UPSC IAS exam preparation - Fundamentals of the Indian Economy - Lecture 4

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Inclusive growth in India - Part 1

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1.0 MEANINGS OF INCLUSIVE GROWTH 

Inclusive Growth is economic growth that creates opportunity for all segments of the population and distributes the dividends of increased prosperity, both in monetary and non-monetary terms, fairly across society. The benefits of economic growth should accrue to all sections of the society regardless of their economic class, gender, sex, disability and religion. Inclusive growth is a necessity if sustainable growth is to be achieved. Inclusive growth focuses on productive employment as a means to increase the income of the poor and excluded groups.

Some meanings of inclusive growth are:

1. Inclusive growth is growth that reduces the disadvantages of the most disadvantaged while benefitting everyone.
2. Inclusive growth can be thought of as entailing the expansion of opportunities for participation, which can include both engagement in productive economic activities and having a say on the orientation of the growth process.
3. Inclusive growth has been thought of as growth that promotes development, with development understood as comprehensive improvements in multiple dimensions contemplating both living conditions and empowerment.

1.1 Features of inclusive growth

Salient features of inclusive growth are:

• 1.Inclusive Growth focuses on economic growth which is a necessary and crucial condition for poverty reduction. Sustained growth in the long term perspective is essential for inclusive growth.

1. For growth to be sustained in the long run, it should be broad-based across sectors. Issues of structural transformation for economic diversification therefore take a front stage. Some countries may be an exception and continue to specialize as they develop due to their specific conditions (e.g. small states).
2. It should also be inclusive of the large part of the country's labour force, where inclusiveness refers to equality of opportunity in terms of access to markets, resources and unbiased regulatory environment for businesses and individuals.

• Inclusive Growth focuses on both the pace and pattern of growth. How growth is generated is critical for accelerating poverty reduction, and any Inclusive Growth strategies must be tailored to country-specific circumstances.
• Inclusive Growth focuses on productive employment rather than income redistribution. Hence the focus is not only on employment growth but also on productivity growth.
• Inclusive Growth has not only the business unit, but also the individual as the subject of analysis.
• Inclusive Growth is not defined in terms of specific targets such as employment generation or income distribution. These are potential outcomes, not specific goals.
• Inclusive Growth is typically fueled by market-driven sources of growth with the government playing a facilitating role.

2.0 NEED FOR INCLUSIVE GROWTH IN INDIA 

 

Inclusive growth is necessary for sustainable development and equitable distribution of wealth and prosperity. Achieving inclusive growth is the biggest challenge in a country like India. To bring 600 million people living in rural India into the mainstream is quite a big concern. The challenge is to take the levels of growth to all sections of the society, and hence to all parts of the country. One of the good ways to achieve inclusive growth is through developing people's skills. 

 

A multi-faceted approach towards education and skills development is necessary to achieve growth. The challenge of skills shortage can be addressed through public-private partnership. 

2.1 Need to focus on inclusive growth

Since independence, significant improvement in India's economic and social development made the nation grow substantially. The following factors encouraged India to concentrate more on inclusive growth.

1. India is the 7th largest country by area and 2nd by population. It is the 10th largest economy at market exchange rate and 3rd largest by PPP. Yet, India is far away from the development of the neighborhood nation, i.e., China.
2. The exclusion in terms of low agriculture growth, low quality employment growth, low human development, rural-urban divides, gender and social inequalities, and regional disparities etc. pose significant development challenges for India.
3. Reduction of poverty and other disparities and raising of economic growth are the key objectives of the nation through inclusive growth.
4. Political leadership in the country plays a vital role in the overall development of the country. But various studies have found that politicians in India have a very low level of scientific literacy.
5. Studies estimated that the cost of corruption in India amounts to over 10% of GDP. Corruption is one of the ills that prevent inclusive growth.
6. Although child labour has been banned by the law in India and there are stringent provisions to deter this inhuman practice, still many children in India are subjected to the brutal grind of daily labour to earn their bread.
7. Literacy levels have to rise to provide the skilled workforce required for higher growth.
8. There are occasions when economic reforms in the country are overwhelmed by outdated philosophies and allegations/counter-allegations by politicians and opposition parties in India.
9. Possibility of 9% of GDP growth for country as a whole is one of the boosting factors which gives credence to the concept of 'Inclusive Growth' in India.
10. Inclusiveness has to be benchmarked against achievement of quantifiable targets related to (i) Income & poverty, (ii) education, (iii) health, (iv) women & children safety and growth, (v) infrastructure, and (vi) environment.

2.2 Growth and inclusiveness in India 

The Indian economy has moved on a high growth path since the mid-1980s. After a blip in growth between 1990-92, liberalisation, initiated for aligning the Indian economy with the world in 1991, not only put the economy back on a higher growth path but also sustained this growth till the 2000s. During the last few years, India has been the second fastest growing economy in the world. However, despite the high growth over the past two decades, concerns have been raised over the growth not being equally distributed. Policy makers responded to these concerns arguing for inclusiveness in the 11th Five Year Plan in 2007. 

Sharing of growth: The aggregate estimates routinely brought out by the Central Statistical Organisation (CSO) show a "feel good factor" - that real per capita income has been growing rapidly. However questions abound on

1. how has this growth been shared among households in rural India versus urban India and 
2. whether households belonging to different socio-religious groups have grown together. 

Three rounds of the National Sample Survey Consumer Expenditure (NSS CE) surveys carried out between 2004-05 and 2011-12 suggest an unprecedented rise in household expenditure and a consequent decline in poverty. These estimates imply that some benefits of growth have been shared by vulnerable households. 

But these data do not clarify whether poverty has declined because of new social safety net programmes or because vulnerable households have participated in the general economic growth.

The India Human Development Survey (IHDS) - a nationally representative survey of about 42,000 households conducted by researchers from the National Council of Applied Economic Research (NCAER) and the University of Maryland revealed some very interesting facts.

The median real income of the households from all sources had been about Rs. 28,200 in 2004-05; this increased to about Rs. 37,500 in 2011-12, which is an average of 4.7 per cent annually. Unlike aggregate growth figures released by the CSO, IHDS data allows calculation of household income by the place of residence of households. Those IHDS calculations show for the first time that the real average household income in rural India has increased 5.0 per cent annually - almost twice the 2.6 per cent annual growth in urban India. 

This has resulted in a significant narrowing of the gap in household income - from 2.26 times in 2004-05 to 1.97 in 2011-12. These figures are consistent with the growth of per capita expenditure calculated from the respective NSS CE (61st and 68th rounds) monthly per capita expenditure growth in the rural and urban sectors.

The relatively greater progress of vulnerable sectors despite this growing inequality seems to suggest that the inclusive growth policy implemented during the 11th Five Year Plan may have been working. Some of the social sector schemes like the Mahatma Gandhi National Rural Employment Guarantee Act, Janani Suraksha Yojana, the National Rural Health Mission et al. may have contributed to this inclusive growth.

3.0 ELEMENTS OF INCLUSIVE GROWTH

 

The key components of the inclusive growth strategy include a sharp increase in investment in rural areas, rural infrastructure and agriculture, spurt in credit for farmers, increase in rural employment through a unique social safety net and a sharp increase in public spending on education and health care.

 

3.1 Disparities and Divides 

 

Even as we address the specific challenges listed above, we must deal with the perception that development has failed to bridge the divides that afflict our country and may even have sharpened some of them. Some of these perceptions may be exaggerated, but they exist nonetheless. 

 

There are many divides. Foremost among these is the divide between the rich and the poor. As explained, poverty is declining, but only at a pace which is no longer acceptable given the minimalist level at which the poverty line is fixed. There is also a divide between those who have access to essential services such as health, education, drinking water, sanitation etc., and those who do not.

3.2 Jobless growth

The term "jobless growth" refers to the phenomenon in which economies grow while merely maintaining or, in some cases, decreasing their level of employment. This tends to happen when a relatively large number of people have lost their jobs and the ensuing recovery is insufficient to absorb the unemployed, under-employed and new members entering the work force. Automation is another reason why this might happen.

According to a recent report of World Economic Forum, jobless growth has emerged as a global phenomenon. More than 200 million people are jobless across the world. Income inequality and jobless growth are two of the most significant challenges facing the world today. Deepening income inequality and jobless growth were the top 10 trends for 2015 and 2016.

India's unemployment experiences are different from the structural transformations and job displacements associated with faster technological progress happening in the developed countries. Except during the Great Depression of 1930s countries like the USA never experienced mass unemployment. The Economic Survey of India has cautioned that by 2020, India could be faced with up to 16.7 million 'missing jobs'.

Though India grew by 8.7 per cent per annum between 2004-05 and 2009-10 it had little impact on job generation. The share of agriculture in total employment shrank from 57 per cent to 53 per cent over this period, with 15 million workers migrating to towns and cities for work. However, the manufacturing and services sectors failed to absorb them fully due to which most of these migrants became a part of the informal sector. India's high rate of informality is a drag on its economic development and a source of considerable inequity and a strong correlation existed between informality (of jobs) and poverty in India. In organised industries, the jobs have shifted from regular to contract work resulting in casualisation of labour. Manufacturing shed five million jobs, while services employed only 3.5 million workers during 2004-10.

Between 2005 and 2010, only one million jobs were created for almost 60 million new entrants to the labour market. In fact, it was the pull of construction growth that led to workers moving out of agriculture. And the boom in construction activity was volatile.  India is creating jobs mainly in low-productivity construction and not in high productivity formal jobs in manufacturing which requires a higher degree of skills too. Agricultural sector itself is characterised by disguised unemployment.

With the adoption of neo-liberal policies, labour-intensive sectors were relegated to the background and capital-intensive labour displacing sectors were encouraged. There has been acceleration in capital intensification at the expense of creating employment. 

Wages have not increased in proportion to output which implies that a good part of the resultant increase in labour productivity was retained by the employers. The workers as a class thus lost in terms of both additional employment and real wages in organised manufacturing sector.  

Neo-liberal policies resulted in a drop in the rate of labour absorption and rapid growth of the FIRE (Finance, Insurance, and Real Estate sector) economy. FIRE economies generated job opportunities only for skilled labour to make deals and securing agreements.The much-hyped IT and ITES sectors employed very small percentage of the force.

Therefore, the economic and social strains of jobless growth are quite serious. The basic economic cost of unemployment is foregone output. In the absence of jobs and income, domestic consumption expenditure will fall and it will have an investment depressing impact.

4.0 Financial inclusion in India

Financial Inclusion is a relatively new socio-economic concept in India that aims to change this dynamic by providing financial services at affordable costs to the underprivileged, who might not otherwise be aware of or able to afford these services. Despite India boasting economic growth rates higher than most developed countries in recent years, a majority of the country's population still remains unbanked. 

Global trends have shown that in order to achieve inclusive development and growth, the expansion of financial services to all sections of society is of utmost importance. As a whole, financial inclusion in the rural as well as financially backward pockets of cities is a win-win opportunity for everybody involved - the banks/NBFC's intermediaries, and the left-out urban population. 

The Reserve Bank of India introduced a regulation in 2006 allowing banks to use the services of third-party, non-bank agents to extend their services right to people's doorsteps. Banks will handle core infrastructure and services while intermediaries known as Business Correspondents (BCs) will be the executors and act as the face of these banking & financial institutions in dealing with end-users. The Business Correspondents (BCs) shall be carrying handheld terminals like Tablets (GSM enabled) coupled with portable biometric scanner, smart card swipe machines as well as thermal bluetooth printers for carrying out their online banking activities on the field. Authentication and customer information is provided by the UIDA through NPCI or NSDL once the institution becomes an authorized UIDAI user. As income levels and consequently, savings in rural areas increase, it is essential to help earners manage their funds and facilitate incoming and outgoing payments. Allowing people to create simple, no-frills current and savings accounts, relaxing KYC norms and directly crediting social benefits to account owners will bolster an inclusive approach to finance & banking in rural areas.

Benefits of financial inclusion: Financial inclusion inculcates the habit to save, thus increasing capital formation in the country and giving it an economic boost.

The rural masses will get access to banking like cash receipts, cash payments, balance enquiry and statement of account can be completed using fingerprint authentication. The confidence of fulfilment is provided by issuing an online receipt to the customer.

Reduction in cash economy as more money is brought into the banking ecosystem. 

Direct cash transfers to beneficiary bank accounts, instead of physical cash payments against subsidies will become possible. This also ensures that the funds actually reach the intended recipients instead of being siphoned off along the way.

Availability of adequate and transparent credit from formal banking channels will foster the entrepreneurial spirit of the masses to increase output and prosperity in the countryside.

Hence, it is believed that financial inclusion can initiate the next revolution of growth and prosperity. In the 21st century, India has been pulling all the right levers to advance financial inclusion and economic citizenship by channeling its own transactions to lubricate the system. India's journey towards economic ascension relies on how the 65% unbanked population of India (conservative 2012 estimate by World Bank) is enabled with financial infrastructure.

5.0 PROBLEMS IN DEVISING INCLUSIVE GROWTH STRATEGIES IN INDIA 

 

As said, for a developing country like India, the need of inclusive growth is vital to achieve the overall progress of the country. Though it is positive for macro-economic stability, 2008-'09 resulted in a relative growth slowdown, mostly from the spillover effects of the weakening of the global economic momentum and volatile financial markets. The following problems are the major concerns for developing countries like India to achieve the inclusive growth. 

1. Poverty
2. Employment
3. Agriculture
4. Problems in social development
5. Regional disparities

 Let us see these one by one.

 

5.1 Poverty

 

Percent of population living under the poverty line, in India is very high. The World Bank estimates that 456 million Indians (42% of the total Indian population) now live under the global poverty line of $1.25 per day (PPP). This means that a third of the global poor now reside in India. However poverty estimation in India is riddled with loopholes. 

 

A proportionally large share of poor is lower castes. Many see the caste system as a system of exploitation of poor low-ranking groups by more prosperous high-ranking groups. In many parts of India, land is largely held by high-ranking property owners of the dominant castes that economically exploit low-ranking landless labourers and poor artisans, all the while degrading them with ritual emphases on their so-called god-given inferior status.

 

Casteism is still widespread in rural areas, and continues to segregate dalits. However, it has been noted that the steady rise and empowerment of the Dalits through social reforms and the implementation in employment and benefits is a reality.

5.2 Employment 

 

Full time paid employment is considered as one of the big problems for inclusive growth in India. Rising population at a great speed after independence showed its impact on employment. Unemployment became a big worry for the development prospects of India. Since poverty is much higher than unemployment, employment is the only source to eradicate poverty. The quality and quantity of employment in India is very low due to illiteracy and due to over dependency on agricultural employment. The quality of employment is also a problem. Moreover India also faces the problem of inadequate skill development which leads to unemployability. The national skill Development Corporation (NSDC) was formed in with the objective of upskilling 500 million people in India by 2022.  

 

Unorganized employed people in India are around 85%. Workers in this sector do not have social security. The generation of productive employment for labour force in the economy, as employment, is a key to inclusive growth. The country is also facing challenges in employment generation in all sectors, regions and for all socio economic groups particularly for poorer sections of population, backward regions, lagging sectors and SC/ST/OBC/women etc. 

The continuing slowdown of the global economy is a signal that formal sector may not generate significant employment, but since India's informal sector employs the majority of workforce, we perhaps will remain insulated from any major social shock. 

5.3 Agriculture 

 

Traditionally, India has been an agriculture-based economy. Majority of Indians are engaged in agriculture for employment. The recent developments in other sectors decreased this major sector's growth.

Some of the present problems in Indian agriculture are:

1. Long term factors like steeper decline in per capita land availability, & shrinking of farm size
2. Slow reduction in share of employment
3. Low labour productivity in agriculture and the gap between agricultural and non-agricultural sectors is widening
4. Decline in yield growth due to land and water problems, vulnerability to world commodity prices, farmers' suicides
5. Disparities in growth across regions and crops, i.e., growth rate declined more in rain fed areas
6. All these problems act as hurdles in the key area for the economic development of the nation - agriculture.

 5.4 Problems in social development 

 

Social development is a key concern in achieving inclusive growth. Some of the problems in social sector are:

1. Significant regional, social and gender disparities
2. Low level and slow growth in public expenditures particularly on health
3. Poor quality delivery systems
4. Social indicators are much lower for scheduled castes and scheduled tribes
5. Malnutrition among children is one major problem
6. BPOs brought multinational culture to India, but the sector is facing severe pressure due to global recession
7. Social advancements in India are still at lower level due to the strong influence of culture and regional disparities 

The vision of inclusiveness must go beyond the traditional objective of poverty alleviation to encompass equality of opportunity, as well as economic and social mobility for all sections of society, with affirmative action for SCs, STs, OBCs, minorities and women. There must be equality of opportunity to all with freedom and dignity, and without social or political obstacles. This must be accompanied by an improvement in the opportunities for economic and social advancement. In particular, individuals belonging to disadvantaged groups should be provided special opportunities to develop their skills and participate in the growth process.

 

We need a degree of empowerment that creates a true feeling of participation so necessary in a democratic polity. Empowerment of disadvantaged and hitherto marginalized groups is therefore an essential part of any vision of inclusive growth. India's democratic polity, with the establishment of the third layer of democracy at the Panchayati Raj Institution (PRI) level, provides opportunities for empowerment and participation of all groups with reservations for SCs, STs, and women. These institutions should be made more effective through greater delegation of power and responsibility to the local level.

5.5 Regional disparities 

 

Regional disparities are a major concern in India, due to vastly different culture and traditions across the geography. Traditional cultures, caste system and the rich v/s poor system historically favoured some specific groups. As a result, regional disparities arose in India before, and continued even after independence. Due to the imbalanced regional development in agriculture and industrial sector, some regions in India developed much faster. 

6.0 CHALLENGES BEFORE INCLUSIVE GROWTH STRATEGIES IN INDIA 

 

The key components of the inclusive growth strategy included a sharp increase in investment in rural areas, rural infrastructure and agriculture spurt in credit for farmers; increase in rural employment through a unique social safety net and sharp increase in public spending on education and health care. The government also should go for a variety of legislative interventions to empower the disadvantaged. 

Poverty alleviation is one of the big challenges for India. Eradication of poverty in India has generally been considered to be a long-term goal. Poverty alleviation is expected to make better progress in the next 50 years than in the past, as a trickle-down effect of the growing middle class. Increasing stress on education, reservation of seats in government jobs and the increasing empowerment of women and the economically weaker sections of society, are also expected to contribute to the alleviation of poverty. For agricultural growth, the private players can participate in to bridge the gap including providing micro finance. The private sector could also develop heritage sites and tourist spots and encourage the promotion of traditional arts and crafts in joint ventures with rural enterprises. Increasing the present moratorium on interest payments, lowering of farm credit rates for increase in agricultural growth is also necessary. Government schemes targeting eradication of both poverty and unemployment (which in recent decades has sent millions of poor and unskilled people into urban areas in search of livelihoods) and attempts to solve the problem, by providing financial assistance for setting up businesses, skill honing, setting up public sector enterprises, reservations in governments, etc. are needed. The decreased role of the public sector after liberalization has further underlined the need for focusing on better education and has also put political pressure on further reforms.

 

Child labour is a complex problem rooted in poverty. The Indian government is implementing the world's largest child labor elimination program, with primary education targeted for around 250 million. Numerous non-governmental and voluntary organizations are also involved.  Special investigation cells have been set up in states to enforce existing laws banning employment of children (under 14) in hazardous industries. 

Failure to implement the law and poor rehabilitation policies need urgent attention which is a big challenge for India to achieve inclusive growth. Social development is possible through achieving Women Empowerment and eradicating the regional disparities. Though the Government is promoting women empowerment by giving special reservations, the women's advancement in India has a long way to go. Indian women have indeed broken the glass ceiling in the top echelons and reached top posts  like the President, the Lok Sabha Speaker, and Railway Minister etc. But on the whole, the situation is grim.

 

To bring in inclusive growth, it is necessary to enhance the capabilities of women by providing education, so that they get the opportunity of getting employed and be self sustainable.

Government of India has launched many reform-oriented programmes like:

1. Rural Infrastructure (Bharat Nirman)
2. Employment (Mahatma Gandhi National Rural Employment Guarantee Scheme - MGNREGS)
3. Regional Development (Backward District Development Program)
4. Education (Sarva Shiksha Abhiyan)
5. Rural Health (National Rural Health Mission)
6. Urban Infrastructure (National Urban Renewal Mission)

7.0 THE XI FIVE YEAR PLAN AND INCLUSIVE GROWTH 

 

In the XI Plan, GDP growth was an average 7.9% as compared to 7.7% of the X Plan but what was found lacking was significant achievement of inclusiveness. The XI Plan defined inclusive growth to be "a growth process which yields broad-based benefits and ensures equality of opportunity for all". But this inclusiveness is not reflected as it was expected. Progress on inclusiveness includes success on multiple fronts like agricultural growth, poverty reduction, education, health, upliftment of SCs /STs etc. 

The present situation can be explained as:

1. India likely to miss the Millennium Development Goals (MDG), except perhaps on poverty (a good news).
2. Current international environment is very uncertain.
3. Global pressure on food, oil and other commodity prices.
4. Financial conditions and exchange rates are likely to be volatile due to sovereign debt related problems in Europe/U.S. and readjustment of extra-ordinary monetary/fiscal easing.
5. The goal of increasing the literacy level among backward classes and other weaker sections has not been achieved.
6. Agriculture growth is still in vulnerable conditions.
7. The employment schemes like MGNREGS are not up to the mark. The red-tapism and corruption are still out of control. 

8.0 XII FIVE YEAR PLAN AND INCLUSIVE GROWTH AGENDA

 

The Planning Commission’s approach to the XII plan had focussed on instilling inclusive growth. The broad strategy to achieve this is to boost agricultural produce and create employment by developing India’s manufacturing sector. Development of rural infrastructure is another challenge that needs to be met.

 

Interestingly, the Planning Commission envisioned an expansive role for Indian PSU Coal India: "Coal India must become a coal supplier and not just a mining company. It should plan to import coal to meet coal demands. This requires blending of imported and domestic coal as supplied by Coal India."

 

All told, in its early stages, the 12th five-year plan promises a lot for rural development and growth. In that sense, it is similar to China's latest iteration of its five-year plan, which seeks to improve the lot of rural Chinese peoples by increasing urbanization and industrial efforts in central and western China. But, by contrast, while the Chinese government seems to be continuing with nation-wide industrialization efforts, the Indian government may be attempting to promote a policy of reverse migration by making rural living more attractive with some access to modern amenities, but hopefully without the accompanying chaos that goes with it.

 

The basic objective as stated in the Planning Commission presentation is "Faster, More Inclusive and Sustainable Growth". It was said that the priority areas in 12th Five Year Plan would be betterment of farmers, small industries, cottage industries etc. 

It is asserted by the Planning Commission that for growth to be more inclusive we need:

1. Better performance in agriculture
2. Faster creation of Jobs, especially in manufacturing
3. Stronger efforts at health, education and skill development
4. Improved effectiveness of programmes directly aimed at the poor
5. Special programmes for socially vulnerable groups
6. Special programmes for disadvantaged or backward regions

 The objectives and targets of the 12th Five Year Plan have put emphasis on the achievement of inclusive growth but it is still a burning question whether India would be able to achieve all the targets decided. 

Furthermore with the disbanding of the Planning Commission, the future of the planning process in India is uncertain. One hopes for the best!

9.0 OXFAM WORLD INEQUALITY REPORT 2018

Economic inequality is widespread and to some extent inevitable. If rising inequality is not properly monitored and addressed, it can lead to various sorts of political, economic, and social catastrophes. Income inequality varies greatly across world regions. It is lowest in Europe and highest in the Middle East.

In 2016, the share of total national income accounted for by just that nation’s top 10% earners (top 10% income share)  was 37% in Europe, 41% in China, 46% in Russia, 47% in US -Canada, and around 55% in sub-Saharan Africa, Brazil, and India. In the Middle East, the world’s most unequal region according to estimates, the top 10% capture 61% of national income.

9.1 Facts

In recent decades, income inequality has increased in nearly all countries, but at different speeds, suggesting that institutions and policies matter in shaping inequality. Since 1980, income inequality has increased rapidly in North America, China, India, and Russia. Inequality has grown moderately in Europe. From a broad historical perspective, this increase in inequality marks the end of a postwar egalitarian regime which took different forms in these regions.

At the global level, inequality has risen sharply since 1980, despite strong growth in China. The poorest half of the global population has seen its income grow significantly thanks to high growth in Asia (particularly in China and India). However, because of high and rising inequality within countries, the top 1% richest individuals in the world captured twice as much growth as the bottom 50% individuals since 1980. Income growth has been sluggish or even zero for individuals with incomes between the global bottom 50% and top 1% groups. This includes all North American and European lower- and middle-income groups.

9.2 Poorer governments

Over the past decades, countries have become richer but governments have become poor. The ratio of net private wealth to net national income gives insight into the total value of wealth commanded by individuals in a country, as compared to the public wealth held by governments. The sum of private and public wealth is equal to national wealth. The balance between private and public wealth is a crucial determinant of the level of inequality.

Wealth inequality among individuals has increased at different speeds across countries since 1980. Increasing income inequality and the large transfers of public to private wealth occurring over the past forty years have yielded rising wealth inequality among individuals. Wealth inequality has not, however, yet reached its early-twentieth-century levels in Europe or in the United States.

The global wealth middle class will be squeezed under “business as usual.”

Rising wealth inequality within countries has helped to spur increases in global wealth inequality. If we assume the world trend to be captured by the combined experience of China, Europe and the United States, the wealth share of the world’s top 1% wealthiest people increased from 28% to 33%, while the share commanded by the bottom 75% oscillated around 10% between 1980 and 2016.

9.3 Taxation

Tax progressivity is a proven tool to combat rising income and wealth inequality at the top.

Research has demonstrated that tax progressivity is an effective tool to combat inequality. Progressive tax rates do not only reduce post-tax inequality, they also diminish pre-tax inequality by giving top earners less incentive to capture higher shares of growth via aggressive bargaining for pay rises and wealth accumulation. Tax progressivity was sharply reduced in rich and some emerging countries from the 1970s to the mid-2000s. Since the global financial crisis of 2008, the downward trend has leveled off and even reversed in certain countries, but future evolutions remain uncertain and will depend on democratic deliberations. It is also worth noting that inheritance taxes are nonexistent or near zero in high-inequality emerging countries, leaving space for important tax reforms in these countries.

More equal access to education and well-paying jobs is key to addressing the stagnating or sluggish income growth rates of the poorest half of the population. 

Recent research shows that there can be an enormous gap between the public discourse about equal opportunity and the reality of unequal access to education. In the United States, for instance, out of a hundred children whose parents are among the bottom 10% of income earners, only twenty to thirty go to college. However, that figure reaches ninety when parents are within the top 10% earners.

10.0 INEQUALITY CONCLUSION OXFAM INDIA REPORT

Inequality is no longer only a moral and philosophical concern but reducing inequality is central to functioning of a democratic society. The trends and dimensions of inequality confirm that India is not only a high inequality country but also that inequalities have seen a rising trend through the last two decades. Rising inequality is not only obvious in economic dimensions but also in aspects of horizontal inequality which have seen widening of the gap between the marginalised and excluded groups versus the rest. It is also clear that the nature of increase in inequalities is determined not only by the initial endowments but also by the inequalities in access to opportunities. 

10.1 Social risks

The people who have fewer economic resources are unlikely to be treated in the same way as those with more resources, and also have unequal access to opportunities. The few who control economic resources can then use it to influence political decisions, impeding democratic processes and social cohesion. Inequality would also make it difficult to fully utilise the innate abilities of poor people. Such economically and socially disadvantaged people may be tempted to revolt against the existing order; controlling such protests would be costly. It is also difficult to maintain trust and cooperation in a highly unequal society. 

A more equal distribution of resources would prevent consumerism; the resources could be used for improving the quality of life for all and for greater environmental sustainability. Most of these goals cannot be achieved only by reducing poverty without reducing inequality. Redistributive policies that reduce unproductive disparities would improve, and not impede, economic growth, and thereby contribute to poverty reduction.

10.2 Piketty's approach

One of the recent critics of this is Piketty (2014) who argues that inequality and economic development do not follow such an a priori relationship. Alongside the path of economic growth, inequality outcomes are also policy-induced. Piketty’s arguments are rooted in the political economy approach which suggests that economic growth may actually increase the concentration of wealth and income among the rich. Piketty has argued that a market-based economy, left to itself, contains powerful forces of convergence and divergence. There is sufficient evidence to show that inequality outcomes are not just a result of the nature of growth. There is enough indication as well that reduction in inequality is not achievable without policy interventions. 

These include progressive taxation, redistribution of assets and incomes, and state support in terms of social spending and public provisioning of essential goods and services. In the Indian context, there is an ongoing debate around policies such as maintaining low levels of public expenditure and fiscal deficit, and around social welfare schemes like the MGNREGA and right to food.

Success in reducing inequalities of outcomes and inequalities of opportunities is not only a function of markets but also requires the state to play a central role. The state, at least in a democratic society, has a moral claim on encouraging equality in outcomes and opportunities. While this requires for the states to play a proactive role in efficient regulation of markets to provide a level playing field to everybody, it also has a responsibility of redistribution and affirmative action to ensure equal participation by every citizen in the process of growth and development. 

10.3 The 1991 economic reforms

There is now a clear evidence that the nature of economic growth since the 1990s has led to widening of inequalities. Further there has been marginalisation and exclusion of individuals, communities, and religious groups. The nature of economic policies since the 1990s have allowed greater role to the private sector in almost all spheres including in provision of basic services. On the one hand, the consequence of the withdrawal of the state from the essential role of providing basic services which shape economic outcomes has resulted in the erosion of the state as an instrument of ‘inclusion’. On the other hand, the nature of economic policies followed since the early 1990s also strengthened the claim of the state being a silent facilitator in rising inequality in recent decades. This has been seen in the case of rising instances of crony capitalism and the preferential treatment to the rich at the cost of the poor, and the inability of state to protect the rights of the poor and marginalised.

10.4 Pressures of democratic politics

Pressures of democratic politics have seen the state respond through increased spending on policies and programmes of redistributive transfers such as those on pensions, education, and nutrition and the recognition of some of these basic rights which have been enacted as legal entitlements such as the MGNREGA, RTE and NFSA. However these have remained symbolic with little effort to use these as instruments of inclusion. These have been accompanied by instruments to increase marginalisation and exclusion; UID/Aadhar being a good example of it, exposing the basic distrust of the state against the poor. 

The distrust is also evident among communities divided on the lines of caste, religion, and region. Recent years have seen increasing demand for reservation by dominant farmer groups such as Jats, Patels, and Marathas. In the case of the Marathas, it has also been accompanied by anger against Dalits. These issues arise from the growing feeling of alienation, discrimination, and exclusion and are now getting channelised into street protests. The same is the case with farmers who have come out and protested at different levels. The inequalities of opportunity are determined by access to basic services and this brings in focus the  existing social arrangements. In particular, the lack of mobility of SC/ST households along with Muslims will continue to pose problems of inclusion in a society. While a piecemeal solution of providing temporary relief will only keep the problem in abeyance, what is required is political willingness to change the basic architecture of markets, governance, and economic policy which have so far played a silent spectator to rising inequality.

 

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