Economic Inequality in India: Levels, Causes and Subsidies!
A wealthy business-person and a comfortably-off college/university lecturer are materially unequal but a lecturer is not poor. Social inequality means that certain individuals or groups have more material resources than others. Poverty implies some insufficiency in the material resources of an individual or group. There is considerable disagreement about the concept of ‘poverty’.
Is not being able to afford scooter poverty? Is not being able to send one’s child to a good English-medium school poverty? Some might include such situations in poverty, but others may hold that such situations involve inequality rather than poverty.
The exploitation of the poor by the rich can be contained by reducing the level of inequality between the rich and the poor, which in turn depends upon reducing poverty through economic reforms. If economic reforms bring about steady and sustained growth in the economy (which, in fact, is their main objective), the poor could benefit in two ways. First experience has shown that growth (particularly the agricultural growth) trickles down to the poor. Second, sustained growth creates an environment which is, on the whole, congenial for empowerment of the poor.
The dependence of the poor on the groups dominating them becomes less precarious owing to expansion of opportunities for employment, education, occupational mobility, and for achieving higher social status. The poor would also find it easier to mobilise for political action at the same time as pragmatic considerations induce a mood favouring accommodating the poor among the groups confronting them.
It may be pointed here that the economic reforms undertaken so far have definitely helped achieve some stable and sustained growth. The Economic Survey presented in the parliament in May 1998 had shown that growth was not adequate. But, the figures now show that we did fairly well in the last one decade or so. The growth of GDP is now rising. There is increase in the growth rate in agriculture as well as industry.
Agricultural production in 1999-2000 is expected to be more by 6.5 per cent in comparison to 1998-99. There has been little increase in the export growth. Inflation was just 1.7 per cent in first week of August 1999. Thus, though the economic reforms are taking place, yet many support measures are needed to make them work effective.
The groups dominating policy-making processes have to stop pursuing narrow interest and have now to work more for the larger society. A major breakthrough on the inequality and poverty fronts would occur only when the poor acquire political voice powerful enough to make up policy-making groups.
The following few important causes may be pointed out for income inequality in our country:
The top band of income tax was reduced from 50 to 30 per cent. The tax policy shifted from the progressive (taxing the rich relatively more) to the regressive (taxing the less well-off relatively more) level.
A free market increases inequality. The policy of liberalism adopted by Narasimha Rao government since 1991 and thereafter continued by three non-Congress governments has directly contributed to inequality.
In the last 2-3 decades, there has been little industrial growth in the country. The service sector too experienced massive job losses. It increased unemployment, insecurity and inequality.
Increasing Salary of High-Paid Employees:
The increase in the salary (before and after Fifth Pay Commission recommendations) of higher-paid employees in absolute terms is more than the lower-paid employees. This has increased inequality.
Why should government spend so much on subsidies? By cutting subsidies on fertilisers, food-grains and domestic gas in February 1999, the BJP-led government saved more than Rs. 2,000 crore. Had it not succumbed to the pressures of its coalition partners and partially resorted some subsidies, it would have saved nearly Rs. 4,000 crore.
It is estimated that by cutting non-merit subsidies on higher education, sports and arts, reducing subsidies on water supply and sanitation, increasing charges on irrigation (at present, the authorities charge less than Rs. 75 per hectare on irrigation water supplied for Rabi and Kharif crops), eliminating subsidy of State Electricity Boards, the government can save about Rs. 9,000 crore immediately and Rs. 30,000 crore in four years.
The objection of some political parties that the ‘poor people’ will suffer is illogical because people below the poverty line (i.e., 36% of total people in India) do not use cooking gas. The food-grains supposed to be supplied to the poor at cheap rates through the public distribution system (PDS) reach the poor only in pittance. Five poorest and BIMARU states (Bihar, Madhya Pradesh, Assam, Rajasthan and Uttar Pradesh) receive barely 10 per cent of PDS supplies.
It is, therefore, high time that subsidies are cut and Rs. 1, 40,000 crore or 14 per cent of the GDP spent on subsidies saved and fiscal deficit reduced. Our political leaders have only to educate the people and make them realise what is good and necessary for the country.
It is shocking to know of the enormous debt burden of the central and the state governments. While in absolute terms, the total debt has more than doubled from Rs. 314 thousand crore in 1997-98, the interest payments increased from 40 per cent of the revenue to 48 per cent in the same period. The subsidies, the interest payments and the defence expenditure consume as much as 78 per cent of the revenue.
In simple terms, 94 paisa of every rupee the government borrows go into debt servicing. Why should not the government seriously think over the suggestion of several economists that it must institute a freeze on further borrowings? Unless the government aggressively reduces the fiscal deficit and the burgeoning debt burden, our country cannot check inflation. The political parties only require the necessary will to do this.