Income Inequality

&
Concentration of Economic Power
Indian Economy & Policies
 Importance
• Understand impact of development on
welfare
• How the gains of economic development are
distributed
• Which economic groups benefit from
economic development
• What are the reasons for unequal distribution
of income
 Income Inequalities
• Share in GNI of top 1% category people has increased
form 6% in 1980 to 22% in 2014
– (Top 1% category persons were those who earned Rs 12.26
lakhs p.a in 2014)
– Average income of this group is 22 times that of national
average
• Share in GNI of top 10% category is 55% in 2014
• Share in GNI of middle 40% category is 30% in 2014
• Share in GNI of bottom 50% category is only 15% in
2014
• Per capital income grew highest for the top 10%
category
 Income Inequalities
• In 2016 Top 1% category held 58% of country’s
wealth
• Top 10% category held 81% of country’s
wealth
• Bottom 50% of the population held just 2% of
the country’s wealth
 Causes of Income Inequalities
1. Inequality in land ownership and
concentration of tangible wealth in rural
secor
– Maximum no. of farmers have very small
holdings
– Low productivity, less income, less saving and
low wealth creation
 Causes of Income Inequalities
2. Concentration of assets among few private
corporate sector
– Big industrialists have succeeded in acquiring
large assets
– Government policies, bureaucracy helped
established industries to corner more business
– Not much focus on developing small and medium
enterprises
– Sources of finance was limited for small
businesses
 Causes of Income Inequalities
3. Changing Technology
– Better technology is reducing demand for labour
– Business is investing more in capital
– This results in increased profits for business and
lower outflow of wages
– Low skill jobs getting eliminated or stagnant
– More demand for high skill jobs to manage
changing technology and higher salary for these
people
 Causes of Income Inequalities
4. Inflation & Price Rise
– Low income group is more affected
– Long term inflation impacts savings of this group

5. Inequity in credit facilities

– Large business houses can obtain finance on
favourable terms
– Formal finance not available to large section of
farmers
 Causes of Income Inequalities
6. Maximum private investment in Industries as
compared to Agriculture
– 70% of population lives in rural areas but maximum
investment happens in industries with automation
where scope for employment generation is low
7. Role of Government
– Lobbying by large industrial houses to have policies
favouring them
– Support to large business houses
–
 Causes of Income Inequalities
8. Economic reforms and liberalisation
– Focus on promotion of private sector
– Investment in capital over labour employment
 Government measures
to reduce inequality
1. Land reforms & redistribution of agriculture
land
2. Control over monopolies and restrictive trade
practices
– MRTP act was formulated to prevent
concentration of economic power
3. Formulation of employment and wage policies
– Government started no. of employment programs
in rural areas
– Setting of statutory minimum wages
 Government measures
to reduce inequality
4. Social security measures
– Workmen’s compensation act
– Employee provident fund
– State insurance act etc

5. Minimum needs program

– Providing free or subsidised food & services
– Improve consumption among low people below
poverty line
– Improve their productive efficiency
 Government measures
to reduce inequality
6. Programs to uplift rural poor
– Different employment programs to create
additional employment opportunities
– Income development programs

7. Taxation
– Higher rate of taxes for high income groups
 Concentration of Economic Power
Manifestation of economic power
• Monopolistic practices: one or more firm in an
industry achieves such a position that they are
able to control the market by regulating
prices, output or eliminating competition
• Restrictive practices: Firms using practices
which restrain competition
 Causes of growth of big business houses
Concentration of Economic power
• Government policies like licensing
– Government controlled entry of firms into a industry

• Established industrial houses grabbed all business

opportunities
– They had necessary finance, knowledge & people
– They could manipulate government machinery
– Access to foreign collaborations

• Acess to favourable and easy credit by banks