“India’s Wealth Inequality Deserves Bigger Risk Premium”-Top 1% Gather 23% National Income

India, often hailed as one of the world’s fastest-growing major economies, is grappling with a burgeoning issue threatening its socio-economic fabric: wealth inequality. Despite impressive GDP growth and the emergence of a robust middle class, the chasm between the rich and the poor in India is widening at an alarming rate. This article delves into the current state of wealth inequality in India, its underlying causes, and the potential implications for the country’s future.

The State of Wealth Inequality

Recent data paints a stark picture of wealth distribution in India. According to the Oxfam India report titled “Survival of the Richest,” the richest 1% of Indians now own more than 40% of the country’s total wealth. Meanwhile, the bottom 50% of the population holds a mere 3% of the national wealth. This disparity is more pronounced in urban areas, where the affluent enjoy luxurious lifestyles, while millions live in abject poverty.

The Gini coefficient, a measure of inequality where 0 represents perfect equality and 1 denotes extreme inequality, has steadily risen in India. As of the latest available data, India’s Gini coefficient is approximately 0.49, indicating significant income disparity.

According to the wealth inequality lab data, By 2022-23, the top 1% of income and wealth shares (22.6% and 40.1%) are at their highest historical levels and India’s top 1% of income share is among the very highest in the world. The gap is so wield that it is currently higher than the British era colonial era.

Only the GDP parameter isn’t enough for a diverse country where more than 65% of the country lives in the village. A gross income increases as 1% of the population is unfathomably rich, the more they become rich, the more wealth inequality is bound to increase. We need per capita income to measure the country’s real situation along with the help of real rural wages.

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Causes of Wealth Inequality

Several factors contribute to the growing wealth inequality in India:

1. Economic Policies: Liberalization policies introduced in the 1990s have spurred economic growth and favored capital over labor. These policies have led to jobless growth, where wealth generation does not translate into widespread employment opportunities. Being a mixed economic country, it’s hard for the middle classes to survive.
2. Taxation System: India’s tax system is often criticized for being regressive. The reliance on indirect taxes, which disproportionately affect the lower and middle classes, coupled with tax evasion by the wealthy, exacerbates the wealth gap. The abolishment of wealth tax because of its low revenue-generative nature destroyed poor people’s money.
3. Indirect Tax: The Indian government imposed Goods and Service Tax (GST) in 2017, with no consideration based on people’s income. The amount of GST tax is the same for everyone. If a student from a poor family needs an electronic gadget for their education, they have to pay 18% GST, which is huge.
4. Education and Skill Disparities: Access to quality education remains uneven, with a significant portion of the population unable to obtain the skills needed for well-paying jobs. This educational divide perpetuates income inequality.
5. Land Ownership: Land ownership in India is highly skewed. Large tracts of agricultural and urban land are owned by a small fraction of the population, leading to significant income from rents and land-related activities accruing to a few.
6. Gender Inequality: Women in India often face barriers to education, employment, and economic participation. This gender gap further contributes to overall wealth inequality. Corporate companies don’t want a woman if she is planning for marriage or even if she is unmarried. The simple reason is that society thinks women don’t need money to take care of their families. That’s absurd.
7. Technological Advancements: The rise of technology and automation has disproportionately benefited those with access to capital and high-end skills, leaving behind those engaged in low-skill jobs.

Implications and Potential Solutions

The implications of growing wealth inequality in India are profound. Social unrest, decreased economic mobility, and erosion of social cohesion are potential risks. Additionally, high levels of inequality can stymie economic growth by limiting the purchasing power of a large segment of the population.

Addressing wealth inequality requires a multi-faceted approach:

1. Progressive Taxation: Implementing more progressive tax policies, including higher taxes on the wealthy and stricter enforcement of tax laws, can help redistribute wealth more equitably.
2. Investment in Education: Ensuring access to quality education for all, particularly in rural and underserved areas, can bridge the skill gap and provide better employment opportunities.
3. Land Reforms: Effective land reform policies can ensure more equitable land distribution and increase agricultural productivity.
4. Social Security Nets: Expanding social security programs to cover healthcare, unemployment, and old age can provide a safety net for vulnerable populations.
5. Gender Equality Initiatives: Empowering women through education, employment opportunities, and legal reforms can help reduce gender-based economic disparities.

India stands at a crossroads. The path it chooses will determine whether it becomes a nation characterized by equitable growth and prosperity or one marred by deep-seated inequality and social unrest. Tackling wealth inequality is not just an economic imperative but a moral one, essential for building a just and inclusive society.

By addressing these issues head-on, India can pave the way for a brighter, more equitable future for all its citizens.