Income Inequality in India

Income inequality is an issue that is found all over the world, in some places more than in others. In India, the top one percent of earners has been seeing exponential growth since the 1990’s, so much so that they currently hold 73% of the entire country’s wealth. India is a country where it’s easy to see inequality- because of the caste system it’s literally in her historical and cultural roots. However, the fact that these numbers that say 1% of earners hold 73% of the wealth is shocking. This is partially because people tend to compare themselves to their past ELEPHANT and their future goals; or if they’re comparing themselves to others, to those who have similar levels of income.

We don’t usually think about the mega-rich because for most people, we will never work with them (although we’re very likely to work for them), we will never speak with them, and we will never be them. This distancing creates what is called the empathy gulf, a separation of rich and poor because of giant social differences. This often leads to complacency for the very poor- an expectation that nothing will ever change and they have been dealt their lasting sad lot in life. The rich often become detached from the struggles of people living in poverty, partially because they never need to see or interact with these people, and partially because of negative framing. Negative framing can go both ways: it’s the words that we use to describe a certain group of people which end up warping our perception of them. Poverty is often associated with dirtiness, laziness, and lack of intelligence, while being wealthy is typically associated with dedication, high intelligence, and cleanliness. Neither of these stereotypes captures the reality of life on either side of the spectrum, and that can be very dangerous.

When India had a socialist government in the 1960s and ’70s the bottom half of India’s earners saw a faster economic growth than what has been happening since then.  By the 1990s, however, this growth had nearly slowed to a stop and the top 10% of earners saw huge growth while the bottom 90% nearly stayed stagnant. In 2005, the bottom 50% and the top 10% had the same amount of income, but since then the top 10% have been gaining more while the bottom 50% have become worse off.

Now, you might be wondering how these numbers make sense since at the beginning of this post I told you that the top 1% own 73% of the wealth. In the 1990s, the top 0.1% alone grew more than the entire bottom half of the country. Not only that, but we need to remember to make a distinction between wealth and income. Most of the wealthiest people are not CEOs. In fact, it’s incredibly difficult to become break into the top 1% with just a regular job. The majority of these people are making their money off of investments and assets, which coincidentally, are taxed differently than regular income. While an annual income above 10 lakhs is taxed at a rate of 30%, according to BusinessToday assets are only taxed if they have a net worth of greater than 30 lakhs, and even then they are only taxed at one percent! Even with this ridiculously small gap, it’s up to every citizen to be honest and file their taxes correctly. If nobody evaded their taxes – neither the super-rich nor the everyday worker – India would have enough money to give every village a good health clinic, a school, and electricity for every household.

So where does HEEALS fit into this? We work to provide capacity-building workshops for the impoverished, and while there is lots of work to be done today, we aim to see a day where the need is not as great. Maybe there would be less of a need for workshops about things as basic as hand-washing if there was a more equal distribution of resources. If families could afford to keep their kids in schools and live in clean neighbourhoods, there would be a smaller need for the work HEEALS is doing. As it stands now, we are doing our work and raising awareness about the reasons this work is necessary. Income inequality, wealth inequality, and tax evasion are all contributing factors to the terrible state that impoverished communities find themselves in. As anyone can see and can tell you, the government is not doing its job in taking care of its people. Perhaps this is because of the empathy gulf. Perhaps it’s because they don’t have the resources. Perhaps it’s because people are self-absorbed or greedy. Perhaps it’s a mix of many factors, but as individuals we need to do what we can to make a difference. Those of us who are better off in society need to work hard to avoid the pitfalls that allow us to begin to look down upon and care less about people who are not as well off.

So, let’s review. Income inequality is pervasive, wealth inequality is even more so. This hurts poorer people because even though the majority of them are just as capable as the super-rich, if they were given the same resources, upbringing, and inheritance they are perceived as lazier and less intelligent. It also makes wealthier people more and more disconnected from the rest of the population, and the government should be doing more to fight this problem. Individuals also should be doing more to fight this problem in the way that they treat their employees and by avoiding tax fraud for the sake of personal benefit over societal good.

How can you make a difference in such a big issue? Firstly, avoid doing the negative actions discussed in the previous paragraph. If you’re an employee, even if that means you hire a maid, make sure you’re paying your employees a living wage, not just a minimum wage. Finally, be sure to write to your political representatives and encourage them to make good decisions on behalf of your city, province, and country. If you hear of a large company that is not paying their employees properly you can try to start a boycott of the store and if you have any type of influence over companies, use it for good rather than harm. Don’t invest in companies who are participating in immoral practices concerning their taxes or who they employ. Think before you do, and act out of love for others rather than for your wallet.

-Rachel 

Wash & Intern Coordinator 

Sources:

Clear Tax. Retrieved from: https://cleartax.in/s/income-tax

Ghosh, J. (2016, 03, 9). Tax dodging is a crime against developing countries. OxfamIndia. Retrieved from https://www.oxfamindia.org/blog/1515/tax-dodging-crime-against-developing-countries

Hasking, D., Ghose, T. (2013, 12). Taxing your riches. Business Today. Retrieved from https://www.businesstoday.in/moneytoday/expert-view/tapati-ghose-on-wealth-tax-investment-are-you-eligible/story/200940.html

Hassan, R. (2017, 12, 23). India’s rising inequality is taking the shine off its growth story even in the world’s eyes. Scroll.in. Retrieved from https://scroll.in/article/862368/indias-rising-inequality-is-taking-the-shine-off-its-growth-story-even-in-the-worlds-eyes

Shapiro, I. (2002). Why the poor don’t soak the rich. Daedalus, 131(1), pp. 118-128

Staff, Business Today. (2018, 01, 23). Income inequality gets worse; India’s top 1% bag 73% of the country’s wealth, says Oxfam. Business Today. Retrieved from https://www.businesstoday.in/current/economy-politics/oxfam-india-wealth-report-income-inequality-richests-poor/story/268541.html

Staff, The Wire (2017,12,14). Income Inequality Highest in India Since 1980s, Finds New Report. The Wire. Retrieved from https://thewire.in/economy/income-inequality-highest-india-since-1980s-finds-new-report

World Inequality Database. Retrieved from https://wid.world/country/india/

Gap in purchasing power among income groups in India

One of the biggest challenge India has to deal with is inequalities. Indeed, according to a report (Credit Suisse,2015) the richest 1% Indians owned 53% of the country’s wealthwhile the share of the top 10% was 76.30% which means that 90% of India own less than a quarter of the country’s wealth. Moreover, the scenario is quite dramatic if we consider that this trend has been increasing for the last decades. In fact, in 2000, the share of the richest 1% in national wealth was 36.80% and that of the top 10% was 65.9%.A report from the Work Bank on the Water and Sanitation Program (1999) and an article from the Hindustrantimes (2015) shows us a pivotal point that needs to be seriously discussed. This is the government willingness to reduce inequalities among the population and particularly, the inconsistent electoral promises.

Indeed, despite the propaganda, food and fuel prices continue to soar, the agrarian crisis is deepening and the rural India’s average daily wage rate is falling drastically as well as the consequent rising unemployment is leading to a lower purchasing power and an overall fall in the domestic demand. Moreover, basic needs such as drinking water is 10 to 20 times more expensive for poor people than it is for rich. Government subsidies accounts for 40 billion Rupees per year, but most of the benefits go the better off and the investments are far below of what is needed.

Indian Government uses purchasing power parity (PPP) index instead of per capita income in order to indicate the wealth distribution among India so to give to international investors confidence and a sense of stability by depicting a misleading picture . Indeed, 

with the first criteria, the per capita income in 2006 was $830, while with the second criteria was about $4000. By using the PPP index India ranks 7^th among the most developed economies in the world in 2018. However, several issues need to be discussed.

India is living in a dual economy. Indeed, it belongs at the same time to the first world and to the third one thus, we have twoPPP indexes according to the different world that we are looking at. The gap among those two is overwhelming and talking about mean or per capita referred to India as overall is complex as well as pointless exercise.

Most of the time the poorest are treated as an “accident”. An hindrance to the economic development, a class almost forgotten.  According to the UNDP,  80,4% of the population lives with less than 2$ per day, only 61% of the population is capable of read and write (73,4% are men and 47,8% are women). Infant mortality rate is 56 every 1000 births and undernourishment has reached the 20%.

The picture we can draw is the following. India is a country that is pursuing a double trajectory with strong contradictions. On one side, the country is moving towards an ever industrialized trend on the attempt to reach a place among the most industrialized economies of the world while, on the other side, the country is “ dragging behind the water” the poorest part of the population to whom  economy could be considered Medieval.

The so called “trickle-down theory”  which states that economic benefits provided to upper income level earners will help society as a whole as their extra wealth will be spent into the economy, providing wealth for lower income earners and creating jobs, in realty is not working. Indeed, it deepened the PPP gap among rich and poor.

A study carried out by McKinsey, based on the National Council of Applied Economic Research in India has identified five main categories.

1.    Deprived ( less than 90.000₹, below 1700€)

1.    Aspirers (90.000-200.000₹, 1700-3800€)

2.    Seekers (200.000-500.000₹, 3800-9000€) 

SStrivers (500.000-1.000.000₹, 9000-18.000€)

  Globals (over 1.000.000₹)   

The graphic depict the % of people belonging to the a certain income class. Income inequalities are barely reducing if we consider the economics growth India is facing (real GDP growth rate is 7.5%, 5^th in the world) or at least at very lower rate compared to the “miracle” is confronting itself. This lead to the conclusion that growth is not sufficient to reduce poverty. Indeed, two French economists, Thomas Piketty and Lucas Chancel, compared India’s income disparities nowadays and during the colonialism era in an article called  «Indian income inequality, 1922-2014: From British Raj to Billionaire Raj?». Results were dramatic. Currentincome inequality is as broad as during the British Empire and according to a study carried out by the Pew Research Center in 2015 the real Indian middle class is only 2% of the whole population.Deepak Nayyar, Professor Of Economics at the New Delhi University, argues that the misleading presumption that economic growth and economic efficiency are necessary and sufficient to improve the living conditions of people is still deeply entrenched in economics labour has changed the nature of labour since it reduced thebargaining power of trade unions. Inflation management has turned into obsession for manycountries so much so that governments have been forced to adopt deflationary macroeconomicpolicies that have reduced employment. Financial liberalization has created huge publicand private debt so that a new renter class has emerged and the concentration in the ownership offinancial assets has worsened the income distribution. Moreover, global competition has led largeinternational firms to consolidate market power through mergers and acquisitions which hasbecome more oligopolistic than competitive. Competition for export markets and foreigninvestment between countries has lead to an unequal distribution of gain from trade and investment(Nayyar 2003).

Globalization has created opportunities for some people and some countries but for many others hasbrought about risks and threats as well as an increase in both poverty and inequalities. Thedistribution of benefits and costs are uneven and unequal. There are some winners, mostly in richcountries and many losers in both the industrialized and developing world. It is possible to depictwho the winners and the losers are if we consider human beings, firms and economies. From thefirst category, we find as winners asset-owners, profit-earners, those with professional, managerialand technical skills while losers are asset-less, wage-earners, debtors, uneducated, semiskilled orunskilled people. Concerning firms, large, international, global, risk-taker and technology-leaders

triumph over small, domestic, local, risk-averse and technology-followers. Lastly, in economies,capital-exporters, technology-exporters, net lenders, nations with strong physical and humaninfrastructure are the winners, while capital-importers, technology importers, net borrowers andthose with weak physical and human infrastructures are the losers (Nayyar 2003: 72-80).When people cannot join the paradise of consumerism, alienation and frustration prevail. Thisexclusion is socially harmful. In fact, some seek refuge in drugs, crime, violence, religiousfundamentalism and cultural chauvinism. However, outcomes are not always as extreme. It couldintensify social tension and provoke social fragmentation within countries.

CONCLUSION

To an equal extend, income and purchasing power inequalities can be projected to water inequalities. The very first fundamental need.  Government cannot turn a blind eye on this issue. Indeed, the problem could be tackled in different ways.

1.    Make inequality a political Campaign. In fact, those inequalities are neither acceptable nor sustainable any longer among the population.  Water needs to be available to the whole population at the same price, frequency and quality. Thus, making development inclusive is pivotal if not essential. Safe drinking water and sanitation are fundamental to human development and wellbeing and inadequate access to clean water undermines people’s nutrition and health through water-borne diseases and chronic intestinal infections. In this way, rich and privileged people will be healthier while the deprived and unlucky ones sicker and a with lower life expectancy.

Introduce land reforms and raise taxation for the wealthy. Preventing monopoly of control over water, forest and mineral resources will be of greater help. Moreover, the equality of opportunity needs to increase through good quality and universal public provision of essential amenities and social services. In addition, raising public resources could happen by taxing the wealthy more and by increasing the taxation 1.    of corporations which took enormous advantages from the boom and doubled their share, but they have not been taxed accordingly.

Moreover, by depriving people from drinkable water the globally recognized human right to safe drinking water and sanitation is infringed. A Fully implementation of those rights is required. What is the rationale of some people having more rights than others to enjoy basic needs?.

-Stefano 

WASH Intern 

REFERENCES:

Anil Padmanabhan (2015), “India’s next big challenge: inequality”, [online]<https://www.livemint.com/Opinion/lJIQmqwIltTJSqruSaVsAO/Indias-next-big-challenge-inequality.html>[Data access: 10th July 2018].

Antonio Armellini (2017), L'elefante ha messo le ali: L'India del XXI secolo.

Lucas Chancel Thomas Piketty (2017),«Indian income inequality, 1922-2014: From British Raj to Billionaire Raj?».

Matteo Miavaldi (2017), “In India la disuguaglianza economica è tornata ai livelli dell'Impero”,[online]< https://eastwest.eu/it/opinioni/elefanti-a-parte/in-india-disparita-di-reddito-ai-livelli-del-british-raj > [Data access: 10th July 2018].

Nayyar, Deepak (2003), Globalization and Development, in H.-J. Chang, Rethinking Development

Economics, Anthem Press, p. 60-80.

Lyla, Mehta (2015), “Without ensuring universal access to water, there can be no food security”,[online]<https://www.theguardian.com/global-development/2015/may/15/water-access-food-security-land-issues-nutrition-policymaking> [Data access: 10th July 2018].

Holly Young (2014), “13 ways to tackle inequality in India”,[online]<https://www.theguardian.com/global-development-professionals-network/2014/apr/22/india-elections-tackling-inequality-advice> [Data access: 10th July 2018].