ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Are Spectacular Growth and High Inequality Two Sides of the Same Coin?​​​​​​​

An Interstate Analysis of Post-economic Reformed India

The emergence of India as an economic powerhouse notwithstanding, growth has failed to trickle down to marginalised sections, rendering inclusive growth a major concern. That has made India one of the most unequal countries. In this context, the extent of inequality across states during the post-economic reforms period has been analysed in this paper. Income inequality is estimated by sourcing gross state domestic product data from the Reserve Bank of India’s Handbook of Statistics on the Indian Economy and using the Gini coefficient and Lorenz curve for 26 states and three union territories from 1993–94 to 2019–20. During this period, the western and southern zones have recorded a higher GSDP than the rest of the states in the country. The Gini coefficient was the lowest at 0.25 for Andhra Pradesh and the highest for Sikkim at 0.52. It is argued that the policy focus should not just be on a higher magnitude of growth, but on equitable growth, which requires region-specific interventions with a focus on several dimensions such as setting up agro-processing storage unit storage and transportation and generating accessible employment opportunities—supplemented by significant investments in education and health.

India is home to 17% of the world’s population, and after 30 years of economic reforms, it has emerged as one of the fastest-growing economies, with an annual growth rate of 8.7% as of 2021. India is the world’s sixth largest economy by nominal gross domestic product (GDP) and the third largest by purchasing power parity (FAO 2021). Though this growth is truly impressive, has it been inclusive? India has the world’s largest poor population and ranks second in income inequality (Alvaredo et al 2018). Though the poverty rate declined from 45.5% in 1993–94 to 29.9% in 2009–10 (Panagariya and Mukim 2014), the income gap has widened (Dang and Lanjouw 2021; Chancel and Piketty 2020). The richest 1% of the population garnered 73% of the wealth generated, while a vast majority—67 crore people—saw its wealth rise by only 1% (OXFAM 2019). Chancel and Piketty (2020) show that the income gap has only increased since 1994, with the income of the top 1% of the population increasing to 22% of the total income.

Moreover, consumption inequality jumped from 0.32 in 1993–94 to 0.38 in 2011–12 in urban areas; in rural areas, it increased from 0.26 in 1993–94 and 0.29 in 2011–12 (Himanshu 2019). Therefore, it appears that with an increased focus on economic growth, the intention to build a more egalitarian society has taken a back seat. Several studies emphasise that to reduce poverty and improve the quality of growth, we need to track inequality and manage it with focused policies (Naschold 2002; Banerjee and Duflo 2003; Herrera 2017; McKnight 2018). According to Berg and Ostry (2011), income inequality was a strong determining factor that influenced the quality of growth in 174 countries, in addition to market structure and other institutional factors. In addition, inequality aggravates market volatility and instability. It triggers economic instability by affecting the finance-driven business cycle (Galbraith 2012). By definition, inequality refers to an inability to ensure a life of dignity for all. It undermines a community’s overall growth process by excluding people living in poverty from sharing in the benefits of growth (Ravallion 2005). One of the most formidable challenges that economic inequality poses is that it reduces opportunities for capacity development, especially for those having no or limited access to quality education and healthcare, which only exacerbates inequality and further reduces social and economic mobility. Karmakar and Sarkar (2014) found that inequality causes structural problems leading to food insecurity, poverty, and social unrest. Income inequality has been linked to negative health outcomes and infant mortality due to the unequal distribution of material resources (Coburn 2000; Lynch et al 2000; Smith et al 1997). All these will ultimately and indirectly lower economic growth in the long run. Another persistent result of inequality is that households’ access to basic services such as health, nutrition, and physical infrastructure becomes limited. Since inequality manifests in different forms, it is addressed across the spectrum of the Sustainable Development Goals (SDGs). The SDGs, also known as the Global Goals, are a general call to action to eradicate poverty and provide a peaceful and prosperous life to all. When viewed from a broader perspective, the SDGs are mainly directed towards reducing inequality in various forms and transforming the world into a more inclusive, sustainable place to live in by 2030. Apart from Goal 10, which deals directly with reducing income inequality, many of the targets directly or indirectly deal with various other forms of inequality. Goal 1, specifically 1.3, calls for the implementation of social protection systems and measures that would directly raise the real income of the poorest segments of the population, thus reducing income inequality. Goal 2 aims to achieve zero hunger, that is, end hunger by 2030. It aims to ensure equal access to safe, nutritious, and sufficient food for all around the year, as well as to land and other productive resources. Therefore, the issue of inequality should be given prime importance as it undermines the nation’s achievements, and measures that addresses this issue should be developed to attain equitable economic growth. India has set a target of raising the growth of the income of the bottom 40% of the population above the national average by 2030. As inequitable economic growth breeds different kinds of inequality across regions (mainly due to backwash effects dominating the spread effects), we analysed the state-level income inequality present in the country.

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Updated On : 16th May, 2023
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