By Richa Newatia
Income disparity is one of the biggest challenges today, and it restricts economic growth in India and elsewhere in the world.
Even though the country has progressed in various sectors, such as finance and technology, a substantial portion of our population remains in deprivation and poverty. The divide between the marginalised and affluent is evident in income disparity, unequal wealth distribution, and unequal access to basic necessities.
The World Bank defines multidimensional poverty measures as “The Multidimensional Poverty Measure (MPM) seeks to understand poverty beyond monetary deprivations (which remain the focal point of the World Bank’s monitoring of global poverty) by including access to education and basic infrastructure along with the monetary headcount ratio at the $2.15 international poverty line.”
According to the multidimensional poverty index in India, the scheduled tribes group is 9.4% of the population and its poorest, with 65 million people of the 129 million people living in multidimensional poverty. Furthermore, the report highlights that 27.2% of other backward-class people live below multidimensional poverty. Additionally, 5 out of 6 people in multidimensional poverty live in households from scheduled tribes, scheduled castes or backward classes.
Let’s understand in detail what income disparity is, the causes of income disparity, and how to overcome income disparity to improve the economic growth rate in India.
What is income disparity?
Income disparity means the income is distributed in an unequal population. The less equal income distribution, the greater the income disparity. Income disparity is based on gender, location, ethnicity, and occupation.
Top 7 Causes of Income Disparity in India’s Economy
Income disparity in India has risen since the early 2000s. The income and wealth share 1% of the population, increasing from 22.6% to 40.1% in 2022-2023. Income disparity issues plague many countries around the world, especially India. India has progressed recently, but financial inequality is still a significant problem. Let’s understand in detail the causes of income disparity and economic growth in India.
1. Wealth Accumulation
When wealth is in a few hands, it perpetuates disparity in income across generations as the wealth only passes to their descendants as the concentration of wealth. Another reason is crony capitalism, where corrupt practices result in wealth accumulation among some groups, resulting in income disparity. Lastly, the insufficient land reforms leave a significant population with insufficient land or landlessness, which increases economic growth in India and poverty among the people.
2. Lack of Inclusive Growth Policies
The growth policy is a plan that helps people make decisions related to investment and development. It helps boost the socio-economic status of the country. However, this policy is only helpful to some people for economic growth in India. It benefits some income sectors or specific sectors, leading to unequal income distribution. Also, the tax policies or system help wealthy people, which contributes to income inequality. Additionally, insufficient safety needs and welfare programs provide vulnerable populations without sufficient support, resulting in wealth gaps.
3. Inadequate Labour Policies
Labour policies play an essential role in safeguarding the interests of labourers. Also, it helps maintain a good relationship between employees, employers, and the government of India. It is a policy that helps with the economic growth rate in India. Specific labor policies need to be revised to benefit a lot of the population. There is a wage gap between skilled and unskilled workers, which leads to income disparity and economic inequality in India.
The weak labor policies, including insufficient minimum wage and limited bargaining rates, result in income disparity. Additionally, speculation arises over productive investment, leading to wealth concerns in the financial sector and income inequality.
4. Social Exclusion for Economic Growth in India
The caste creates social exclusion and increases income inequality in India. It creates inequality by a margin in certain groups and limits their access to resources, benefits, and opportunities. Additionally, income disparity is possible through gender inequality. Gender inequality is where equal opportunity and wages are provided to males and females. Additionally, unequal access to education limits the chance of mobility and equal income. Furthermore, technology and automation lead to job displacement and wage stagnation in certain groups, creating income disparity and reducing economic growth in India.
5. Globalisation
Globalisation increases wage disparity in a country by increasing imports of manufacturing goods where labour is available cheaply. It also opens opportunities in high-tech firms where highly skilled labour is required. These two forces create the market wage gap between low-skilled and high-skilled labour. Additionally, the technology change increases the wage disparity. For example, secretaries, typists, or assembly line workers are required when computers are replaced in production.
6. Tax Evasion
Tax evasion is corrupting the economy, which leads to income disparity. In tax evasion, wealthy individuals and companies get benefits while paying less or no tax, creating a situation where poor people face disadvantages. Tax evasion affects individuals who are honest taxpayers and those with low incomes by increasing the wealth gap. As a result, social inequality increases, and individuals don’t get the resources to meet their needs. Moreover, it increases poverty and income disparity and reduces the economic growth rate in India.
7. Inflation
One of the ways inflation affects income disparity is through impacting wages. Inflation increases nominal wages, but if there are no sufficient increases in real wages (purchasing power), it will decrease. As a result, workers will spend less on goods and services, which leads to decreased demand for goods and services. Also, businesses will reduce production or price, leading to job loss and income inequality. Another reason inflation affects income inequality is saving and investment. Inflation decreases savings and investment over time. This means the number of people who depend on saving and investing their purchasing power will decrease.
How to Overcome Challenges of Income Disparity for Economic Growth in India?
Economic growth in India is decreasing due to income disparity. The income disparity arises from reduced consumption amongst lower-income groups, limiting overall market demand. Also, unequal access to resources and opportunities hampers productivity for economic development. Additionally, labour policy and other policies only benefit some populations, so the economic growth rate in India is low. Let’s understand how to overcome the challenge of income disparity in India’s economy.
Mahatma Gandhi National Rural Development Guarantee Act scheme (MGNREGA)
It is one of the work guarantee programs launched in year 2005 by the Ministry of Rural Development. The objective of the MGNREGA scheme is to employ in every financial year in 100 days to adult members of the family in rural areas for unskilled manual work. In this scheme, wages are paid according to the Minimum Wages Act 1948. Additionally, at least one-third of the women get employment opportunities through this scheme. This scheme helps in economic growth in India.
Prime Minister Generation Program for Economic Growth in India
The government of India approved the introduction of a linked subsidy program known as PMEGP. The PMEGP scheme is useful in generating employment through micro-enterprises in urban and rural areas. It helps entrepreneurs to establish factories or units. Additionally, it is estimated that these schemes will provide employment opportunities to 40 lakh people in five financial years, which will lead to economic growth in India.
Deendayal Antyodaya Yojana-National Urban Livelihoods Mission
Urban Ministry of Housing & Poverty Alleviation mission was launched in 2014. The goal of the scheme is to uplift urban poor people through sustainable livelihood opportunities through skill development. Here, the funding is shared between the center and state government in a ratio of 75:25. It is the scheme that improves the economic growth rate in India by uplifting poor urban people.
Samagra Shiksha Scheme
Samagra Shiksha scheme is helping the economic growth rate in India through school education from preschool to class 12th standard. The goal of the scheme is to deliver equitable, inclusive, and affordable school education. It consists of three schemes: Teacher Education, Sarva Shiksha Abhiyan, and Rashtriya Madhyamik Shiksha Abhiyan. This scheme covers 1.16 million schools and 156 million students.
Pradhan Mantri Jan Dhan Yojana
These schemes ensure that financial services like savings bank accounts, deposit accounts, credit, remittance, insurance, and pensions are affordable. The benefit of accounts in this scheme is not to keep any minimum amounts in the bank.
National Health Mission
NHM was launched by the government of India in year 2013. The goal of NHM is to provide universal access to affordability, equitability, and quality healthcare services that are accountable to people’s needs. It offers free services related to maternal health, child health, family planning, adolescent health, etc. It is the scheme that improves the economic growth rate in India through health facilities.
Conclusion
Addressing income disparity for economic growth in India through various approaches such as education, taxation, social welfare, and governance. Also, implementing the policy for land reforms, education, job creation, women empowerment, and providing equal resources to the people. Additionally, the private sector contributes, and international cooperation is essential to build equitable solutions when the economic growth rate in India increases.
