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The latest New World Wealth (a Johannesburg-based company) report says India to be the second-most unequal country globally, with millionaires controlling 54 per cent of the nation’s wealth. With a total individual wealth of US$5,600 billion, it’s among the 10 richest countries in the world. Yet, average Indian is relatively poor. If we compare India with Japan (the most equal country in the world) situation looks even worse where millionaires control only 22 per cent of the wealth. We may have a look at the latest data from the Credit Suisse related to India’s inequality:
• The richest 1 per cent owns 53 per cent of the country’s wealth.
• The richest 5 per cent own 68.6 per cent, while the top 10 per cent have
76.3 per cent.
• At the other end of the pyramid, the poorer half competes in just 4.1 per cent of the total wealth of the nation.
• India’s richest 1 per cent owned just 36.8 per cent of the country’s wealth in 2000, while the share of the top 10 per cent was 65.9 per cent. Since then they have steadily increased their share in the country’s wealth—the share of the top 1 per cent now exceeds 50 per cent.
• India’s situation looks worse than the United States where the richest 1 per cent owns 37.3 per cent of total wealth.
• While India’s finest still have a long way to go before they match
Russia, where the top 1 per cent owns a stupendous 70.3 per cent of the country’s wealth.
As per the new India Human Development Survey (IHDS), which provides data on income inequality for the first time, India’s score of income equality is lower than Russia, the United States, China and Brazil—is more egalitarian than only South Africa.
Inequality Needs to be Checked
Though inequality is found everywhere, its extremes hurt economies multi- dimensionally. As per Oxfam, sharp rise in inequality in India and the other countries around the world is damaging, and the governments of the countries need to make efforts to curb it. Rising inequality will have several negative consequences for the nations—slowing down poverty reduction, challenging sustainability of economic growth, compounding the inequalities between men and women, and drive inequalities in health, education and across the life chances.
The World Economic Forum’s Global Risks Report 2016 (third time in series) has found ‘severe income disparity’ to be one of the top global risks in the coming decade. A growing body of evidence has also demonstrated that economic inequality is associated with a range of health and social problems, such as mental illness and violent crimes. This is true across both rich and poor countries. Basically, inequality does not hurt only the poor ones but everyone.
But the question is whether inequality is inevitable? The answer is ‘no’. It is the result of policy choices. Governments can reverse the situation of increase in inequality by taking some important steps, such as rejecting market fundamentalism, opposing the special interests of powerful elites, and changing the rules and systems that have led to this situation. Governments need to implement reforms that redistribute money and power, and level the playing field. There are two main areas where changes to policy could boost economic equality, namely taxation and social spending.
(i) Progressive taxation: Progressive taxation method has been proved to be quite effective in this regard. In this method of taxation corporations and the richest individuals pay more tax on their incomes to the state. The increased incomes from tax on income enables the governments to redistribute resources to the poorer people across the society. Similarly, a better indirect tax regime can enhance governments’ income in a big way
—as is being projected out of the proposed GST of India. The role of taxation in reducing inequality has been documented in OECD and developing countries in a very logical way by now. Thus, a required kind of taxation could play a big role in this direction.
As in the latest Oxfam report (early 2017), India performs relatively poorly on tax front. India’s total tax collections are at 16.7 per cent of GDP while its potential is about 53 per cent. Its tax structure is not very progressive since direct taxes account for only a third of total taxes. By comparison, South Africa raises 27.4 per cent of GDP as taxes, 50 per cent of which are direct taxes. Though the Government of India has projected the share of direct taxes to improve to around 60 per cent of the total tax collections in the fiscal 2017-18.
(ii) Social spending: Governments’ spending on public services can do miracles in reducing inequality. In India, such spending of the Governments is termed as the social sector spending which includes the fund allocations on education, nutrition, food, sanitation, general health care and social protection. Oxfam has provided evidences from more than 150 countries (rich and poor) spanning over three decades to show that overall investment in public services and social protection can tackle inequality. The group has for many years campaigned for free, universal public services across countries.
As per the latest report of Oxfam, India performs poorly on its social sector spending (centre and states put together). India spends about 3 per cent on education and 1.1 per cent (though this data has improved to 1.4 per cent by 2016–17) on healthcare of its GDP, respectively. In comparison, South Africa spends more than twice as much on education (6.1 per cent) and more than three times as much on health (3.7 per cent). Though South Africa is more unequal than India, the country performs much better in its commitment towards reducing inequality.
In recent years, the Government of India has become more sensitive to the issue of alarmingly high inequality in the country and looks committed to take suitable steps to check it also. Not only some effective right-based schemes have been launched in recent times but the Government has tried to address the issues related to proper identification of the beneficiaries and delivery also, with the help of Aadhar, Jan-Dhan Yojana and direct benefit transfer. Government is already on the path of reforming the tax regime. The recent move of demonetisation of high value currency notes also falls in this category, while the proposal of the universal basic income (UBI) coming from the Economic Survey 2016-17 looks too innovative (by early March 2017, the Government has shown its willingness to go for it also). As ending extreme poverty is among the goals of the sustainable development goals (SDGs) it looks quite timely to move in the direction of checking inequality from rising first and reducing it afterwards.