INTRODUCTION:

Increasing economic inequality has become a cause of concern for the developing
countries like India, where economic growth and income inequality go hand in hand. The
benefits of New Economic Policy (NEP) have reached only at the selected few and a vast
majority of populace remains deprived of it. It means the dividends of globalization and
liberalization have not reached at the people who need them the most.
We are living in a time when the demarcations between the economic systems are
fading fast and the question of distributive justice is becoming a business of none. The process
of globalization has pushed the income inequality to a higher level (Mazure, 2000), especially
in developing countries. The national wealth of India has increased steadily during the last two
decades but at the same time income inequality between rich and poor and the gulf between
rural and urban population has also increased. By fixing 32 rupees a day per person as the
line of demarcation between rich and poor the last UPA government tried to kill two fowls with
a single arrow: firstly painting a getting-richer image of India and secondly spending less for
the people below the poverty line.
Evidence of increase in income inequality due to globalization and open trade has been
found especially in developing countries including China and India. There is a positive relation
between liberalization and inequality among the poor countries (Kremer and Maskin, 2003).
Positive relation between openness and inequality has been established by Barro (2000) in his
study especially for countries with low income.

EVIDENCE OF ECONOMIC INEQUALITY:

The IHDS(Indian Human Development Survey) report of 2005 reveals the fact that
Indian income inequality is very high following the trend of many developing economies of the
world with Gini of 52(Desai et al,2010). This unusual rise of Ginis is a recently found
phenomenon in Indian economy. According to Drez and Sen (2002, pp 409) the Gini
coefficient was about 30 both for urban and rural areas during the middle of the last century. A
similar estimation of urban Gini (mid 30s) was reported by Datt and Ravaillon (2009) till to the
beginning of second decade of the current century. The average Gini for 31 annual
observations from the year 1951 to 1992 stands at 32.6(Deininger & Squire, 1996). In recent
years the Ginis coefficient is reported above 50 (as pointed out by Drez and Sen, 2000), which
has raised many eyebrows and some economists have blamed the globalization for it.
The income inequality among the states has become quite prominent. We can take
example of Odisha and North Eastern States together. The median income stands respectively
at Rs. 9,315 and Rs. 31,812 per annum and it is quite obvious that the average income of
smaller states of north-east have three times higher than that of states like Odisha (Vanneman
and Dubey, 2011).
 India is the world’s second largest emerging economy, with 15 % of the global labour
force, and an impressive growth record over the last two decades. However, rapid growth has
not transformed the labour market and employment conditions in the country. Employment
grew merely by 0.5% per annum from 2004-05 to 2011-12 - the period that saw the highest
growth of GDP by 8.5% per annum. At the same time, 92% of workers are still engaged in
informal employment. Close to 276 million workers live below a poverty line of $2 per day, and
their bargaining positions have declined despite economy growth.
The report by World Economic Forum and Oxfam for India4 reiterates the growing
divide. In 1994, the top 10% of India’s population and the bottom 40% controlled the same
portion of India’s wealth – around 25%. By 2010, India’s top 10% controlled nearly 30% of
India’s assets, and the share of the lower 40% declined to 21%. In addition, widely varying
returns to India’s very unequally distributed human capital are undoubtedly putting upward
pressure on inequality.
Income inequality can be analyzed on the basis of average income. Leaving apart the
people below the poverty line, the average income of the middle class family varies between
Rs.6, 809 and Rs.27, 235 (stands at $518 and$ 2071 in dollar term). But when we take the
average income of affluent middle class, it stands at Rs. 54,451 ($4,141), about three times of
the lower middle class (Vanneman and Dubey, 2011). This clearly indicates the growing
income inequality in India.
Let us discuss another facade of income inequality in India i.e. income distribution on
the basis of households. For this let us divide the entire households of India into three (poor,
middle and affluent) different classes and their annual income into ten deciles.
Table 1: Indian incomes by income class and deciles
By income Class Maximum Percentage of Percentage of
population income
Poor 6807 18% 3%
Middle 27235 60% 36%
Affluent 2168054 22% 61%
By Deciles
Lowest 5024 10% 1%
2nd 7235 10% 2%
3rd 9162 10% 3%
4th 11187 10% 4%
5th 13618 10% 5%
6th 16880 10% 6%
7th 21495 10% 8%
8th 29016 10% 11%
th
9 43672 10% 17%
Highest 2168054 10% 41%
(Source: India Human Development Survey)
If we look at the above table, it is quite evident that the income distribution among
different classes of Indian society is uneven; 61% of national income concentrates in the
hands of 22% of population. More importantly the income of affluent class households is 20
times more than that of poor class households and middle class households, which constitute
60% population of India and gets only 36% of national income. The state of income inequality
looks grimmer if we break it into deciles. Taking together top two deciles we find top 20 %
population gets 58% of income while bottom 20% people have to manage with a paltry income
of 3%. It means top 20% people are more than 19 times richer than the bottom 20% of people.
If we compare the income of bottom 10 % people to that of top 10% people in India we will see
the later is 41 times richer than the former. If we take 5th decile as the median class, we notice
that it is 5 times higher than the people fall in the lowest decile and the people fall in top decile
are 8 times richer than the median class.
Table2: Structure of Indian household income:
Wages and Salaries Tota Poor Middle Affluent Median for Households
(Monthly) l with Income
Salaries 72 68 75 68 21957
Agriculture Wages 29 10 24 57 37920
Non-agricultural 29 41 34 7 10557
Wages 28 28 34 10 15749
Business 20 12 21 27 25135
Own Farm 52 64 51 45 7108
Crops 38 50 36 33 7596
Animals 42 51 42 33 1086
Remittances 5 5 5 7 11372
Rents and Pensions 10 5 7 23 13362
Government Benefits 13 17 13 8 814
(Source: India Human Development Survey)
To have a better understanding of the income inequality of India, we need to discuss it
in the light of source of income of the households. The source of income of 75% of Indian
households comes from the employment on a daily wage or monthly salary. Another notable
feature of source of income of Indian household is that about 50% of them have some source
of income from agriculture. About 20 % of households’ income source is family business
(Vanneman and Dubey, 2011). The flip side of this aspect of source of income of Indian
household is that typically poor households find their income from such sources which are less
yielding while affluent households find income from the sources which are highly yielding
(Vanneman and Dubey, 2011). It also has been found that 57% of affluent households have
salaried income while from this source only 10% of poor households get income. Another
notable contrast regarding this aspect of income distribution found in India is that the
households having salaried income have a median salary Rs. 37,920 where as poor families
earn an average wage from agricultural work is Rs.10, 577. This indicates that the affluent
households with salaried income are about 4 times richer than the poor households which
draw their income from agricultural farm work.
The discussion on income inequality will not be completed if we do not bring regional
and state wise income disparity in India. According to Indian Human Development Survey
(IHDS) report 2005, a general trend of regional disparity on the basis of income has emerged
in recent times. The states in the western coast including Gujarat, Goa and Kerala and states
in the northwest part including Delhi, Himachal Pradesh, Haryana, and Punjab have emerged
as states with higher income. Recently smaller sates from north-east have made their place in
this group of higher income states. But there are hosts of states that fall in the group of lower
income states include Bihar, Madhya Pradesh, UP, Odisha (Vanneman and Dubey, 2011) are
comparatively larger. If we take Odisha for example, its median income is Rs.9, 315 per
annum while Northeastern states have an average income of Rs. 31,812. It means average
people of Northeast are thrice richer than the people of Odisha.

DIFFERENCE ACROSS SOCIAL GROUP:

A natural aspect to consider is differences across social groups—distinguishing, for
example, SCs, STs, other backward castes (OBCs), and a residual category of ‘others’. This
breakdown is far from ideal, as it does not permit any detailed assessments of differences across
subgroups within these broad categories. However, no more detailed breakdown of the population
is available from the NSS data.
The real MPCE for social groups indicates a higher rate of growth of consumption
expenditure for the ‘others’ category during the period between 1993–94 and 2004–05 than for the
ST/SC/OBCs. During the next period (between 2004–05 and 2011–12), however, the growth rates
of ST/SC/OBCs increased and caught up with the ‘others’ category. Despite this increase in growth
rates, the ratio of the means of the different categories to the overall mean, which indicates the
relative positions of the groups, did not show any significant change.
 Consumption share/pop. share Income share/pop. Asset share/pop. Share
share
ALL INDIA 1993-94 2004-05 2011-12 2004-05 2011-12 1991 2002 2012
ST 0.76 0.69 0.69 0.68 0.67 0.48 0.49 0.40
SC 0.79 0.78 0.80 0.71 0.79 0.46 0.45 0.40
OBC - 0.92 0.93 0.89 0.92 - 0.90 0.83
OTHERS 1.09 1.33 1.34 1.45 1.39 1.20 1.59 1.86
RURAL
ST 0.83 0.76 0.77 0.75 0.72 0.51 0.54 0.50
SC 0.85 0.85 0.88 0.75 0.83 0.49 0.49 0.50
OBC - 1 1 0.95 0.96 - 0.98 1.01
OTHERS 1.07 1.23 1.21 1.42 1.38 1.22 1.61 1.71
URBAN
ST 0.83 0.81 0.81 1.02 1.08 0.48 0.60 0.54
SC 0.75 0.72 0.76 0.77 0.82 0.40 0.42 0.35
OBS - 0.83 0.85 0.84 0.87 - 0.78 0.70
OTHERS 1.05 1.24 1.26 1.24 1.24 1.11 1.38 1.59

Chaudhary and Verick (2014) analysed the puzzling phenomenon of a declining female
labour force participation rate at a time of high economic growth. During 2004–05 and 2011–12,
when GDP grew at eight per cent per annum, the female labour force participation rate declined
from an already low 35 per cent to 25 per cent. Although part of this can be explained by
increasing female participation in education, that cannot fully explain the decline (Chandrasekhar
and Ghosh 2014). The displacement of women from agricultural activities due to mechanization
and increasing informalization could be another reason. Gender gaps are also manifest in the
gender wage gap, which remains high in almost all categories of occupation (Table 8). Overall,
female wages are less than two thirds of male wages in rural areas and have not caught up over
time. Gender wage gaps are lower among regular salaried workers in urban areas, but women’s
wages have not caught up with men’s in the decades since the early 1990s.
Regular Casual
Rural Urban Rural Urban
1993-94 0.60 0.80 0.65 0.57
2004-05 0.59 0.75 0.63 0.58
2007-08 0.62 0.77 0.67 0.57
2009-10 0.63 0.82 0.68 0.58
2011-12 0.63 0.78 0.69 0.61
Table 8: Female/male wage ratio for regular and casual workers
CONSUMPTION INEQUALITIES:
India has a long series of national household surveys suitable for tracking household
consumption since the early 1950s. In this paper we rely on the ‘thick’ rounds (with larger
sample sizes) of the Indian National Sample Survey Office’s (NSSO) National Sample Surveys
(NSS) to examine trends since the early 1980s. Our measures are based on the mixed recall
period (MRP) consumption aggregates that are the basis of India’s official poverty estimates.6
A commonly used indicator of inequality is the Gini index, which varies from zero (in a context
of perfect equality) to one (when one household accounts for all the consumption in the
country). By this measure, inequality declined between 1983 and 1993–94 but rose
appreciably in the following decade after the onset of reforms in 1991 (Table 1). Post-2005,
inequality increased slightly or remained stable, depending on the indicator being considered.
Other indicators that emphasize differences between the extremes of the consumption
distribution, such as the ratio between the richest and poorest deciles, confirm rising inequality
during period between 1993–94 and 2004–05, and smaller increases thereafter. In 2011–12,
the richest 20 per cent of the population accounted for nearly 45 per cent of total consumption.
The inequality levels illustrated in Table 1 are likely to be overstated, as they are based on
nominal consumption expenditure that does not correct for cost-of-living differences between
states, or between rural and urban areas. Table 2, which reports Gini indices after correcting
for cost-of living differences using the deflators implicit in the official poverty lines, shows
indeed that inequality levels are lower. However, trends in inequality are preserved. Estimates
based on the variance of log of consumption expenditure—which gives greater weight to
inequality at the extremes—produce similar trends.
Table 1: Recent trends in consumption inequality
Share of groups in total national 1983 1993-94 2004-05 2009-10 2011-12
consumption expenditure
Bottom 20% 9.0 9.2 8.5 8.2 8.1
Bottom 40% 22.2 22.3 20.3 19.9 19.6
Top 20% 39.1 39.7 43.9 44.8 44.7
Top 10% 24.7 25.4 29.2 30.1 29.9
Ratio of average consumption of
groups
Urban top 10% Rural top 10% 9.5 9.4 12.7 13.9 14.0
Urban middle 50% Rural middle 50% 7.0 7.1 9.1 10.1 10.1
Urban bottom 40% Rural bottom 40% 6.5 6.8 9.4 10.1 10.2
Gini Index
Rural Gini 0.27 0.26 0.28 0.29 0.29
Urban Gini 0.31 0.32 0.36 0.38 0.38
All-India Gini 0.30 0.30 0.35 0.36 0.37
Source: authors’ calculations based on NSS data.

Real mean per-capita expenditures (MPCE) are MRP consumption estimates corrected for
cost-of-living differences across states, rural and urban areas, and over time, using deflators
implicit in the official poverty lines.

FACTORS BEHIND GROWING INEQUALITY AND PERSISTENT

POVERTY
Fiscal policy
An important element of the economic reform process adopted in India was the belief
that a high fiscal deficit level was responsible for the 1991 crisis, and the deficit should
therefore be brought down to a certain pre-determined target. It was argued that a high fiscal
deficit is bad for an economy because it can be inflationary, can give rise to external deficits,
can lead to high interest rates and therefore crowd-out private investment, and can put an
unsustainable interest rate burden on an economy through accumulation of public debt.9 Th e
IMF program required the government to bring down the fiscal deficit to a level of fi ve to six
per cent of GDP from the average of seven per cent of GDP for the period 1985-1990.
However, it was also part of the macro-policy paradigm that taxes should be rationalized and
direct tax rates should be cut so as to improve “efficiency” and provide incentives to private
investors. In addition, indirect tax rates were cut because of import liberalization and
associated domestic duty reductions. Th is meant that fiscal balance could not be achieved
through increased tax revenues, but would have to depend upon expenditure cuts. Therefore,
to achieve this targeted fiscal deficit, the government undertook major expenditure cuts during
the 1990s (Figure 6). Not surprisingly, the government found it difficult to cut current

expenditure, so massive reductions were made in capital expenditure. As a result, central

government capital expenditure, as a share of GDP, declined steadily from 7.02 per cent for
the period 1986-1987 to 1989-1990 to 2.74 per cent for the period 1999-2000 to 2002-2003.
Public investments in crucial areas like agriculture, rural development, infrastructure
development and industry were scaled down. This adversely affected the already fragile state
of infrastructure in the economy and led to a virtual collapse of public services in areas like
education, public health and sanitation. As discussed by Chandrasekhar and Ghosh (2002),
not only were the plan targets for expenditure scaled down, but there were also huge shortfalls
in public investment, even relative to these reduced targets, during most years of the decade.
In addition, there was a decline in the central government’s current expenditure on rural
development accompanied by an overall decline in per capita government expenditure in rural
areas. Th e decline of government investment in rural areas marked a sharp turnaround from
the trend observed during the early 1980s, when there was a large increase in expenditure on
the rural sector. Political developments of the 1980s induced various governments to increase
the fl ow of resources to this sector. Th is led to higher demand generation in the rural sector,
and consequently resulted in lower poverty, economic diversification and increased rural
employment generation. However, over the 1990s, many policies which had contributed to this
rural development were reversed. Central government expenditure on rural development
schemes like agricultural programs, rural employment programs and anti-poverty schemes
were cut. Th is had a negative effect on rural poverty and employment generation during the
1990s.
 Along with the cutback of central government expenditure on the rural sector, there was
a gradual reorganization of the tax system, which led to reduced financial transfers to state
governments. Th e central government reduced the Central Sales Tax (CST), introduced non-
shareable levies in direct taxes, and adopted a value-added tax, all of which reduced the ability
of states to generate resources. Since state governments were the dominant provider of basic
services and rural infrastructure, the reduced ability of the state to finance these activities
resulted in even lower levels of investment in rural sectors. Th is again, adversely affected
demand and employment generation in the rural sector.
As part of the cost cutting exercise, subsidies given for food, fertilizer and exports were
also reduced signifi cantly. Th e reduction of the food subsidy crippled the public distribution
system (PDS) for food, which provided fair-priced food items to a very large number of low-
income households. To reduce the food subsidy, the government introduced the targeted
public distribution system (TPDS). In this system, only the households which belonged to the
BPL (Below Poverty Line) category were eligible for subsidized food through the public
distribution system. To reduce the budgetary expenditure on food, in 1999-2000, the
government tried to increase food prices to equal the economic cost of the Food Corporation
of India (FCI). Th is led to a doubling of food prices for the above poverty line (APL)
household. Food prices for BPL households were also raised by about 80 per cent during this
period. At the same time, over the 1990s, the government increased the procurement prices of
some major food-grains to placate the politically powerful farmer lobby. Th e increase in food
prices led to a decline in food purchases by the public from the PDS, so stocks held by the FCI
increased to three times the desired food-grain stock level, leading to very high stock holding
costs. So, the attempt to reduce food subsidies by increasing prices paid by consumers had
the paradoxical effect of increasing the public costs of holding food-grain stocks, and thus
increased the food subsidy! Over this period, per capita food-grain availability in the country
actually declined from 510 grams in 1991 to 458 grams in 2000.
Downsizing of employment in a number of key public sector industries was also
undertaken in line with the expenditure-cutting exercise. Th is severely affected employment
generation in the public sector but, as most studies pointed out, generated only notional fiscal
benefits. Widespread disinvestment and sale of the equity of profitable public sector units were
also undertaken during the 1990s. It was argued by the policymakers that disinvestment of
public sector units (PSUs) would ensure fiscal discipline and would lead to higher levels of
efficiency. However, as many economists suspected, the real motivation behind the sale of
PSUs was the accumulation of resources to meet the IMF fiscal deficit target. Th e
disinvestment process pursued all through the 1990s turned out to be a disaster, as the
controversial disinvestment of PSUs involved a number of profit making PSUs being sold at
low and discounted prices to their global and domestic competitors. Not only did this result in a
loss to the government exchequer, putting a recurring burden on the exchequer, but it also
distorted the markets for several commodities and services. Th ere were also persistent
allegations about corruption and malpractice in the sale of PSUs.
REASON OF ECONOMIC INEQUALITIES:
Growing economic inequality during the post globalization period has been noticed in
India. The nature and extent of this inequality is not same that has been experienced by other
developing countries during the same period. In India the dividends of globalization and
liberalization mostly concentrated in richer states (OECD Report, 2011), while the Poorer and
populous states like Uttar Pradesh, Madhya Pradesh, and Bihar are faltering behind.
To understand the reason behind this economic inequality, we need to go little deeper
of the typology of the jobs that have been generated in the process of globalization. Due to
globalization incidence of informal economic relation has become more prevalent in India.
What types of work this informal employment constitutes? It includes a number of home-based
jobs, road side vending and hawking and contractual works. Rise in informal jobs and greater
economic inequality are very often positively correlated (Jutting and Laigesia, 2009). The
reasons behind this rise in income inequality due to expanding informal jobs are: (1) informal
jobs always associated with low wage, (2) these jobs are unstable in nature, (3) such jobs are
not at all supportive for accumulation of human capital and growth of career, (4) Such jobs
create a condition of “career entrapment” for the worker as he has to move only from one low-
paid job to another (OECD Report, 2011). Income inequality is the result of lower wage of a
large section of workforce in India. Due to globalization, as Eric Maskin puts, the wage of
skilled workforce has increased rapidly for the growing global demand of their skill, but the
unskilled section of the workforce is bound to taker lower wage as there is less demand for the
unskilled workers (Maskin, 2014).For example, we may take the job of IT sector, where
workers get higher wages for higher demand (both national and international) of their skill. But
a worker without IT skill will never be able to get better wage. It means globalization has
pushed up the demand for skilled workers and thereby contributing to the income inequality in
a considerable way.
Income inequality as a consequence of globalization can also be discussed from a
different angle. Globalization has changed the character of production of many goods and
services. For example, a cell-phone (e.g. Nokia) now-a-days designed in one country,
programmed in another and assembled in a third country. This new trend of production is
called internationalization of production (Maskin, 2014).This process of internationalization of
production pushes the demand for skilled workforce, thereby increasing the inequality of
income between skill and unskilled workforce.

CONSEQUENCE OF INCREASING ECONOMIC INEQUALITY:

Economic inequality is the direct consequence of income inequality. In a country like
India, where the economic inequality has far reaching effects that pulls down the socio-
economic development of the country. The rising economic inequality is the cause of anxiety
basically for three reasons: Firstly, it directly challenges the ideal of equality that our country
believes (Indian constitution stands for social and economic equality). Secondly, the rising
economic inequality will create a social instability and the elements of protest will gather
strength in the country. The link between different classes will be cut off and the country will
face a situation of system wreckage. Thirdly, economic inequality will directly feed the forces of
separatism (Maskin, 2015).Socially, it will promote distance among different classes
contributing to social tension and economically it will be counterproductive and harm the
interest of both rich and poor in equal measure.

SOLUTION AND POLICY SUGGESTION:

Financial sector reform:
The crisis of 1991 hastened the process of financial liberalization pursued by the Indian
government since the mid-1980s. Financial liberalization was designed to accomplish the
following objectives: a) make the central bank more independent; b) relieve financial
repression by freeing interest rates, and introduce various new financial instruments and
innovations in the Indian financial system; c) reduce directed and subsidized credit; and d)
allow greater openness and freedom for various forms of external capital flows. It should be
noted that these objectives were not realized in full, and indeed, the lack of completeness of
such financial liberalization has been one important reason for the relative financial stability of
the country, unlike several other ‘emerging markets.’
The most adverse effect of financial liberalization on inequality came from policies
which eased ‘priority sector’10 lending norms for nationalized banks. Until the 1980s,
nationalized banks had obligations to fulfil priority sector lending targets. But post-
liberalization, the priority sector definition was widened to include many more activities, and
the emphasis in banking shifted instead towards maintaining the capital adequacy level
prescribed by the Basle accord. As a result, most banks now avoid lending to small farmers
and small scale industries, as they are perceived to be less creditworthy customers. Th is has
had dramatic effects on the viability and cultivation of small enterprises, which are the largest
employers in the country, and has therefore indirectly impacted income distribution and
poverty reduction.
A report by a Reserve Bank of India working group concluded that the recent slowdown
in priority sector lending principally owes to risk aversion due to a high proportion of non-
performing loans (RBI 2004). However, the composition of the non-performing assets (NPAs)
of Indian public and private sector banks shows a somewhat different picture. According to RBI
data, as of 31 March 2002, 77.91 per cent of total NPAs in private sector banks were in non-
priority sectors, while priority sectors accounted for only 21.8 per cent of total NPAs. For public
sector banks, 53.5 per cent of NPAs were accounted for by non-priority sectors, 44.5 per cent
of total NPAs were in priority sectors. Anecdotal evidence suggests that a number of big Indian
business houses are responsible for a substantial share of the non-priority sector NPAs.
 Collusion of big business houses with the political elite has prevented strong legal measures
against defaulters.
Education Policies:
The solution for the problem of rising economic inequality lies largely at the root of
understanding how globalization and internationalization of production give rise to income
inequality. The difference in skill is mainly responsible for income and economic inequality in
India. Therefore the key solution is skill matching. As Eric Maskin puts (2015), more is the skill
matching, less is the income inequality between the workers. If the unskilled workers are given
education and training for skill development, they will be able to sell their labour in a globalized
market for better wage.
The empirical evidence shows that higher is the education better is the income flow.
The majority of the poor people in India are either having no education or a minimum level (1-4
std.) of education. It is evident from the table-3 that people with no education and minimum
level of education (1-4std.) constitutes 75% of total poor in India. The reason is that due to low
level of education or no education they have not been able to add any such skill which can
enhance their income from the present globalized economy. The mean income of the people
with no education or minimum education is quite lower than the people having degree and
diploma; they earn as many as five times than the people with no education. This difference in
income brings difference in consumption, which is also evident from table-3.Low consumption
means less expenditure not only on goods of daily consumption but also on health, education
and skill development. The natural corollary that we can draw from it is that the people with low
income are left with little option to enhance their education and skill so that they can sell their
labor at a higher price.
Table 3: Mean and Median Household Incomes, Consumption and Poverty

Education Income Consuption %Poor

Mean Median Mean Median
All India Education 47804 27857 48706 36457 25.7
No Education 21734 17017 29595 24502 38.1
1-4 std 25984 18800 33365 27876 37.2
5-9 std 35718 25920 41803 34338 29.7
10-11 std 53982 39961 55341 45040 18.7
12 std some college 69230 48006 65717 52494 14.8
Graduate/Diploma 111004 85215 89186 70897 6.8
(Source: IHDS 2016–17 data)
 In a recent interview (Maskin, 2015) on his tour to Indian Statistical Institute Calcutta,
Eric Maskin reiterated his earlier position regarding the growing income inequality in India
during the post globalization period. How can we reduce this inequality? What should be the
path for it? The level of skill of the unskilled and low-skilled worker should be raised to the
international standard so that they can harvest the dividend of globalization (Maskin, 2014).But
the question is: who will take the responsibility of honing the skill of vast populace of
semiskilled and unskilled labour of Indian market? The labour himself or the government will
take this responsibility? Or the corporate sector for which they work?

Public spending on education as total (% of GDP)

The corporate sector as the potential employer of labour (semi-skilled and unskilled) will
not do it, because the amount of investment for skill development will reduce its profit (Maskin,
2015). The labourer, who has been struggling to meet both the ends with a small earning can’t
afford the cost of skill development. As Maskin (2014) puts, a third party need to do it; it may
be NGOs, multilateral institutions or the government.

Public expenditure on education has always been low in India throughout our plan
period, which is evident from fig-1.Expenditure on education in 11th plan (2005-12) was about
4% of GDP. The Kothari Commission (1964-66) recommended 6%of GDP for the expenditure
on education. Nearly 40 years have been passed since then, but the provision for education
hovers around 4% of GDP. Now question arises: Can we improve the skill of unskilled and
semi-skilled workforce of India with this amount of public expenditure on education, so that
they can harvest the rich dividend of globalization? No. The need of hour is that the
government must draw long term plan for the development of education and skill and pump
more funds for the same. The most neglected part of education in India is the primary
education which needs immediate attention. The things that immediately should be taken care
of include student teacher ratio and quality of primary teachers. By enriching the quality of
elementary education, India can instill a sense of confidence among the would be workforce to
face the challenges of globalization. For which, huge amount of budgetary allocation is
essential. Apart of enriching elementary education, India may take initiation in setting up
community colleges in the model of USA (Thakur, 2014).Most importantly, skill development
initiatives taken by the government of India and different state governments must be linked
with secondary and higher secondary level of education.

CONCLUSION:
The real growth of India lies with its human resource. If we want to see India in the club
of developed nation, we must devote enough resource for its development. As Maskin (2015)
points out, if India wants to increase its economic growth in the long run, it must take special
care to promote education with vigour. So the call of time is that government must allocate
plenty of resource for this purpose. We can’t leave education and skill development on market
forces; we must devise alternative ways and means beside market(Maskin,2007 &2015).The
political class of India may see merit in saving some resource by not allowing sufficient
resource for education, but this route only will take us nowhere near to economic development.
Increasing inequality in income may pose problem for social unrest, political crisis, social
disharmony which in turn will spoil the tempo of economic growth.

One of the reasons behind the increased income inequality observed in India in the
post-reform period has been the stagnation of employment generation in both rural and urban
areas across the states. Open unemployment increased in most parts of the country, and the
rate of growth of rural employment hit an all-time low. Declining employment elasticity in
several sectors, including agriculture, was one of the main reasons behind this decline. Low
employment generation in the agriculture sector has also been associated with a steady, but
significant increase in casualization of the labour force in India. Due to large scale downsizing
and privatization of public sector units, employment generation in the organized sector also
suffered. However, the services sector performed relatively better during this period. Th e
employment growth rate in this sector was higher than in other sectors of the economy.
Particularly in some sub-sectors like information technology, communication and
entertainment, employment generation and wages increased substantially in this period.
However, these sectors employed only a very small section of the labour force, and their
impact on the overall employment scenario has been minimal. One countervailing force to the
lower employment generation has been increased economic migration, typically to other
countries in Asia and the Middle East. Th is has been especially important in certain regions
and provided an important alternative source of transfer income to local residents through
remittances. However, these flows have had little to do with domestic policies and more to do
with international economic processes.

The discussion of health and education related indicators shows that though there has
been some progress by India in these areas, this progress has been unsatisfactory, even
when compared to other developing countries. Huge inter-state disparities in health and
education related indicators remain across the country. State involvement and investment in
these sectors has historically remained very low and declined even further during the 1990s.
Gradual withdrawal of the state from these sectors and increased reliance on the private
sector are likely to further exacerbate the already inequitable distribution of health and
education services in India.

A number of policies adopted during the reform period essentially increased the level of
inequality in India. Liberalization of trade helped some sectors where India was internationally
competitive, but it also negatively affected the other sectors. Th e agriculture sector, as well as
small and medium enterprises, which account for the bulk of employment, were the worst hit
by the trade liberalization undertaken by policymakers since the mid-1990s. The inflow of FDI
into India has only marginally improved gross domestic capital formation, but its incidence has
been confined to some very small pockets, both geographically and sectorally. Th is has
increased inter-state and inter-sectoral inequalities in the country.

Emphasis on reduction of the fiscal deficit also increased inequality in India during the
reform period. Due to pressures from powerful lobbies, direct and indirect tax rates declined in
India. Th e government’s failure to reduce current expenditure implied that most of the
adjustment to reduce the fiscal deficit was carried out by reducing capital expenditure and rural
expenditure generally, as well as by selling PSUs to generate one-time revenue. Reduction of
capital expenditure reduced public investment in key infrastructural areas and social welfare
schemes. In a country like India, where the level of infrastructure development is poor, public
investment in infrastructure is critical, not only for its direct developmental effects, but also
because it brings in private investment through its crowding in effects.

Attempts to reduce government expenditure on food subsidies and social welfare

schemes have also had serious negative effects on inequality in the country. In their zeal to
adopt market-oriented reform measures, Indian policymakers have tended to overlook the fact
that not only the so-called ‘market economies’ of Europe and America, but also the
industrialization success stories of East Asia, all spend a very high percentage of their GDP on
health, education and social security. Notwithstanding the free market rhetoric, these countries
have steadily increased their public expenditure on social services since the 1980s.