GE: PRINCIPLES OF MACROECONOMICS

CA RESEARCH PAPER

Topic: ECONOMIC INEQUALITIES IN INDIA

Abstract-
This paper analyzes Economic Inequality in India for Exceptional disparity of income share,
wealth, gender, Inequality between Rich & Poor, Rural & Urban populations, Reserved
categories, Education, etc. For developing nations like India, where income inequality and
economic growth go hand in hand, rising economic inequality has been a concern. Only a few
of people have benefited from the Policy, leaving the great majority of people in need. It
indicates that the benefits of liberalization and globalization have not yet reached those most
need them. The current study aims to identify the Inequality gap between the rich and the
poor in India with different factors and to investigate potential solutions.

Introduction-
Economic inequality has grown to be a serious problem on a global scale. Inequality in wealth
and income has risen in almost all countries over the past few decades.
I discuss the case of wealth inequality in India where 77% of the nation’s wealth is held by
10% of Indians. There is an Exceptional income disparity in India, I have tried to discuss Income
share, Income disparity in gender, and Carbon of top 1% and bottom 50%. How unskilled
worker is having major loss after Internationalization and Informal jobs. Given policy
suggestions that can be incorporated. Both multidimensional and intersectional exist in India.
The interactions between several factors, such as income, employment, education, health,
and household situations, highlight the severity of the deprivation. Both social and economic
factors contribute to this deprivation. Boosting social security to include low-income
households in the labour market so that the sources and possibilities of growth do not elude
them. It has been noted that there is a correlation between income, health, and education.
We have seen that the reserved category has not developed, and that the majority of its
members are uneducated and underprivileged, resulting in income inequality compared to
members of other castes.

1. Healthcare- The GOI spends among the least on public healthcare in the world. It has
supported an increasingly potent commercial health sector in place of a robust health service.
The poorest Indian states have new-born mortality rates that are higher than those in sub-
Saharan Africa, despite the fact that the nation is a leading destination for medical tourism.
India is responsible for 17% of maternal deaths worldwide and 21% of mortality in children
under the age of five (India: Extreme Inequality in Numbers, 2022).

2. The adult population of India earns an average national income of €PPP7,400 (or INR204,200). The bottom 50%
gets €PPP2 000 (INR 53,610), while the top 10% make €PPP 42 500 (INR 1,166,520), which is more than 20
times. The bottom 50% share has decreased to 13%, while the top 10% and top 1% hold respectively 57 and 22%
of the nation's total revenue.

3. Indian income inequality was historically high (1858–1947) During the British colonial administration, with a top
10% income share of over 50%. Following independence, socialist- inspired five-year plans helped lower this
share to 35–40%. Since the middle of the 1980s, deregulatory and liberalizing policies have resulted in one of the
sharpest rises in income and wealth disparity ever recorded. Economic changes have mostly benefited the top 1%,
but growth among low and medium- income groups has been rather sluggish,and poverty has persisted.

4. In India, the average household has an income of €PPP35,000, or INR983,010 (as opposed to €PPP81,000 in
China). With an average worth of €PPP4,200, the bottom 50% own virtually nothing (6% of the total,
INR66,280). In comparison to the top 10% and 1%, who own respectively €PPP231,300 (65% of the total) and
over €PPP6.1 million (33%), INR6,354,070, and INR32,449,360, the middle class is similarly comparatively poor
(with an average worth of only €PPP26 400 or INR723,930, 29.5%of the total).

5. India has a lot of gender inequality. The percentage of female labour income is equivalent to 18%. Compared to
the average in Asia (21%, excluding China), this is much lower. This value is among the lowest in the world.
6. The carbon disparity
India’s average consumption annually per person in India is just over 2 tCO2e. These amounts are equivalent to the
nations in sub-Saharan Africa. Average emissions from the bottom 50% of Indians are five times lower than those
from the bottom 50% of the population in the EU and ten times lower than those from the bottom 50% of the
population in the US.

Income inequality between the rich & poor and the gap between the rural and urban

The preceding table makes it clear that there is an unequal distribution of money across the various social stratum in
India; 22% of the population owns 61% of the country's income. More significantly, the income of wealthy class
households is 20 times more than that of middle class and poor class households, which together make up 60% of
India's population yet receive only 36% of the country's income. If we divide income disparity into deciles, the
situation seems even worse.

In deciles, we find that the top 20% of the population receives 58% of the income, while the bottom 20% must make
do with just 3%. It implies that those in the top 20 percentile are more than 19 times wealthier than those in the lowest
20 percentile. In India, the top 10 % of earners are 41 times wealthier than the bottom 10%, as can be seen by
comparing their incomes. If we use the fifth decile is the median class, we can see that its members are 5 times
wealthier than those in the lowest decile and 8 times wealthier than those in the top decile .

Households' sources of income inequality

75% of Indian households derive their income from daily or monthly wages from employment. The fact that nearly
50% of Indian households derive some of their income from agriculture is another noteworthy aspect of their source of
income. Family businesses provide income for about 20% of households. On the other hand, wealthy households often
find their income from sources that are high yielding, while poor households typically find their income from sources
that are less yielding.
Additionally, it has been discovered that 57% of wealthy households get money through a job, while 10% of poor
households receive income from this source. Another interesting contrast. The households' perspective on this element
of income distribution in India is that having a median wage of Rs. 37,920, paid families are better off than poor
families. The typical salary for agricultural labour is Rs. 10, 577. This demonstrates that Wealthy households with
salaried income are around four times wealthier than the underprivileged households that on farming for their income.

Socio-led Economic Inequality

The average household income in India is ($9, 435/month). The ST and SC groups' annual
incomes are respectively 0.7 and 0.8 times lower than the average income for all of India. OBC and Muslims both
have household incomes that are roughly 0.9 times higher than the national average. The average household income
for the Forward Castes (FC), with a small difference between Brahmin and Non-Brahmin households, is 1.4 times the
average income for all of India. Based on average income, there is sequential inequality with the following rankings:
ST SC Muslim OBC OVERALL FC (Non-Brahmin) FC (Brahmin) Others trend. At the level of yearlyincome per
capita, we observe a similar pattern.
We note that the top 10% and middle 40% of the population, where nearly 90% of the wealth is concentrated, have a
disproportionately higher presence of FC. Muslims, SCs, and STs are disproportionately more prevalent in the Bottom
50%. All wealth deciles have an equal distribution of OBCs. Regarding the relative wealth share, the representational
inequality is quiet.

Reasons for economic inequalities in India

1. Informal employment like tasks at home, hawking and vending on the side of the road, and contract work are
all included. Greater economic inequality and an increase in informal employment are frequently associated.
The reasons for this rise in income inequality due to the expansion of informal jobs are: associated with low
wages, jobs are unstable in nature, jobs are not at all supportive of accumulation of human capital and growth
of career.

2. Effects of globalisation on income disparity are possible. Numerous commodities and services now have
different production processes because of globalisation. For instance, a cell phone. The process of
internationalising production drives up the demand for skilled labour, widening the wage gap between skilled
and unskilled labour.

3. Underemployment and unemployment, result in low labour productivity. Low labour productivity is a sign
of slow economic growth, which is what mostly drives poverty and inequality among vast populations. In
reality, there are connections between poverty, unemployment, and inequality.

4. Workers in the organised sector receive greater earnings during times of inflation, somewhat offsetting the
impact of price increases. However, the pay for employees in unorganised businesses (such as agriculture and
small-scale and cottage industries) does not rise. As a result, their real income decreases. The category's
underdevelopment is a result of poor policy implementation by the government. In the case of the Freeship
card programme, students from the SC community receive full government funding for their tuition, but when
students inquire as to whether their card is acceptable at their college, the answer is no. Additionally, there
isn't a list specifically stating which universities are permitted or what a student should do when colleges
reject card. These students cannot receive a quality education as a result.

5. Higher education, for instance, students who want to pursue an MBA need to give 10s of tests like the CAT,
XAT, NMAT, CMAT, SNAP, IIFT, and others since our system does not want to operate on the basis of
"ONE NATION, ONE EXAM." And this result in a 1–2-year period of preparation during which pupils are
unable to learn anything beyond entry requirements. Additionally, students have to pay between 10k-25 k as
 their exam fees and between 25000- 75000 for the application fee. What about the bottom 50% who, in this
case, cannot even receive a top-notch education? How are they supposed to pay for coaching and fill out
several papers when they don't have the money for their fundamental needs?

6. Income tax rates in India are relatively high. High tax rates promote tax avoidance and evasion and create a
parallel economy. The unofficial economy in this country is just as robust as, if not more robust than, the
official economy. High tax rates contribute to income and wealth distribution inequalities. This is due to
excessive income concentration in a small number of hands brought on by widespread tax evasion. With
indirect taxes, the government receives the most money. Due to the government's increasing reliance on such
taxes, such levies have also over time increased inequality.

7. Effects In a nation like India, where economic inequality has broad ramifications and hinders the socio-
economic advancement of the nation. Expanding economic inequality concerning: it immediately contradicts
the notion of equality held by our nation. Can see social unrest as a result of the widening economic gap, and
protest movements can gain momentum. The country can experience a state of system devastation when the
connection between various classes is severed. Forces of secession will be directly fuelled by economic
inequality.

Case Study: Economic Inequalities in India

Background:
India, as a rapidly developing economy, has made significant strides in economic growth over the past few decades.
However, this growth has not been evenly distributed, leading to persistent economic inequalities across various
dimensions.

Case Overview:
Let's consider the economic disparities between rural and urban areas in India, focusing on two families from different
socioeconomic backgrounds:

Urban Family (The Sharmas):

The Sharmas reside in a metropolitan city and belong to the upper-middle-income bracket. Mr. Sharma is a software
engineer working for a multinational corporation, earning a substantial salary. Mrs. Sharma is a doctor with a private
practice, adding to the family's income. Their children attend prestigious private schools and have access to quality
healthcare and extracurricular activities. The Sharmas own a spacious apartment, multiple vehicles, and invest in
financial assets like stocks and mutual funds.

Rural Family (The Kumars):

The Kumars live in a remote village in a northern state of India and belong to a lower-income household. Mr. Kumar
works as a farmer on a small plot of land, struggling to earn a sustainable income due to unpredictable weather
patterns and limited access to modern agricultural techniques. Mrs. Kumar supplements the family income by working
as a daily wage laborer, earning meager wages. Their children attend a government-run school with inadequate
infrastructure and limited educational resources.
The Kumars live in a modest mud-brick house with no access to basic amenities like clean water and sanitation.
Analysis:
This case study illustrates several key aspects of economic inequality in India:

Income Disparities: The Sharmas enjoy a significantly higher income compared to the Kumars, allowing them access
to better education, healthcare, housing, and lifestyle amenities.

Access to Opportunities: The Sharmas, residing in an urban area, have access to a diverse range of employment
opportunities, education institutions, and healthcare facilities, enabling them to enhance their socioeconomic status. In
contrast, the Kumars face limited opportunities in their rural setting, with agricultural labor being their primary source
of income.

Asset Ownership: The Sharmas own valuable assets such as real estate, vehicles, and financial investments, which
contribute to their wealth accumulation and financial security. The Kumars, on the other hand, lack significant assets
beyond their modest dwelling and agricultural land, making them vulnerable to economic shocks and instability.

Social Mobility: The socioeconomic background of the Sharmas provides them with greater social mobility, enabling
their children to pursue higher education and professional careers, further perpetuating the cycle of privilege. In
contrast, the Kumars face barriers to upward mobility due to limited access to quality education and employment
opportunities.

Conclusion:
This case study underscores the pervasive nature of economic inequalities in India, manifested through disparities in
income, access to opportunities, asset ownership, and social mobility. Addressing these inequalities requires
comprehensive policy interventions aimed at promoting inclusive economic growth, equitable distribution of
resources, and targeted support for marginalized communities, particularly in rural areas. Efforts to bridge the gap
between urban and rural development, enhance access to education and healthcare, and empower disadvantaged
households are essential for fostering a more equitable society in India.

Policy suggestion

Slower economic growth is related to rising inequality. It makes sense to look to the five
Nordic nations that have achieved high levels of equality and welfare. This is a result of a
strong emphasis on social solidarity, taxation, and increased spending on healthcare and
education. These nations, unlike the majority of others, provide free higher education to their residents and have
innovative educational systems.
There is evidence that shows spending on social safety, healthcare, and education reduces inequality. For instance,
poor individuals might be able to save money if the government made investments in free, high-quality public
services. Additionally, the government must increase its spending on R&D and innovation.
Another option would be to directly reduce income inequality by raising taxes on the
wealthiest people. These taxes can further reduce inequality if they are utilised to pay for
public services. Tax credits for businesses that distribute more of their profits to their workers can also assist to reduce
the imbalance.
The fundamental cause of income and economic inequality in India is the disparity in skill. Therefore, skill matching
is an important solution. More talent matching means reduced wage inequality amongst workers. Unskilled workers
will be able to offer their labour in a globalised market for a higher wage if they receive education and training for
skill development.
The actual data supports the idea that income growth is positively correlated with education level. The bulk of India's
poor population are either uneducated or only have a basic level (1-4 std.) of education. Table 6 makes clear that the
majority of India's poor (those with no formal education and those with little more than the fourth grade) make up
75% of the population. The government must create a long- term plan for the advancement of education and skill and
increase financial support for it. The primary education system in India is the most underfunded and urgently needs
repair. The student-teacher ratio and the standard of primary teachers are issues that need to be addressed right away.
India can empower its future workforce to meet the challenges of globalization by raising the standard of basic
education. which a large monetary expenditure is necessary. Along with enhancing primary education. The Kothari
Commission (1964–1966) suggested allocating 6% of GDP to education spending but still not implemented.

Conclusion

Indian society still places a high value on caste. Lower castes' relative growth is either constant or in decline. For
Indian policymakers, the poor educational outcomes for the population of lower castes are probably the most
concerning factor. This indicates that the condition won't go better any time soon. The expense of education is rising
due to privatisation, while employers' need for skills is always rising. In order to illustrate some of the major problems
with the Indian version of inequality, which has its roots in social structure, this research work has combined different
representative datasets. Caste disparity is being masked by economic inequality. On average, just the positive
discrimination measures don't work. As the degree of wealth and consumption inequality within lower castes has
increased. The real engine of India's growth is its human capital. We must commit sufficient resources to India's
growth if we wish to see it join the club of developed nations. India must take extra effort to vigorously promote
education if it wishes to increase economic growth over the long term. Therefore,it is imperative that the government
set aside a sizable number of resources for this purpose.
We must come up with alternate strategies and methods outside of market forces if we are to leave education and skill
development to market forces. The political class in India may believe it is beneficial to save some resources by
limiting funding for education, but going down this road alone won't get us anywhere near economic growth. Growing
income inequality may cause social unrest, political instability, and societal upheaval, all of which would slow down
the pace of economic progress.