Widening Gap between the Poor and the Rich in India - Case Study Example

ECONOMICS: THE WIDENING GAP BETWEEN THE POOR AND THE RICH IN INDIA Student’s Name University Affiliation Date of Submission THE WIDENING GAP BETWEEN THE POOR AND THE RICH IN INDIA INTRODUCTION The concept of attempting to have equality in economic terms has become a very elusive goal for most countries all over the world. This is partly due to the fact that equality is a mirage of imagination. The disparities that exist between individuals for instance is because of the mere fact that people are not the same and neither do they have the same abilities. Some people have athletics talent like Usain Bolt, and economic production to match that of Mark Zuckerberg. If for instance there were no platforms for Bolt and Mark Zuckergerg to showcase their abilities, then most people would presume that all humans have similar abilities. Once one is given an opportunity and the infrastructure to work on, then a very clear distinction will come out between that person who has more abilities and the ordinary human being. There are so many countries across the countries that appear to have achieved equality or at least there appears to be equality. In the same way, in those countries whose economies are slowly growing, one might not witness so many inequalities. Take Pakistan for instance, has far much less income inequalities compared to the United States of America, China and South Korea. This does not necessarily mean that things are good in Pakistan or other countries with similar economies. It simply means that the disparities in income come as a result of both the positive and negative reasons. The Indian economy has witnessed a tremendous growth in the last decade, and so has the disparities between the poor and the rich. This essay aims to identify the reasons that make the disparities in the incomes between the rich and the poor in India. An insight into the distribution of income in India India today boasts having the third largest number of billionaires across the world and, at the same time, it is home to the third highest population of poor and hungry people in the world. From only two individuals with 3.2 billion dollars in the mid 1990s, the number of billionaires has steadily grown to 46 with an aggregate wealth estimated to be 176 billion dollars in 2012 and at the same time witnessing their growth in gross domestic product from 1 percent to 10 percent during the same period (Bhide & Shand, 2000). However, judging by the purchasing power of the people in India, statistics show that 80 percent of the rural population and slightly over 70 percent of the urban population continue to live in abject poverty. The poverty indexes also show that the disparities also extend to the religious and the ethnic groups across the country with some groups witnessing higher rates of poverty as compared to others (Bhide & Shand, 2000). There are more worrying reports that indicate that seven out of ten people across the world live in countries where the gap between the rich and poor is at its greatest point today than it was 30 years ago. Studies indicate that the level of incomes concentration at the top fell significantly at the top in the first 30 years after independence, and after that, the real wages for the top 0.01% rose for approximately 11 percent (Mukhopadhaya etal., 2011). In contrast however, the expenditure levels for the rest of the population in India increased by 1.5 percent. Additionally, in the agricultural sector, the growth in the real wages was 5 percent in the 1980s but declined to 2 percent in the 1990s and eventually to zero in the new millennium. This could be an explanation to the reasons why farmers in the rural parts of India are so desperate that some opt to take their own lives (Mukhopadhaya etal , 2011). There is a very popular believe that income inequality and the widening gap between the rich and the poor is as a result of the global technological progress and a surge in the rate of economic growth. It is however that inequality is a product of deliberate government policies two of which are the market fundamentalisms as well as the taking over of power by the elites in the country’s economic arena both of which are very evident in present India (Shariff & Azam, n.d.). The market fundamentalism is one where those in authority insist minimum or no government intervention and a free market. The concept widely advanced by Narendra Modi government is against the public investment in public education, health facilities as well as progressive taxation. It further instituted the dilution of the protection of workers and the forceful acquisitions of individual land and forests which has fueled the inequality that we see today (Shariff & Azam, n.d.). The other characteristic was that of the taking over power by the economic elites. It is a case where the economic elites buy the political power and later force tax exemptions, concessions on land, low cost credit facilities as well as subsidies on water and electricity (Skillman, 2016). It is reported that the tax exemptions in most Indian corporate is enough to ensure the investment in education and the health sector. Studies indicate that a tax rate of 1.5 percent was imposed on the aggregate wealth of all the world billionaires, enough funds would be obtained to finance the education of every child and provide free medical services for the children in all the underdeveloped countries of the world thus saving over 23 million lives in the process (Azam, n.d.). It has been indicated that if India was to do away with income and wealth disparities, there is a very high likelihood that they could end abject poverty for ninety million Indians by the year 2019. In fact if they were to reduce inequality by 36 per cent they could completely do away with extreme poverty (Marsh, 2016). Reasons for the widening gap between the poor and the rich in India 1. Control of government policies by the Indian economic elite There is a very popular believe that inequality is a product of deliberate government policies two of which are the market fundamentalisms as well as the taking over of power by the elites in the country’s economic arena both of which are very evident in present India (Shariff & Azam, n.d.). The market fundamentalism is one where those in authority insist minimum or no government intervention and a free market. The concept widely advanced by the government is against the public investment in public education, health facilities as well as progressive taxation. It further instituted the dilution of the protection of workers and the forceful acquisitions of individual land and forests which has fueled the inequality that we see today (Shariff & Azam, n.d.). The idea of taking over power by the economic elites is another policy intervention that has had a hand in the widening of the gap between the poor and the rich. It is a case where the economic elites buy the political power and later force tax exemptions, concessions on land, low cost credit facilities as well as subsidies on water and electricity. It is reported that the tax exemptions in most Indian corporate is enough to ensure the investment in education and the health sector (Shariff & Azam, n.d.). Such policies are driven by people that believe that fighting income and wealth inequalities would have negative effects on the economic growth. Reports however, indicate that there is evidence to the contrary that, abject poverty is not good for the gross domestic product (Subramanian & Jayaraj, 2013). A sustainable growth requires that inequalities are significantly reduced since this reduces the level of productivity and workers’ morale as well as reducing the number of people participating in the market. It is therefore correct to say that finding of social public goods is good for growth since it places more disposable income in the hands of more people consequently spurring growth and distributing income equally (Gallas, Herr, & Hoffer, 2015) . 2. The economic growth factor With the economic growth and development of India continuously increasing, the income of the different groups of India increasing with varied proportions. The income of the high income earners for instance rise more rapidly compared to the low income earners. This happens in a country that is undergoing the early stages of economic growth, a stage that India is currently going through. The reason for this according to studies has been pinpointed to the shift in the population’s economic dependence from the agricultural sector which has a relatively slower growth to the modern day industrial sector whose growth is more rapid (Roy, 2014) . There is also the capital intensive nature of the modern day economy, which utilizes less manpower making wages a small proportion of the income of a country. The income distribution as a result is not wide enough to cover a sizable proportion of the population leading to inequalities in the levels of income and wealth. The capital intensive mode of production on the other hand, has a tendency of creating a crop of the few billionaires who can afford to supply enough capital requirements to spur growth (Kapadia, 2003). The choice of the mode of production, therefore is a catalyst to the level of inequality. A few decades ago, India like many other countries witnessing growth highly relied on the labor intensive methods of production. Indians are highly credited with providing labor during the emergence of industrialization because of their exceptional technical skills (Subramanian & Jayaraj, 2013). During the era, the inequalities that existed between the poor and the rich were not as wide as they are today. This therefore means that the choice of method of production has a direct bearing on the income distribution of the population of any given country. 3. Huge inequality in the distribution of wealth All over the world, income sources are categorized into two main categories. They are from assets such as land, stock, cattle and so on and labor. In India, however, a very small proportion of the population own income generating assets. Those individuals who do not own any form of assets but engage in economic activities are forced to seek funding from the commercial banks and other lending institutions for the to buy or acquire the assets for production (Gregorini, 2015) . The inequalities in the ownership of the fixed assets have made it possible for few people to acquire huge chunks of income in the form of profits and interest on lending. As the assets continuously appreciate in value as they are passed from one generation to another, their ability to earn more income increases continuously. In the rural areas, asset ownership mostly land, whose distribution is highly unequal is the major factor of production (Subramanian & Jayaraj, 2013). The observation can be reinforced by the fact that the majority of the Indian rural population at 72 percent owns only 17 per cent of the land in those areas. The individuals with large holdings of land with more than 10 hectares of land, constituting only one percent of the population have under their disposal 14 percent of the land area in the rural areas. Studies have shown that the provide ownership of property especially land and inheritance laws are thought to be responsible for the huge inequality in the distribution of wealth (Gregorini, 2015). The unfair state of wealth distribution in India is made worse by the fact that most of the billionaires in the country are born into countries that already have massive wealth at their disposal. The children and the grandchildren of the billionaires will automatically take their places in the economic ladder in the same way that the children, grandchildren and generations coming after them of the poor will remain poor notwithstanding their ability and potential to work hard. Research has shown that children born to rich families, even in the poorest of the countries will usually end up getting the best education and medical facilities if they fall sick. The poor on the other hand will see their children miss on education, die of diseases and poor living conditions since they do not have the income to support them (Gregorini, 2015)  4. Trade globalization Trade has for a long time been the growth propeller in many countries across the globe by advancing competitive production and efficiency. However, research has shown that high levels of trade amongst countries and financial flows coupled by technological advancement have been cited as the force behind the widening gap in income between the rich and the poor in India (Mukherjee et al, 2005). In the influential economies of the world, the ability to adopt labor intensive modes of production is thought to have significantly reduced the cost of skilled labor. International trade liberalization has had a mixed effect on the non-skilled labor in the developed economies. India seems to be going in this direction. This is because as companies evolve their production techniques of production in order to have a competitive edge, the demand for the unskilled labor will diminish and will eventually come to zero (Lucas & Schimmack, 2009). The real wages of the skilled labor will also reduce significantly as demand reduces. India, being a country with a high population of skilled labor, it is expected that at any given time, so many people are seeking jobs. The globalization of trade will mean that some sections of the population will lack income, especially where there is massive importation (Jäntti, 2014). A scenario will be created where the corporate entities will be making billions of dollars for their shareholders, but at the expense of the poor workers who have to contend with no jobs or jobs with low rate of real wages. 5. Differentials in the regional economic growth. Any country across the world is confronted with an unfortunate state of disparities in growth between different regions within the same country. Some regions attract high income individuals and households, while others are a haven for the poor. There is a tendency for regimes to develop facilities in the regions whose population is largely made up of the poor people (Lucas & Schimmack, 2009). This is a fact that India has had to contend with. Within the different states too, there exist that exist perhaps wider in the poorer states. This phenomenon has been attributed to the different rates of growth between the different states, with a number of them having grown at a higher while others are lagging behind. Conclusion The best way to do away with income inequalities is known. It includes increasing and enforcement of legal wages, increasing taxes on the rich, investing more on public goods like education and health, supporting agriculture, expanding social protection for the aged population and the physically challenged, providing water and sanitation, development of the rural poor and the slums in the urban areas and most importantly improving the working conditions of workers. In India, however, as is the case in most parts of the world, powerful economic elites and the market fundamentalism have taken the society hostage and continue to resist policies meant to have in place an equal world. India has become a country where however much the poor men and women work tirelessly; living in dignity is a distant wish, in most cases a pipe dream. Reference Azam, M. (n.d.). Income inequality in India 2004-2012: Role of alternative income sources. SSRN Electronic Journal. doi:10.2139/ssrn.2723560 Bhide, S., & Shand, R. (2000). Inequalities in income growth in India before and after reforms. South Asia Economic Journal, 1(1), 19–51. doi:10.1177/139156140000100103 Gallas, A., Herr, H., & Hoffer, F. (Eds.). (2015). Combating inequality: The global north and south. London, United Kingdom: Routledge. Gregorini, F. (2015). Political geography and income inequalities. Research in Economics, 69(3), 439–452. doi:10.1016/j.rie.2015.06.001 Jäntti, M. (2014). Income inequality: Economic disparities and the middle class in affluent countries. Palo Alto: Stanford University Press. Kapadia, K. (Ed.). (2003). The violence of development: The politics of identity, gender and social inequalities in India. New York: Zed Books. Lepetyuk, V., & Stoltenberg, C. A. (n.d.). Reconciling consumption inequality with income inequality.SSRN Electronic Journal. doi:10.2139/ssrn.2316648 Lucas, R. E., & Schimmack, U. (2009). Income and well-being: How big is the gap between the rich and the poor? Journal of Research in Personality, 43(1), 75–78. doi:10.1016/j.jrp.2008.09.004 Malghan, D. V., & Swaminathan, H. (n.d.). Intrahousehold wealth inequality and welfare: Evidence from Karnataka, India. SSRN Electronic Journal. doi:10.2139/ssrn.2611889 Marsh, R. M. (2016). What have we learned from cross-national research on the causes of income inequality? Comparative Sociology, 15(1), 7–36. doi:10.1163/15691330-12341376 Mukherjee, A., Patel, N., & Virmani, A. (2005). FDI in retail sector India: Report by ICRIER and ministry of consumer affairs, food and public distribution, Govt. Of India: 2005. New Delhi: Academic Foundation. Mukhopadhaya, P., Shantakumar, G., & Rao, B. (2011). Economic growth and income inequality in china, India, and Singapore: Trends and policy implications. New York: Routledge. Roy, S. (2014). Inter-state income inequality in India. PRAGATI : Journal of Indian Economy, 1(2), . doi:10.17492/pragati.v1i2.2506 Sarkar, D., & Haldar, S. K. (n.d.). Overall inequality verses wealth based inequality in child malnutrition: An empirical illustration for India. SSRN Electronic Journal. doi:10.2139/ssrn.2420296 Sen, G. (2003). Inequalities and health in India. Development, 46(S2), 18–20. doi:10.1057/palgrave.development.1110438 Shariff, A., & Azam, M. (n.d.). Income inequality in rural India: Decomposing the Gini by income sources.SSRN Electronic Journal. doi:10.2139/ssrn.1433105 Skillman, G. L. (2016). Special issue on “inequality: Causes, consequences, and policy responses” introduction. Metroeconomica, 67(2), 204–209. doi:10.1111/meca.12124 Subramanian, S., & Jayaraj, D. (2013). Economic inequality in India. Challenge, 56(4), 26–37. doi:10.2753/0577-5132560403 Zacharias, A., & Vakulabharanam, V. (n.d.). Caste and wealth inequality in India. SSRN Electronic Journal. doi:10.2139/ssrn.1410660 Read More