India among most unequal countries; 10% richest hold 57% of national income

The World Inequality Report 2022 has described India as one of the most unequal countries in the world in terms of income and wealth distribution. While the richest ten per cent hold 57 per cent of national income, the share of the bottom half is only 13 per cent. This is slightly better than the global inequality index which shows that the top ten per cent hold as much as 76 per cent of the world's wealth compared to the bottom 50 per cent holding only a two per cent share.

The report may sound startling but it cannot be denied that the stark inequality in this country is evident all around us. In fact, in a recent interview, former RBI governor Raghuram Rajan spoke about people here living within two different worlds.

These could be divided into the terms India and Bharat though he stressed these were not appealing to him as taglines. The India segment represented the successful corporate sector where the country had become an IT hub and IPOs in recent times were churning out successful unicorns, also where stock market investors were finding their share values rising exponentially over the past 20 months. On the other hand, there was Bharat which comprised of those at the bottom of the pyramid, especially in rural areas. It included the migrant workers who were highly visible at the time of the lockdown in March last year trying to walk for hundreds of kilometers to reach their rural homes. Clearly, it is time to make efforts to ensure that the two worlds merge rather than remain as distinct entities.

The inequality report released by the Paris-based World Inequality Lab, notes that the bottom half of the population in this country earns Rs 53,610 while the top ten per cent earns as much as twenty times more at Rs 11, 66,520. In addition, the top one per cent hold as much as 22 per cent of the country's total income. As pointed out earlier, the visible evidence of such inequality is all around us in both rural and urban areas. There is, for instance, a vast gap between living standards in urban areas as opposed to rural areas. Even a relatively poor urban dweller no longer finds it comfortable to live in rural areas. Among the many reasons is the shortfall in electricity supply and relatively poor sanitation levels.

Apart from this visible evidence, the Gini co-efficient which measures income inequality in various countries also indicates there is a wide gap between the rich and the poor in this country. The co-efficient increased from 74.7 per cent in 2000 to 82.3 per cent by 2020. A higher index indicates greater inequity. In other words, inequality has been rising rather than declining over the past two decades.

One of the reasons has been the deceleration in GDP growth over the past few years. From 8.2 per cent in 2016-17, the growth rate fell to 4.2 per cent in 2019-20. This has translated into higher unemployment levels than ever before. The situation has obviously worsened during the pandemic as millions of migrant workers went back to their villages. Many did not return and instead relied on MGNREGA projects for their subsistence. But this level of income has in most cases been lower than the wages in their urban jobs. Hence the extent of poverty has increased over the past two years, though no definitive studies have been carried out so far on the extent of this rise.

On the other hand, the rich have become richer both in India and the rest of the world over this period. The Inequality Report notes that there has been a rise of private wealth in emerging countries such as China and India. In the case of China and Russia, it attributes the faster rise in private wealth compared to richer countries due to the transition from communism. As for India, the transition was from a highly regulated economic system. Though it was expected to some extent as a large share of public wealth was shifted to the private sector, the report comments that the scale of change is striking. The private wealth increase in India rose from 290 per cent in 1980 to 560 per cent in 2020.

Even around the globe, the report finds that inequality has increased in most countries over the past two decades. Currently, it finds that the richest ten per cent of the world's population take 52 per cent of global income while the poorest half of the populations earn 8 per cent of it. The Middle East is apparently the most unequal region while Europe has the lowest inequality levels.

As for India, the report should set policymakers thinking about ways to reduce this growing gap between the rich and the poor. There is no doubt that this government has launched a series of social welfare schemes that had been needed for a long time. These include the sanitation drive to build toilets, the Ujjwala scheme to provide cooking gas to rural households and the new drinking water projects. Yet the most critical task is to provide the masses with enough jobs and this is where more focus is needed on an urgent basis.

Currently, the job-intensive service sectors are facing a crisis due to the impact of the pandemic. They are slowing getting back to normalcy but it will take a while before employment reach pre-pandemic levels. It is here that the government should provide support to the contact-intensive sectors that are opening up in a gradual way. Unemployment is currently estimated at 7.2 per cent as on December 5 by the Centre for Monitoring the Indian Economy as compared to 1.6 per cent in January 2020. Only when jobs return to the economy will it be possible for inequality to be reduced significantly. Thus job-creation needs to be accorded the highest priority and policies need to be formulated to achieve this goal.