Economic Insights

Economic inequality is the most visible and painful aspect of inequality, which can be reduced only by instituting a suitable macroeconomic policy environment. Appropriate fiscal and monetary policies can have a direct impact on income distribution and can also mobilize resources for progressive social policies.

Economic Insights

(Representational Image: iStock)

The prediction by IMF that our per capita GDP (in US $) would drop below that of Bangladesh by the end of 2020 has generated a disproportionate amount of controversy. Most Indians have been left wondering as to how Bangladesh, till recently a basket case, can race ahead of us, a country, supposedly on a trajectory to becoming a $5 trillion economy?

Government spokesmen, serving and retired, are claiming that the comparison of the two economies is flawed because a proper comparison should be based on purchasing power parity and not in dollar terms, while the opposition is using the IMF prediction to lambast the Government’s economic policies.

The truth is somewhat mundane. According to World Bank statistics, in 2019, India had the 5th largest GDP of $2.875 trillion and a per capita GDP of $2,104 placing it at 142nd rank amongst 189 countries. Bangladesh had a nominal GDP of $302 billion (rank 40) while its per capita GDP was $1,856 placing it at the 147th position.


After a record 10.5 per cent contraction in 2020, India’s per capita GDP is expected to decline to $1,877 while that of Bangladesh is expected to grow by 4 per cent to $1,888 ~ the projected difference between the per capita GDP of the two countries being a paltry $ 11, which is also predicted to disappear by the next year. However, a major but scarcely acknowledged concern for us is that our considerable economic gains are being offset by our burgeoning population; India would be the most populous country in the world in 2027 with a population of about 147 crore.

Looking further in the future, India is set to increase its population by more than 27 crores (i.e. 20 per cent) by 2050. The illeffects of unbridled population growth are manifest everywhere – be it our hugely overpopulated cities or decreasing agricultural land holdings. Problems of poverty, unemployment, sanitation, rising crime all are due to the absence of effective population control measures.

Despite the obvious need to control population growth, all Governments since 1977, have fought shy of addressing the problem, remembering the aftermath of the infamous population control experiments of the Emergency. Since 2000, the Government has limited its role in family planning to making contraceptive facilities available at Primary Health Centres (PHCs) and Sub- Centres (SCs) in rural areas as well as the Urban Family Welfare Centres and Postpartum Centres in urban areas.

Volunteers, called Accredited Social Health Activists (ASHA), distribute contraceptives and pregnancy testing kits to beneficiaries at their doorsteps. Looking at the way PHCs are run and the many responsibilities they handle, one can well imagine the services that would really be available there. As regards, ASHA workers, they are not volunteers, but unqualified and minimally trained health workers who are paid a pittance as an incentive for certain tasks they perform.

It would appear that the National Population Policy 2000, which brought about a holistic and target free approach, has effectively ended the Government’s efforts for population control, though we desperately need to control our population, for the social and economic well-being of the nation. Coming back to GDP, one can argue that a per capita GDP of $1,877, translating into an average income of approximately Rs 1,40,000 per year, is sufficient for a person to live decently.

However, this is not the case, because distribution of income and wealth in India is highly skewed. According to the RBI Report of 2019, 22 per cent of our population lives below the poverty line but, at the same time, the richest Indian, Mr. Mukesh Ambani, has a daily income exceeding Rs 300 crore. According to an Oxfam study the top 10 per cent of the Indian population holds 77 per cent of the total national wealth. Also, the rich are getting richer; according to the same Oxfam study, 73 per cent of the wealth generated in 2017 went to the richest 1 per cent.

The Coronavirus pandemic that saw a 23.9 per cent decline in the Indian economy in the first quarter, with a loss of 2.1 crore salaried jobs till August, also saw the wealth of most Indian billionaires increase dramatically. Over the years, successive Governments have tried to reduce inequalities within our society but success has been mixed.

According to United Nations Development Programme Administrator Achim Steiner, India lifted 271 million people out of poverty in a 10-year time period from 2005-06 to 2015-16, but the absolute number of poor people remains large and those lifted out of poverty are only sure of two square meals a day.

Looking to the seriousness of the problem, a coherent and integrated strategy is required to reduce inequality of opportunity, firstly, by providing access to better healthcare and education to the disadvantaged. The rot in our public healthcare set-up was mercilessly exposed by the Coronavirus pandemic; almost all Government hospitals were found to be woefully understaffed with highly deficient infrastructure. This was not unexpected because till today, Government schools and hospitals, established by the British a century ago, are the backbone of our public healthcare and education systems.

The Government spends only 1.28 per cent of GDP on healthcare, which is insufficient even for maintenance, let alone improvement. The poor have nowhere to go for proper healthcare because despite Ayushman Bharat, private hospitals do not welcome poor patients. Improvement in public healthcare is possible only if the Government increases expenditure on healthcare to a realistic level of 6 per cent of GDP. Education has the potential of breaking the poverty cycle but, the quality of education imparted by our schools is pitiable.

According to Annual Status of Education Reports (ASER) most middle school children are unable to do simple arithmetical sums or even read and write in their mother tongues. Government schools, which cater to the majority of poor students, are plagued by grave shortages of infrastructure, with most schools being without toilets and having several classes operating from one room. Add to it vacancies of teachers, commandeering of teachers and students by the Government for various non-educational purposes and you have a sure-fire recipe for an educational disaster.

The quality of healthcare and education can be improved if instead of promoting highsounding schemes with names like alphabet soups and fancy monetary allocations, which are generally eaten away; the Government appoints good microlevel administrators in each school and hospital, with an adequate budget and a clear mandate to stem the rot. The best social and economic policies will have little impact on inequality if we continue to discriminate on the basis of religion, caste and gender.

So, to reduce inequality, we need to tackle prejudice and discrimination in society and promote the participation of disadvantaged groups in social, economic and political life. Along with measures targeted at specific groups for their special needs, we should frame policies to address the root causes of poverty and inequality in all sections of society because policies grounded in universalism enjoy broader support than those focused narrowly on addressing the symptoms of poverty and traditional disadvantages.

Economic inequality is the most visible and painful aspect of inequality, which can be reduced only by instituting a suitable macroeconomic policy environment. Appropriate fiscal and monetary policies can have a direct impact on income distribution, and can also mobilize resources for progressive social policies.

We should go in for a rational and comprehensive taxation policy designed to prevent concentration of wealth and straightening out the glaring inequalities in our society – which would entail reducing GST, which is an indirect tax paid mostly by the poor, and promote direct taxation by bringing back taxes on wealth and inheritance. Otherwise, there are fair chances of our socialist republic morphing into a plutocracy. According to Mahatma Gandhi, co-operation and not competition is the natural state of mankind and also of economic activities.

However, presently, we seem to believe more in a command and control economic and social model which exacerbates inequality. The time has come to re-orient our goals towards ensuring distributive justice rather than following a policy of economic expansionism which benefits the rich, at the cost of the poor.

Mahatma Gandhi had once said “Whenever you are in doubt, or when the self becomes too much, recall the face of the poorest and the weakest man whom you may have seen, and ask yourself, if the step you contemplate is going to be of any use to him.” It is high time that we applied the Mahatma’s precepts to our economic policies.

(The writer is a retired Principal Chief Commissioner of Income-Tax)