State of Inequality in India Report – Explained, pointwise

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The ‘State of Inequality in India’ report has been released by the Institute for Competitiveness. The report demonstrates the wide gap between the top and bottom earners which is getting wider. The report further states that income deprivation can increase the probability of descent into poverty. However, a multidimensional understanding is important to assess the degree of deprivation in terms of lack of basic necessities, such as quality education and healthcare. Apart from this, the report proposes multiple recommendations for reducing the inequality gap in the country.

Institute for Competitiveness, India is the Indian subsidiary of the global network of the Institute for Strategy and Competitiveness of the Harvard Business School.
What are Key findings of the report?

Income: An Indian earning a monthly wage of Rs 25,000 is among the top 10% of earners in the country.

Incomes of the top 1% earners grew 15% during 2017-18 to 2019-2020 while that of the bottom 10% declined 1%. According to the Periodic Labour Force Survey (PLFS) 2019-20, the top 1% earns almost thrice as much as the bottom 10%. It also states that the top 10% earn more than 30% of total income, while bottom 50% hold about 22% of the total income. 

Labour Force: The Labour Force Participation Rate (LFPR) has risen from 49.8% in 2017-18 to 53.5% in 2019-20. The country’s unemployment rate is 4.8% (2019-20), and the worker population ratio is 46.8%.

Education and Household Conditions: They have improved enormously due to targeted efforts through several social protection schemes, especially in the area of water availability and sanitation. It is emphasized that education and cognitive development from the foundational years is a long-term corrective measure for inequality. 

By 2019-20, 95% of schools had functional toilet facilities on the school premises. 80.16% of schools had functional electricity connections with States like Goa and Tamil Nadu achieving universal (100%) coverage of functional electricity connections.

Health: In the area of health infrastructure, there has been a considerable improvement in increasing the infrastructural capacity with a targeted focus on rural areas. From 1,72,608 total health centres in India in 2005, total health centres in 2020 stand at 1,85,505. States and Union Territories like Rajasthan, Gujrat, Chandigarh etc. have significantly increased health centres (comprising Sub-Centres, Primary Health Centres, and Community Health Centres) between 2005 and 2020.

78% of women received postnatal care from a doctor or auxiliary nurse within two days of delivery, and 79.1% of children received postnatal care within two days of delivery. 

What is the significance of the report?

First, it throws light on glaring inequalities in India and the situation faced by the masses at the bottom of the inequality pyramid.

Second, it presents an opportunity for the government to acknowledge the magnitude of inequality and take remedial steps.

Third, it testifies to the failure of the trickle-down approach to economic growth as seen by rising incomes of top 1% and falling incomes of bottom 10%. 

Fourth, it also builds a case for Wealth Tax. Wealth is accumulated across generations through inheritance. This is the reason the rich section’s wealth grows faster than poor, increasing the gap. World Inequality Report 2022 had noted that over 50% of India’s population are without any significant wealth. Thus, there is a case for the need to take steps to redistribute the wealth.

What are the implications of rising inequality?

Higher Vulnerabilities to Extreme Events: Poor people have little to no savings or wealth which makes it very difficult for them to survive in extreme situations like Pandemic, Disasters etc.

Hampers progress of Future Generations: Lack of access to income and wealth hampers the ability of the poor to access the levers (like education) that enable upward mobility. Children born in poor families remain trapped in poverty, perpetually.

Undermines Dignity: People with less resources have to work day and night without any day off unlike the affluent section. They starve for food, clothing and other basic things which undermines their right to a dignified life under Article 21.

High Crime Rates: A study published in the journal ‘Nature’ showed that more unequal societies tend to have higher crime. Inequitable distribution of wealth leads to lower social trust.

Lower Investment Levels: Marginal propensity to save is high in upper income levels while marginal propensity to consume is more at the lower levels. One cannot spend beyond a limit. The surplus goes into savings, which, in turn, get transformed into increased investments for the economy through financial intermediaries.

What are the challenges in addressing inequality?

Low Female Labor Force Participation Rate: Female LFPR still remains low. The Report notes that India’s FLFPR has increased from 23.3% in 2017-18 to 30% in 2019-20 (although PLFS survey has put this figure to 22.8% for 2019-20). Lack of Education, Early Marriage, household responsibilities etc. force women to opt out of jobs which reduces their income.

Poor Coverage of Schemes: A worrisome 85.9% of people from rural areas and 80% from urban areas are not covered under health schemes. The coverage is inadequate in other social sector schemes as well.

Global Uncertainties: The continuation of COVID-19 and Russia-Ukraine conflict have pushed the inflation levels in the country thereby creating more problems for the poor. A recent World Bank estimate shows that 1% increase in the food price will push 10 million people into extreme poverty.

Heath Lacunae: Nutritional deprivation in terms of overweight, underweight, and prevalence of anaemia (especially in children, adolescent girls and pregnant women) remains areas of huge concern requiring urgent attention, as per the report. Additionally, low health coverage, leading to high out-of-pocket expenditure, directly affects poverty incidences.

What steps have been taken to reduce inequality?

Financial Inclusion/Jan Dhan-Aadhar-Mobile Trinity (or JAM Trinity): It focuses on mobile numbers, Aadhar Card and post office accounts as alternative financial delivery mechanisms to ensure that benefits reach the poor households seamlessly.

Ayushman Bharat: It focuses on providing care through Health Wellness Centres (AB-HWC) covering child and maternal health services, non-communicable diseases, and free drugs and diagnostic services.

Samagra Shiksha Abhiyan: It is an Integrated Scheme for School Education. This programme subsumes the three erstwhile Centrally Sponsored Schemes of Sarva Shiksha Abhiyan (SSA), Rashtriya Madhyamik Shiksha Abhiyan (RMSA) and Teacher Education (TE). 

Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA): It guarantees 100 days of work a year to every rural household with an aim to enhance the livelihood security of people.

What more steps are required?

First, the government should raise the minimum wage rate especially in the unorganized sector wherein people get very less social security benefits. Assurance of minimum wage can be done by proper implementation of MGNREGA and introduction of a similar scheme in urban areas.

Second, the debate on Universal Basic Income has been going on for quite some time. The Government can now shift to action mode and take steps for a speedy rollout that would give sufficient cushion to the masses.

Third, there should be higher allocation of money towards social services. India requires 6% of GDP in Education and 2.5% of GDP in Health to ensure equitable development.

Fourth, there should be greater focus on digitization and JAM usage in order to reduce inclusion and exclusion errors in schemes.


India stands out as a poor and unequal country with an affluent elite as per the recent report. The current inequality situation raises an alarm bell to take proactive steps and provide justice to the masses at the bottom of the inequality pyramid thereby attaining SDG 10 (reducing inequalities).

Source: Economic Times, Down to Earth, Institute for Competitiveness

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