Inequality
in income is at a very high level in India and has further increased over the
past two decades. The increasing per capita income of the country should not
lull us into complacency as we see that the lowest strata of society has got
only a small portion of the development pie. We should also recognize that a
good growth in the GDP does not mean good for the population at large and
unless direct measures are taken by the government, this inequality would only
increase.
The Gini index measures[1]
the extent to which the distribution of income or consumption expenditure among
individuals or households within an economy deviates from a perfectly equal distribution.
A Lorenz curve plots the cumulative percentages of total income received
against the cumulative number of recipients, starting with the poorest
individual or household. The Gini index measures the area between the Lorenz
curve and a hypothetical line of absolute equality, expressed as a percentage
of the maximum area under the line. Thus a Gini index of 0 represents perfect
equality, while an index of 100 implies perfect inequality.
The World Bank has computed India’s GINI
(%) at 37 in 2005. The progressive increase in the Gini index [2]over
the past few years shows that income inequality in India is only increasing.
Gini Levels
|
Early 1990s
|
Late 2000s (↘)
|
Years
|
||
OECD
|
0.30
|
0.31
|
6.3
|
2008
|
|
Indonesia
|
0.39
|
0.37
|
-6.7
|
2005-2009
|
|
India
|
0.32
|
0.38
|
16.0
|
1993-2008
|
|
China
|
0.33
|
0.41
|
24.2
|
1993-2008
|
|
Russian Federation
|
0.40
|
0.42
|
6.0
|
1993-2009
|
|
Argentina
|
0.45
|
0.46
|
0.9
|
1992-2009
|
|
Brazil
|
0.61
|
0.55
|
-9.4
|
1993-2008
|
|
South Africa
|
0.67
|
0.70
|
3.1
|
1993-2008
|
Another way to
describe inequality is by looking at changes in household income for different
groups [3], notably those at the bottom, the middle and the top of the distribution.
Larger rises in income for those at the bottom and middle of the income distribution
may, in particular, signal that opportunities and equalization are both
growing. The truth in the case of India is that incomes of the rich are
increasing at a greater rate than those of the poor, thereby exacerbating the
income differential further.
There are several reasons for this persisting inequality. Some of the key sources include a large and persistent informal sector, widespread regional divides (e.g. urban-rural), gaps in access to education, healthcare and nutrition, and barriers to employment and career progression for women and weaker sections of society.
It is incumbent on the government of
the day to take measures to address the issues causing inequality. It is
however seen that the benefit and tax systems in India are far from effective
in easing market driven inequality. The coverage and generosity of social
protection systems is very poor as is evident from the low allotments for
health and education in the budgetary spending.
At the same time, the tax system delivers
only modest redistribution, reflecting such problems as tax evasion and administrative
bottlenecks to collect taxes on personal income.
Reducing inequality while working
towards higher growth in the country requires a multipronged approach. The
approach should include: 1) provisions of social assistance that target those
most in need; 2) spreading the rewards from education; and 3) preparing to
finance higher social spending in the future.
It is important to underline that
tackling inequality goes beyond the remit of labour, social welfare and tax
policies. Other policies, such as those aimed at improving the business
environment, product market regulation, infrastructure development, health care
and public administration reforms also have a role to play in reducing
inequality.
Conditional cash transfers may be
particularly well suited to reducing inequality and promoting social mobility
in the country. The fact that they could combine income support with the
requirement to maintain investment in human capital and child health means that
they can be useful tools not only for tackling household poverty, but also for promoting
school enrolment and improving healthcare for children.
Addressing inequalities in both
access to, and quality of, education can also make an important contribution to
lowering inequality in labour income.
Enhancing the distributive capacity
of the tax system would require an emphasis on improving revenue collection
procedures and strengthening the extent to which taxpayers comply voluntarily
with their obligations. A focus on the fight against corruption would also help
improve tax collection.
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