages, which fell in the US, but remained high in France, the UK and Germany.

Similar policy deviations can explain the dissimilarities between India, China and Russia. Between 2000 and 2018, incomes of the bottom 40 per cent in China zoomed by 263 per cent, which was unusual, although it was lower than the national average (361 per cent) and the top 1 per cent (518 per cent). During the same period, in Russia, the rise in incomes of the poorest 40 per cent was almost 80 per cent higher than the top 1 per cent—a remarkable feat. The figures for India lie in between the two.

A third aspect of disparity, which is linked to economic discrepancies, comprises social differences. Subrat Das, executive director, Centre for Budget and Governance, believes gender inequality is a defining characteristic of Indian society. He adds that more efforts are required to empower women, and protect them from violence at homes, and outside their so-called safety zones. Knee-jerk reactions will not work; only a comprehensive framework can yield results.

One solution is for the Centre and states to recognise the contribution of care-work, which is done by most women and girls. “Governments must prioritise care, and give it the same importance as other (productive) sectors. They have to be paid living wages for their work, which includes caring for parents, children and other vulnerable people,” feels Behar. This will enable India to build human economies that work for everyone, and not just a fortunate few.

Experts agree that social revolution is the need of the hour to “improve existing social (and economic) ­practices”. Charan Singh, CEO, Foundation for Economic Growth and Welfare, is a proponent of this thought-process. Malnutrition is a public health nemesis, and its contours are socio-economic in nature. Yet, 73 years after Independence, PDS ensures rice and wheat, and not a nutritious meal for the poor families. Mid-day meals for school children are still inadequate.

In its recent report, Promises and Realities: Wada Na Todo Abhiyan, a national campaign that involves 3,500 civil society entities, argues for socio-­economic equity based on equality, justice and fraternity. It recommends “an adequate social protection mechanism for all”. Along with other measures such as living wages, ban on labour abuses, and removal of the gap between the formal and informal sectors, it calls for radical moves to redistribute wealth.

The last word comes from Kannan, who feels there is only one way to correct the existing situation: ­policy-makers and other stakeholders have to come up with policies that bet against the strong, and instead bet on the weak. This requires a careful dismantling of the current vested interest environment with enough care to prevent its replacement by a new, even more exploitative one.