India’s ‘inequality problem’

In a recent piece, Maitreesh Ghatak, Professor of economics at London School of Economics, reflects on India’s ‘inequality problem’. The graph above shows trends in Indian inequality (based on the income share of the top 1%) relative to its Asian peers, while the table reported below highlights the inexorable rise in income inequality based on different cohorts in India since the 1980s.

Ghatak, is, of course, not the only one worried about the rise in inequality in India. The widely noted World Inequality Report offers a dismal account of inequality in India. Cited below is its account of India.

Extreme income inequalities in India

…The top 10% and top 1% hold respectively 57% and 22% of total national income, the bottom 50% share has gone down to 13%. India stands out as a poor and very unequal country, with an affluent elite.

Income inequality in the long run: a historical high

Indian income inequality was very high under British colonial rule (1858-1947), with a top 10% income share around 50%. After independence, socialist-inspired five-year plans contributed to reducing this share to 35-40%. Since the mid- 1980s, deregulation and liberalization policies have led to one of the most extreme increases in income and wealth inequality observed in the world. While the top 1% has largely benefited from economic reforms, growth among low and middle-income groups has been relatively slow and poverty persists.

Wealth inequality

The bottom 50% own almost nothing…The middle class is also relatively poor …as compared with the top 10% and 1% who own respectively 65% of the total …and 33%

Gender inequality

Gender inequalities in India are very high. The female labor income share is equal to 18%. This is significantly lower than the average in Asia (21%, excluding China). This value is one of the lowest in the world, slightly higher than the average share in the Middle East (15%).

Oxfam has also released a report (‘Inequality Kills’) and notes that there are now more than140 billionaires in India, up from just over 100 in recent years. This group more than doubled its wealth during the pandemic …while 84% of Indian households experienced a decline in their income. There are now more than 46 million ‘new poor’ that emerged during the pandemic.

Labour market distress amidst rising inequality

These disturbing trends are occurring at a time when India is experiencing acute labour market distress – rising unemployment, declining labour force participation rate, falling real wages. According to media reports, in recent days one has probably witnessed India’s ‘first large-scale unemployment riots’.

Protests against lack of jobs….