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Income Inequality in India
Income Inequality in India
ECONOMICS
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1
ACKNOWLEDGEMENT
who gave me the golden opportunity to do this wonderful project of Economics on the
topic “INCOME INEQUALITY IN INDIA”, Who also helped me in completing my project and
has rendered endless support, kind and understanding spirit during my project
completion. I came
to know about so many new things I am really thankful to her. The completion of
this project could
not have been possible without the participation and assistance of various people
thus, I would
also like to thank my parents and friends who helped me a lot in finalizing this
project within the
I would also like to thank the Great Almighty, source of supreme knowledge for
countless love
rendered on me.
ANIKET SACHAN
ROLLNO-28
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Table of Contents
Table of Contents
3
CHAPTER 1: INTRODUCTION
4
CHAPTER 2: CAUSES OF INCOME INEQUALITY
7
UNEMPLOYMENT ......................................................................
............................................ 7
INFLATION .........................................................................
..................................................... 7
TAX
EVASION ...........................................................................
.............................................. 9
NEW AGRICULTURAL
STRATEGY: .........................................................................
.......... 9
GROWTH
FACTOR ............................................................................
................................... 10
PAYMENT OF
BONUS:.............................................................................
................ 13
CEILING ON LAND
HOLDING: ..........................................................................
.... 13
SOCIAL
SPENDING: .........................................................................
........................ 13
CHAPTER 5: CONCLUSION
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BIBLIOGRPAHY
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3
CHAPTER 1: INTRODUCTION
Income inequality is the gap between rich and poor i.e. is the differences in the
distribution of
of an economy in which the shares of total income earned by the rich and poor are
highly unequal.
The richest 1% of Indians own 58.4% of wealth. The richest 10 % of the Indians own
80.7 % of
the wealth. This trend is going in the upward direction every year, which means the
rich are getting
richer and the poor are getting poorer.[2]Inequality worsened since the
establishment of income tax
in 1922.
between the world’s haves and have-nots does not appear to be getting any narrower
and a mere
0.7% of the global population owns nearly half the world’s wealth. The report
identified Russia as
the world’s most unequal country with a huge 74.5% of the nation’s wealth
controlled by the richest
1% of people. In India and Thailand the top 1% own 58.4% and 58% of the wealth,
while the
figure was 47.9 for Brazil and 43.8 for China, the ‘Independent’ reported.1
The contrast between China and India may also come as a surprise, given their
similarities in terms
of huge populations and rapid growth. Their representation in the global bottom
half is very
1
India second most unequal country in the world: Wealth Report.
(2018). https://www.hindustantimes.com/. Retrieved 10 March 2018, from
https://www.hindustantimes.com/india-news/india-second-unequal-country-in-the-
world-wealth-
report/story-MGIa7MbWAdzhKFvwhtiIeI.html
4
different, and the discrepancy is even greater in the bottom quintile which covers
31% of Indians
but only 7% of Chinese, the report said. Personal wealth in India is dominated by
property and
other real assets, which make up 86% of estimated household assets, it said.
The report said that while wealth has been rising in India, not everyone has shared
in this growth.
“There is still considerable wealth poverty, reflected in the fact that 96% of the
adult population
has wealth below US $10,000, whereas this percentage is only 68% in China,”2
Recently there was a recent index in which India rank was also not satisfactory.
India has been
ranked 132nd among 152 nations in a new index tracking commitment to reducing
income
nations on the basis of their welfare spending, the progressive nature of their tax
system and
While the period 1951 to 1980 saw the poor narrowing the income gap with the well-
to-do, the trend
has reversed over the period 1980-2014, they say. The Gini Coefficient for the
country is estimated to
2
India second most unequal country in the world: Wealth Report. (2018).
https://www.hindustantimes.com/ .
3
Prasad, G. (2018). India ranks 132 in commitment to narrow income inequality.
http://www.livemint.com/ .
Retrieved 10 March 2018
5
value varies anywhere from zero to 1; zero indicating perfect equality and one
indicating the
incomes.
Chart 14: India not only has one of the highest levels of inequality in the region,
but it also
shows very large increases in inequality since 1990. Its net Gini index of
inequality (based on
income net of taxes and transfers) rose from 45.18 in 1990 to 51.36 in 2013. Only
two countries
in the Asia-Pacific region—Papua New Guinea and China—are more unequal. Indeed, the
net
Gini coefficient in India is much higher than the average of 43.69 for Latin
America
4
Chakravarty, M. (2018). Just how high is income inequality in India?. Retrieved 11
March 2018, from
http://www.livemint.com/Opinion/JKZYjYjixRipa95tw2AOXK/Just-how-high-is-income-
inequality-in-India.html
6
CHAPTER 2: CAUSES OF INCOME INEQUALITY
UNEMPLOYMENT
Increasing unemployment, underemployment and disguised unemployment are responsible
for
inequalities of income. The main reason for low level of income of the majority of
Indian people
labour productivity implies low rate of economic growth which is the main cause of
poverty and
related. Since sufficient employment could not be created through the process of
planned
economic development, it was not possible to increase the income levels of most
people in India
People at the bottom could raise their economic status and to an extent reduce the
distance
separating them from those at the top, if they could get work. In other words, if
they did not possess
adequate earning assets, they could at least earn from their labour. But there too
the situation was
not favourable. For long the increase in employment opportunities remained less
than the rise in
INFLATION
Another cause of inequality is inflation. During inflation, few profit earners gain
and most wage
earners lose. This is exactly what has happened in India. Since wages have lagged
behind prices,
profits have increased. This has created more and more inequality. Moreover, during
inflation,
money income increases no doubt but real income falls. And this leads to a fall in
the standard of
7
No doubt, inequality has increased due to rise in prices. During inflation workers
in the organised
sector get higher wages which partly offset the effect of price rise. But wages and
salaries of
increase. So their real income (purchase income) falls. This is how inequality in
the distribution
of income increases between the two major sectors of the economy — organised and
unorganised.5
own a part of the assets they operate, organise finances through banks,
cooperatives, etc, and
interest and profit. As these assets accumulate and pass on from generation to
generation, the
As for rural areas, the ownership pattern of the most important asset, namely,
land, is highly
unequal. The marginal households (with holdings less than 1 hectare), which account
for as many
as 72 per cent of the rural households own very little about 17 per cent of the
land.At the other
end, there are those with large holdings (of more than 10 hectares) who are about 1
per cent of the
rural households. But they have under their ownership as much as 14 per cent of the
area.6
5
Inequality of Income and Wealth in India: Causes and Measures. (2018). Economics
Discussion. Retrieved 10
March 2018, from http://www.economicsdiscussion.net/india/inequality-of-
income/inequality-of-income-and-
wealth-in-india-causes-and-measures/12840
6
What are the Important Causes of Income Inequalities in India?. (2018). Your
Article Library. Retrieved 10 March
2018, from http://www.yourarticlelibrary.com/economics/what-are-the-important-
causes-of-income-inequalities-in-
india/3041
8
Private ownership of property and inheritance laws is mainly responsible for highly
unequal
distribution of assets.
TAX EVASION
In India, the personal income tax rates are very high. High tax rates encourage
evasion and
avoidance and give birth to a parallel economy. This is exactly what has happened
in India
during the plan period. Here, the unofficial economy is as strong as (if not
stronger than) the
official economy. High tax rates are responsible for inequality in the distribution
of income and
evasion. On the other hand, the indirect taxes give maximum revenue to the
government. But
they are regressive in nature. Such taxes have also created more and more
inequality over the
No doubt, India’s new agricultural strategy led to the Green Revolution and raised
agricultural
productivity. But the benefits of higher productivity were enjoyed mainly by the
rich farmers and
landowners. At the same time, the economic conditions of landless workers and
marginal
farmers deteriorated over the years. Most farmers in India could not enjoy the-
benefits of higher
has increased.
9
GROWTH FACTOR
As development proceeds, the earnings of different groups rise differently. The
incomes of the
upper-income and middle-income groups rise more rapidly than those of the poor.
This happens
The explanation lies in the shift of population from agriculture which is a slow
growing sector to
the modern large industrial sector which grows more rapidly. Again, there is the
capital-intensive
nature of the development of the modern sector. Since this absorbs less labour,
wages form a
smaller proportion of total income. Hence, the income spread is not wide enough. On
the other
country’s total wealth — higher than the global figure of about 50 per cent, a new
study showed
on Monday.
The study, released by rights group Oxfam ahead of the World Economic Forum (WEF)
annual
meeting here attended by rich and powerful from across the world, showed that just
57 billionaires
in India now have same wealth (USD 216 billion) as that of the bottom 70 per cent
population of
the country. Globally, just 8 billionaires have the same amount of wealth as the
poorest 50 per cent
10
of the world population. According to latest survey released by the international
rights group
The survey shows worrying picture of rising income inequality. It was released as
part of report
titled ‘Reward Work, Not Wealth’, revealing how global economy enables wealthy
elite to
Nisha Agrawal, CEO of Oxfam India said: “It is alarming that the benefits of
economic growth in
India continue to concentrate in fewer hands. The billionaire boom is not a sign of
a thriving
economy but a symptom of a failing economic system. Those working hard, growing
food for the
buy medicines for family members and manage two meals a day. The growing divide
undermines
Women workers often find themselves at the bottom of the heap. Across the world,
women
consistently earn less than men and are concentrated in the lowest paid and least
secure forms of
work. By comparison, 9 out of 10 billionaires are men. In India, there are only
four women
Oxfam calculated that if India were to reduce inequality by a third, more than 170
million people
woefully low. The tax structure looks reasonably progressive on paper, but in
practice, much of
7
Richest 1 percent bagged 73 percent of wealth created last year - poorest half of
India got 1 percent, says Oxfam
India. (2018). Oxfam India. Retrieved 11 March 2018, from
https://www.oxfamindia.org/pressrelease/2093
8
Richest 1 percent bagged 73 percent of wealth created last year - poorest half of
India got 1 percent, says Oxfam
India. (2018). Oxfam India. Retrieved 11 March 2018, from
https://www.oxfamindia.org/pressrelease/2093
11
the progressive tax is not collected. On labour rights and respect for women in the
workplace,
income of the bottom 40% of the population grows faster than of the top 10% so that
the gap
between the two begins to close. This can be done by encouraging labour-intensive
sectors that
will create more jobs, investing in agriculture and effectively implementing the
social protection
Seal the leaking wealth bucket by taking stringent measures against tax evasion and
avoidance;
eventually do away with corporate tax breaks; creating a more equal opportunity
country by
Bring data transparency, produce and make available high quality data on income and
wealth.
Regularly monitor the measures the government takes to tackle the issue of rising
inequality.
Progressive taxation: Where corporations and the richest individuals pay more to
the state in
order to redistribute resources across society, is key. Tax can play a progressive
role, or a
9
Richest 1 percent bagged 73 percent of wealth created last year - poorest half of
India got 1 percent, says Oxfam
India. (2018). Oxfam India. Retrieved 11 March 2018, from
https://www.oxfamindia.org/pressrelease/2093
12
Payment of Bonus: Firstly, the payment of bonus (called annual payment) has been
made
areas. Each household (or family) is allowed to hold a certain amount of land. Any
surplus above
this is taken over by the Government and is redistributed among the landless
workers and marginal
farmers. Moreover, in 1976 a ceiling on urban property has also been imposed.
important. Oxfam has for many years campaigned for free, universal public services.
Two key indicators are: how much has a government committed to spend on education,
health and
social protection? And how progressive are the spending levels? The following chart
shows the
money India has spent on public services over the past eight years; the horizontal
lines represent
10
Inequality in India: what's the real story?. (2018). World Economic Forum.
Retrieved 11 March 2018, from
https://www.weforum.org/agenda/2016/10/inequality-in-india-oxfam-explainer/
13
Image: Economic Survey 2014-15, Statistical Appendix, Government of India
poorly on both counts. Its total tax effort, currently at 16.7% of GDP, is low
(about 53% of its
potential) and the tax structure is not very progressive since direct taxes account
for only a third
of total taxes.
compares less well. Only 3% of GDP goes towards education and only 1.1% towards
health.
14
The proportion of the labour force in agriculture has come down, but the workers
who have left
farms have not got jobs in modern factories or offices. Most are stuck in tiny
informal enterprises
with abysmal productivity levels. If India could somehow reverse this trend and
promote labour-
wants to make use of its demographic dividend. The skilling of youth by increasing
investment in
education is the only way we can reduce inequality. India needs to become a Skill-
led economy.
15
CHAPTER 5: CONCLUSION
The government should follow the following measure to minimize income inequality.
Although it
cannot be eliminated in one go but steps could be ensured to minimize it and make
it tend to
minimal. Policies that can affect the level of economic inequality include
redistribution between
rich and poor, making it easier for people to climb the ladder of opportunity; and
estate taxes,
which are taxes on inheritances. Pushing too aggressively for economic equality can
run the risk
economic output, both through methods like improved education and by building a
base of political
The dream of ending poverty: Oxfam has calculated that if India stops inequality
from rising
further, it could end extreme poverty for 90 million people by 2019. If it goes
further and reduces
India – along with all the other countries in the world – has committed to
attaining the Sustainable
Development Goals by 2030, and to ending extreme poverty by that year. But unless
we make an
effort to first contain and then reduce the rising levels of extreme inequality,
the dream of ending
extreme poverty for the 300 million Indians – a quarter of the population – who
live below an
16
BIBLIOGRPAHY
Inequality in India: what's the real story?. (2018). World Economic Forum.
Retrieved 11
March 2018, from https://www.weforum.org/agenda/2016/10/inequality-in-india-oxfam-
explainer/
Inequality of Income and Wealth in India: Causes and Measures. (2018). Economics
Discussion. Retrieved 10 March 2018, from
http://www.economicsdiscussion.net/india/inequality-of-income/inequality-of-income-
and-wealth-in-india-causes-and-measures/12840
What are the Important Causes of Income Inequalities in India?. (2018). Your
Article
Library. Retrieved 10 March 2018, from
http://www.yourarticlelibrary.com/economics/what-are-the-important-causes-of-
income-
inequalities-in-india/3041
India second most unequal country in the world: Wealth Report. (2018). Retrieved 10
March 2018, from https://www.hindustantimes.com/india-news/india-second-unequal-
country-in-the-world-wealth-report/story-MGIa7MbWAdzhKFvwhtiIeI.html
Richest 1 percent bagged 73 percent of wealth created last year - poorest half of
India
got 1 percent, says Oxfam India. (2018). Oxfam India. Retrieved 11 March 2018, from
https://www.oxfamindia.org/pressrelease/2093
17