HOW INDIA HAS BECOME AN UNEQUAL REPUBLIC

Context: Inequality based on class, rural-urban metrics and religion has risen in India between 1990 (which marked economic reforms) and 2020. The pandemic will only make things worse.

Major factors behind rising inequality:

• Economic reforms of 1990s: ended up being pro-business reform resulting in income inequality.
• Failure of India’s industrialization strategy: including the recent make-in-India campaign.
  • The services sector emerged as the driver of economic growth, replacing industry (therefore poor job creation) and benefiting a tiny elite.
• Deepening agrarian crisis: caused by continued differential in growth & productivity between farm and non-farm sector resulting in the present peasant crisis.
• Vulnerable bandwidth of poverty: Increasing the poverty line by just 25% from the Tendulkar estimates (Rs 816 to Rs 1020/month), the percentage of poor doubles from 25.6% to 45.4%.
  • E.g. The rural poverty increases in UP from 30% to as high as 53.4% while it rises from 36% to 59% in the MP. (South Indian states are relatively better.)
• COVID-19 impact: International Labour Organisation (ILO) estimates that 400 million workers in India are at risk of falling into poverty.

Dimensions of inequality in India: based All-India Debt and Investment Survey (AIDIS) for wealth, Indian Human Development Surveys (IHDS) for income and National Sample Survey (NSS-CES) for consumption expenditure.

• The Class divide: sharp rise of inequality (consumption, wealth and income) since the 1990s.
  • The richest 10% control 63% of wealth in 2012 followed by 41% in income and 35% in consumption.
  • Follows a U-Shaped Curve: Rising Inequality in India has been termed as “billionaire raj” by Lucas Chancel and Thomas Piketty, showing a U-Shaped curve – (declining inequality from 1950s to 1980s followed by a sharp rise thereafter).
  • Contested rise of middle class: Top 10% benefited the most as compared to the middle 40%.
• The religious divide: in terms of the worsening position of religious minorities, particularly the Muslims.
  • The wealth share of Muslims to their population has worsened from 0.65 in 1992 to 0.57 in 2012; Muslims earn, on an average, 77% of what Hindus earn in India in 2012.
  • The Sachar Committee Report, 2005 identified Muslims on the margins in terms of political, economic and social relevance and compared them to the country’s backward communities.
• The Rural-urban divide: due to decline of India’s agriculture and rise of urban-biased service-led economic growth.
  • For instance, in 1993-94, the average Monthly Per Capita Expenditures (MPCE) in urban area was about 63% more than rural. This gap widened to 84% in 2011-12.
  • The urban/rural consumption expenditure ratio today stands at 2.1. This means that an average urban-dweller today can consume twice that of an average person in a village.
  • Further worsened due to the policy shocks: such as demonetization, stymying of MGNREGA, deceleration in real wages, and the collapse in global farm prices.
  • Declining worker productivity in agriculture: The ratio of per worker GDP in agriculture to per worker GDP in non-agricultural sectors has been decreasing from 0.36 in 1981 to 0.14 in 2011.

Conclusion: The unprecedented rise of inequality and poor record in poverty reduction is an outcome of this decisive shift in India’s growth strategy.