Income inequality has become a serious issue in the Indian economy. This is affecting the economic development of the society and the nation. Equal distribution of income is necessary for a balanced economy. Uneven income affects purchasing power and increases economic imbalance. The gap between rich and poor is increasing. Wealth is getting concentrated in a few hands. Its result is coming in the form of deteriorating condition of the common man.
It is a matter of happiness that the country's economy is growing rapidly and it is included in the top five economies of the world but the country is still lagging behind in terms of per capita income. According to the World Bank, India is ranked 140th on the basis of per capita income. Growing population and income inequality are the main reasons for this. India's population has crossed 140 crores which is 18 percent of the global population.
According to the World Inequality Database, wealth inequality has increased in India. In 1961, the top 10 percent of the richest people owned 44.9 percent of the total wealth, which increased to 64.6 percent in 2023. Similarly, the top 0.1 percent owned 3.2 percent of the wealth in 1961, which increased to 29 percent in 2023. India is counted among the countries with the highest wealth inequality in the world. The top 10 percent of the people own 77 percent of the total national wealth, while the richest 1 percent own 53 percent of the wealth. In contrast, half of the poor people in the country are struggling for just 4.1 percent of the national wealth.
India is also among the top countries in terms of income inequality. According to the World Inequality Report 2022, the top 10 percent of the people own 57 percent of the total national income and the top 1 percent own 22 percent, while the share of the bottom 50 percent has remained at just 13 percent. If we look at the statistics, the tax burden on the poor people of the country is the highest. The inequality in the tax system is evident. The bottom 50 percent of people in India pay 64 percent of the total GST, while the top 10 percent contribute only 4 percent.
Obviously, income inequality has serious effects. Due to the limited purchasing power of low-income people, the demand in the market decreases, which increases economic imbalance. The high income group spends more on luxury items while the low income group is limited to essential goods. When people of the low income group do not have sufficient purchasing power, the sales of producers and service providers decrease, which affects the stability of the economy. A similar environment is being seen in the markets of our country today.
Low-income people spend most of their income on daily consumption items like grains, pulses, vegetables and other food items, housing rent or repairs and basic health services and children's education. In contrast, middle class consumers spend on their necessities as well as some luxury and comfort related items like smartphones, televisions, refrigerators, branded clothes and fashion related items and also on travel, cinema, food in restaurants. In contrast, people included in the category of super rich of India are spending on luxury items. According to The Wealth Report 2024 released by real estate consultant Knight Frank, Indian ultra-rich invest 17 percent of their investable assets in luxury items, with watches being given the highest priority, followed by art and jewellery. Super rich people in fourth place buy classic cars. This is followed by the purchase of luxury handbags, wine, rare whiskey, furniture, coloured diamonds and coins. However, globally, the super-rich show their preference for luxury watches and classic cars. According to the report, the demand for rare collectibles is increasing in India across different age groups.
Due to low income in cities and towns, people are facing difficulty in getting good health facilities, education and housing. People with low incomes are struggling to meet basic needs. Income inequality deprives poor people of opportunities. Due to lack of higher education and technical skills, people are unable to enter good jobs and high-paying sectors. Competition in big industries and global markets has a negative impact on small traders and low-paid workers. Due to differences in social and economic structure, some sections get more opportunities while other sections are left behind. There is a possibility of increasing poverty and social tension due to income inequality. Poverty is increasing, that is why the government has to give free food grains to 81 crore people.
By the way, last year the government claimed that 95 percent poverty has been reduced in the country. Only 5 percent of the people are now below the poverty line. NITI Aayog CEO BVR Subramaniam made this claim based on the analysis of the National Sample Survey Office. This survey was conducted among 2,61,746 families during August 2022 to July 2023. The big question is that if 95 percent of the people have come out of the poverty line, then who are those 81 crore people who are getting free food grains from the government? After all, for whom has the central government extended the scheme costing Rs 11 lakh 80 thousand crore under the Pradhan Mantri Garib Kalyan Yojana for the next five years in January last year? According to a World Bank report released last year, about 12.9 crore Indians are facing poverty. The daily income of such people is less than Rs 181 (2.15 dollars). The government is providing food grains to the poor. Various schemes are being run to raise the economic level of the poor, it is commendable. This is the responsibility of every welfare government, but the situation will change only when the income inequality ends. Currently, India is ranked 140th on the basis of per capita income. Unless it is brought to the top 10, there is no hope of change in the situation. To eliminate income inequality, the government should promote high quality education and vocational training so that people can become more qualified. A fair tax system is also the need of the hour. By adopting a balanced tax system, more tax can be taken from the high income group and relief can be given to the lower income group. It is also possible to reduce inequality by increasing the minimum wage and protecting labor rights. It is possible to strengthen the purchasing power of the poor by expanding the public distribution system and making essential commodities available to them at affordable rates. We can increase per capita income by focusing on education, technology, infrastructure and employment. Income inequality is not only an economic problem but also a social problem. If the government and policy makers take concrete steps in this direction, purchasing power will be strengthened and it will be possible to create a balanced and inclusive economy. India has now become the country with the largest population in the world, so new policies are necessary to bring the poor section into the mainstream of economic development. Otherwise, the challenges facing the country will become more serious in the future.
(The author is a renowned educationist, speaker and thinker. He is also the coordinator of Delhi University Foundation. Views are personal)