Slums bordered by high-rise towers on all sides. People beg for food and alms while others dine at the fanciest restaurants. Lavish weddings cost more than what most individuals earn in a lifetime. News outlets cover “billion-dollar homes” while lakhs are without shelter. These are just some of the stark contrasts the average Indian will have witnessed in their lifetime. These differences are direct consequences of a difference in wealth.
The wealth of an individual or household is composed of the total assets owned. Any inequality in the distribution of assets among the population is thus termed wealth inequality. This is distinct from the concept of income inequality. Income refers to the money received via employment and other investments. Although separate entities, income inequality leads to wealth inequality as lower incomes reduce the ability to invest money and acquire assets like homes or real estate.
Wealth inequality is a global phenomenon, and India is no exception. The wealthiest 10% in India owns almost 67% of the total household wealth in the country. A little over half of this is owned by the top 1% of the country. Astonishingly, the bottom 50% of the country owns a mere 6% of the total wealth. These disparities were further exacerbated during and after the COVID-19 pandemic. In 2020, the number of poor in India (incomes of 2$ or less per day) increased by 7.5 crores (60% increase). On the contrary, in 2021, the number of billionaires in the country increased by 28%.
Several factors contribute to this wealth and income inequality in India including underemployment, large informal sector, lack of skill development, regressive taxation policies, tax-evasion, inflation, and historical caste-based discrimination. Jobs in India have historically been few, resulting in excess labour and low wages. The liberalisation policies of 1991 did away with several regulations and opened up the economy to foreign investment. However, in the two decades that followed, 92% of the jobs created were informal. Informal work pays less, and lacks benefits and protections like paid leave, medical insurance, and pensions. High informality is associated with greater poverty and inequality.
These policies also envisioned moving from an agricultural to a formal industry-based economy. However, in 2021-2022, 45.5% of the workforce was still engaged in agriculture, a low-paying sector due to a paucity of manufacturing jobs. The share of the manufacturing sector in the same period declined to 11.6%, from the reported 12.1% in 2018-2019. Moreover, manufacturing jobs in India are usually informal, contractual, low-paying, and fail to provide upward financial or social mobility. This paucity of opportunities has been further exacerbated by the pandemic as the job market has shrunk and unemployment has risen.
Data also suggests that these policies have greatly aggravated income and wealth inequalities. The income of the middle and poor classes has not kept pace with that of the top 1% in India. This is reflected in that a chief executive officer’s (CEO) pay is 229 times that of the average Indian worker. A minimum wage worker in rural India would take an unimaginable 941 years to earn what a top executive at a leading garment company makes in a year.
Inequalities have also resulted from a high reliance on indirect taxes in India. Unlike direct taxes, indirect taxes are the same for everybody and eat away a higher proportion of a poor individual’s income and savings compared to the rich. Similarly, inflation also affects the poor more adversely as they spend a greater percentage of income on essentials compared to the well-off, widening inequalities.
In addition, our population is fragmented on the lines of caste and religion. A study done in Uttar Pradesh found that poverty was higher in backward castes and land ownership low. In comparison, Hindu upper castes were less likely to be poor, possessed greater wealth, and had better access to financial services.
The consequences of gaping differences in income and wealth seep into other domains of life including health. The Indian government spends just 2.1% of its Gross Domestic Product (GDP) on the health sector resulting in a higher reliance on the private sector for health needs. Those seeking healthcare are often forced to pay for it on their own; termed as out-of-pocket expenditure (OOPE). This accounted for more than half of all healthcare spending in 2018-19. The effects of high OOPE are disproportionately felt by the poor due to low wages and poor insurance coverage. Illness in any form not only imposes a direct financial burden on the sick but also results in loss of wages, particularly among daily-wage workers. Many incur debts and are forced to sell assets to settle hospital bills. It is estimated that 55 million Indians are pushed into poverty every year due to healthcare costs, establishing a vicious cycle of the poor getting poorer.
The inability to pay deters many from seeking healthcare resulting in poorer health outcomes. The poor have lower life expectancies and their children are more likely to die before 5 years of age. Children belonging to poorer families also suffer from poor nutrition and anaemia more often compared to those economically better off. These inequalities also negatively impact mental health and cause higher levels of psychological stress and depression. Low access to mental healthcare among the poor compounds the issue. The National Crimes Record Bureau (NCRB) of India reported that in 2020, the highest proportion of suicides were committed by daily-wage workers.
Highly unequal societies often lack social mobility. Evidence suggests that children of high-income individuals are more likely to have a higher income and vice versa. In India, it has been found that 52% of the children whose parents have the lowest 20% of incomes would not move out of this income group. Similarly, 58% of children born to scheduled caste/tribe (SC/ST) parents with the lowest 20% of incomes would remain in the same income group.
Education is a major determinant of social mobility but economic inequalities lead to educational differences. About 74% of Indian adults drop out of school before reaching the 12th standard. Drop-outs are the highest in the poorest wealth quintile group and the prime reasons are to engage in economic activities and financial constraints. In turn, differences in education influence future incomes and cause further economic inequalities.
Economic inequalities in India adversely affect the poor and initiate a vicious cycle of the poor getting poorer and the rich getting richer. Curbing them would require measures that go beyond a simple rise in wages. An obvious first step would be to reduce informality and formalise jobs. This would improve job security and also provide benefits like leaves, health insurance, and pensions. A greater investment in public healthcare and education will ensure that their benefits are also reaped by the weaker strata of our society. This would facilitate better health outcomes regardless of income, and social mobility.
A focus on improving direct tax collections via taxes on income and wealth will lessen the disproportionate burden faced by the poor due to indirect taxes. The fact that certain sections of society bear the brunt of inequality by virtue of their birth is unfortunate. This necessitates policies and interventions especially aimed at the upliftment of these sections. Expanding the scope and increasing coverage of safety nets like unemployment benefits and government funded health insurance would help the poor cope in times of distress, and prevent them from further slipping into poverty.
About the author:
Shreyas Patil is a doctor, public health physician in the making and a research intern at ASAR.