Context: According to a paper released by the World Inequality Lab, India’s top 1 per cent income share hit 22.6 per cent while the top 1 per cent wealth share peaked to 40.1 per cent.

• The paper, co-authored by economists Nitin Kumar Bharti, Lucas Chancel, Thomas Piketty, and Anmol Somanchi, draws parallels between the contemporary “Billionaire Raj” and the colonial-era British Raj, highlighting the deepening levels of inequality in India.

Key Findings

• The paper analysed data on the annual tax tabulations released by income tax authorities to know the distribution of top income earners between 1922 and 2020. 

• Marking a fall from 37 per cent in 1951 to 30 per cent by 1982, the national income reaching the top 10 per cent began steadily rising afterwards. 

• The paper claimed that the top 10 per cent share went up substantially over the next three decades since 1990s, reaching almost 60 per cent in most recent years. 

• Most glaringly, only 15 per cent of India's national income has gone to the bottom 50 per cent, according to the report. 

• The report further pointed out that the top 1 per cent earns Rs 5.3 million on average, which is 23 times the average Indian earns.

• By 2022-23, the top 1 percent income share in India was 22.6 percent, while the top 1 percent wealth share rose to 40.1 percent, surpassing even countries like South Africa, Brazil, and the United States.

What are the Causes of Increasing Inequality Despite High Economic Growth in India?

• Concentration of Wealth: Concentration of wealth in the hands of a few can perpetuate inequality over generations, as the wealthy can pass on advantages to their descendants.

• Inadequate Land Reforms: Inadequate land reforms can result in a significant portion of the population remaining landless or having insufficient land, making them vulnerable to poverty and economic instability.

• Crony Capitalism: Corrupt practices and favoritism can result in wealth accumulation among a select group, contributing to inequality.

Lack of Inclusive Growth Policies

• Skewed Distribution of Economic Gains: Economic growth may disproportionately benefit certain sectors or income groups, leading to an uneven distribution of wealth.

• Regressive Taxation Policies: Tax systems that favor the wealthy or lack progressivity can contribute to income inequality.

• Lack of Social Safety Nets: Inadequate social safety nets and welfare programs may leave vulnerable populations without sufficient support, widening the wealth gap.

Inadequate Labour Policies

• Financialization of the Economy: An emphasis on financial markets and speculation over productive investments can lead to wealth concentration in the financial sector.

• Wage gaps: Wage gaps between skilled and unskilled workers can contribute to income inequality.Informal labor markets with lower wages and fewer benefits can widen the income divide.

• No Minimum Wages: Weak labor market policies, including insufficient minimum wage regulations and limited collective bargaining rights, can contribute to income disparities.

Social Exclusion

• Caste Discrimination: Social exclusion based on caste played a significant role in increasing inequality in India by marginalizing certain groups and limiting their access to opportunities, resources, and benefits.

• Gender Inequality: Discrimination based on gender can lead to unequal access to employment opportunities and wage disparities.

• Lack of Access to Education: Unequal access to quality education limited opportunities for upward mobility, reinforcing existing disparities.

• Technological Deprivation: Automation and technological advancements lead to job displacement and wage stagnation for certain groups, exacerbating income inequality.

Need for Tax Restructuring

• The paper suggests evidence indicating regressive aspects of the Indian tax system concerning net wealth.

• It advocates for a restructuring of the tax code, proposing a “supertax” of 2 percent on the net wealth of the 167 wealthiest families, which could generate significant revenues, enabling investments in critical sectors like health, education, and nutrition.

• This, the paper argues, would not only address inequality but also create opportunities for the average Indian to benefit from globalization.

Analysis of Income Distribution Trends

• The paper analyzes data spanning from 1922 to 2020, based on annual tax tabulations by Indian tax authorities, to illustrate the distribution of top income earners.

• It notes a significant increase in the share of national income going to the top 10 percent, rising from 37 percent in 1951 to nearly 60 percent in recent years.

• In contrast, the share going to the bottom 50 percent remains disproportionately low, at just 15 percent in 2022-23.

Income Disparities and Skewed Distribution

• The income disparities highlighted by the paper are stark, with the top 1 percent earning, on average, Rs 5.3 million, which is 23 times the average income of an Indian.

• In contrast, the average incomes for the bottom 50 percent and the middle 40 percent are significantly lower, standing at Rs 71,000 and Rs 1,65,000 respectively.

• The paper also underscores the extreme concentration of wealth, with nearly 10,000 individuals earning, on average, Rs 480 million, indicating an alarming level of income inequality.

Reasons for Rising Income Shares

• The paper explores potential reasons for the sharp rise in the top 1 percent income share, attributing it to factors such as wage growth in the public and private sectors until the late 1990s, followed by the increasing role of capital incomes.

• It also suggests that the lack of quality, broad-based education focused on the masses has contributed to the depressed income shares of the bottom 50 percent and the middle 40 percent.

Conclusion

• The paper highlights the alarming levels of income and wealth inequality in India and advocates for policy interventions such as tax restructuring and investments in public services to address these disparities and promote inclusive growth.