Inequality in income levels is the root cause for economic slowdown

 

        Inequality in income levels is the root cause for economic slowdown

“Look Back, therefore, as far as you can, drink deep of the eternal Fountains that are behind, and after that, look forward, march forward, and make India brighter, greater much bigger than she ever was.”

                                                                                                       Swami Vivekananda.

The wide inequality of income levels and huge wealth creation by a few and for a few experienced in India over a long period cause irreparable damage to the Political, ECONOMIC Social and Technological set up is a fact to be recognised sooner than later and some serious remedial measures put in place to have a strong economy and credible democracy. The $5trillon economy is a possibility by all means but passing on the benefits to 130 crores of people with the present policies in force in a fair and somewhat equitable manner is doubtful as the experience indicates. In his book Break Out Nations Ruchir Sharma in the chapter on Great Indian Hope Trick under the paragraph India is a Political Chameleon in a good way, has very rightly observed that” India’s boom has also sparked a rise in inequality, which to some extent is natural in the early stages of economic development; however, inequality can pose a threat to growth if it goes unchecked. Over the last decade, consumption levels have grown dramatically for all Indians, but 6 percent faster per year for the richest 10 percent than for the poorest ten percent.” Despite well meaning economic reforms, the slowdown in the economic growth remains unabated and unfortunately further aggravated by the pandemic covid19, is adequate proof that the gap between the rich and the poor if allowed to deepen further unchecked, can take away all the intended benefits to the society, the economy and the nation over a period unless some concrete measures to distribute the wealth are imaginatively put in place with the much needed checks and controls to prevent amassing by a few.                  

As per an OECD report DECEMBER 2018, “one country that has experienced a significant increase in earnings and inequality over time is India, where the ratio between the top and the bottom deciles of the wage distribution has doubled since the early 1990s. The main driver has been an increase in wage inequality between regular wage earners – i.e. contractual employees hired over a period of time. By contrast, inequality in the casual wage sector – workers employed on a day-to-day basis– has remained more stable. The broad challenge of gradually reducing inequality in the EEs over the long-term can be framed in the context of a multipronged approach that addresses four areas: 1. better incentives for more formal employment; 2. targeting social assistance to those in need; 3. Spreading the rewards from education; and 4. preparing to finance higher social spending in the future. The EEs can alter the distribution of incomes by adjusting their benefits and government transfer systems and improving tax provisions. Such redistributive policies, once appropriately assessed to reflect domestic circumstances and priorities, can be powerful tools for reducing inequality.”

The economic policies pursued so far though have benefited the economy in many ways particularly in enhancing agricultural development, industrial growth, social advancement and technological progress, but unfortunately they all seem to have widened the gap between the rich and the poor despite the fact that there is some improvement in the removal of poverty.  While more than 85% of the population just manage to survive, 10% of the population have the ways and means to lead a good standard of life, the remaining 5% who dictate and control the economy have all the wealth either to contribute to the economy or mar the economy. This 5% in the top bracket cannot definitely be expected to generate the demand needed to expand this very vast economy generating widespread employment, production, investment and keep the cycle rotating making the economy strong and vibrant all around. Here in lies the importance of sound economic policies taking into account the amount of resources of the nation, their redistribution and putting them into productive ventures. The gap between our capacity and achievement is so wide that it has helped only to widen the gap between the haves and the have- not in such a way that the much needed demand to drive the economy is greatly missing. The absence of money at the consumer level is in fact the creation of the economic policy pursued over a period and the presence of informal economic activities is its by-product.  It is  time  now to seriously ponder over the economic policies presently in vogue by the policy makers, economists, researchers, academicians, administrators, financiers, social reformers, and all other stakeholders and come out with fresh ideas and give new directions to revive the economy with fresh thinking . About 80 % of the population need to be brought above the just survival levels which only can generate widespread perennial demand for varieties of goods and services to keep the economy moving. While food and clothing are taken care of by removal of poverty to a great extent, the fact remains that India fares poorly in Hunger Index as per the latest report. Over all, India ranks 94 out of 107countries in the Index, lower than Bangladesh and Pakistan. Provision of shelter remains pending for many is the ground reality. Once the basic need for food shelter and clothing is met for all, the economy can think of moving into the fast track backed by powerful engine of growth i.e. Greater Demand for items other than just food shelter and clothing from a majority. The need to enhance the quality and standard of life is paramount at this juncture. The application of Maslow’s theory of motivation is very relevant in this context and the policy makers have to necessarily ensure that the Country satisfies four out of the six major needs Viz: Physical Needs, Safety Needs, Social needs, and self esteem of the larger part of the population. This requires a well planned redistribution of wealth and provision of social security. The task is not that easy but is achievable as the Vision set by the Government is Welfare for All and the Mission ATMANIRBHAR BHARATH IS THE WAY AHEAD.  Quality of life and slow down of the economy have close correlation and these two variables cannot be overlooked while aiming for economic growth and lessening the inequality levels.      

Lack of all round infrastructures via physical, financial, social and technological infrastructure particularly in rural urban and semi urban areas throughout the width and breadth of the country is perhaps one of the culprits behind widening the gap between the rich and the poor. Besides total exemption of agriculture from Income tax without any trace of very rich farmers and their other economic activities makes it easy to accumulate wealth and be free from any interference from the tax authorities. Highly rich farmers with their political links and influential connections acquire power and dictate the terms and conditions to frame the economic reforms and be in power to perpetuate the reforms in such a way that the poverty and illiteracy levels remain perpetually and abysmally low enabling to exploit and create social unrest. Even the anti-farm bills agitation seems to be the handiwork of highly rich farmers in collusion with the powerful local politicians. Informal economic activities which include running of chit business, money lending at abnormally exorbitant rates, brokerage of all kinds, running of all sorts of businesses without adequate checks and balances taking advantage of the corrupt practices in vogue continue to flourish throughout the country making it rather difficult or cumbersome to bring them under formal economy. Incidentally and unfortunately Political affiliations and support of politicians help the wrong doers and they are allowed to thrive with unaccounted money harming the society at the cost of the whole economy and large segment of the population i.e. tax payers and other stakeholders. Farm bill is a landmark achievement and can be a good foundation and forerunner to tax the high agricultural and rural income in due course. Likewise, the financial system particularly the Banking system and Capital market knowingly or unknowingly caters to the cream of the society and the wealth multiplies fast only with them. The need to reopen  and review the entire financial system has arisen in the context of fast changing circumstances and the Institutions, markets and the tools /products used therein require lots of dynamism to achieve redistribution of wealth in a healthy and fair manner. The money multiplier effect seen and confined to a few segments has to change and the circle needs to be made bigger and bigger. Trust in the Institutions, market and products and effective Governance in the overall delivery of the financial system would help to lessen the inequality levels keeping the macro economic objectives well within the set targets.         

While high end cars are produced and marketed, but there are no proper roads throughout the country to use these cars is a reality. Massive infrastructure right from build up of roads in and around the country, build up of large go downs with cold storage facilities and warehouses to facilitate successful implementation of the farm bills, marketing and distribution of goods and services using digital technology and removing the middlemen would itself go a long way in enhancing the income levels and distribution of wealth from the ugly rich farmers in particular. Expansion of domestic tourism with all concepts of safety, comforts and attractions, would enhance employment opportunities, improved demand for goods and services, and encourage all round investment and industrialisation to produce mass consumption and other goods keeping in view even the demand over the global market based on tastes, preferences and affordability of the people in different parts with expected quality standards. The objective of Atmanirbhar Bharat is well within our reach with the administrative and fiscal and monetary incentives. More the incentives, the better should be the result without giving any scope for wrong doings of any kind at the cost of the economy. The Legal system should not provide any sort of relief for violators of laws taking advantages of the loopholes in the laws of the country in any manner. Strong and Result oriented administration without corruption of any kind can definitely deliver the result.

The fact that inequality leads to high inflation of food items in particular, financial instability, laxity in governance standards, increase in social unrest and generation of black money nullifying even the good intentions of economic reforms need to be realised, pondered over and acted upon earnestly. Very high inequality levels in an economy can also be an easy target for powerful international economies to exploit in different ways which can only do more harm to the whole economic system. 

The reforms and policies should invariably encourage Good Morals as part of Democracy, High standards of Education, Effective Governance, Decent living and Recognition of personal and financial achievements through rightful means and contribution to the welfare of people and the nation. The educational reform recently initiated is a very right move and is definitely capable of bridging the imbalances seen in the social economy to a great extent.  Let the Country and people move forward in the right track aiming for peace, comfort, safety and reasonable living standards with love for humanity, devoid of greed, fraud, hatred, jealousy, intolerance and all sorts of violence causing irreparable damage to human beings, the society, the economy  and national wealth.. The wealth creation through informal ways and bypassing the laws of the nation needs  to be reviewed, necessary changes brought in to minimise if not eliminate the bad effects altogether and progress evaluated by an eminent and independent jury consisting of people of eminence from all walks of life. Continuous social audit can do the trick. Socially and economically well placed citizens with their worldly wisdom and solid experience in different fields would be of very great help in the achievement of targets in a disciplined, orderly and systematic manner.

 Creation of strong data base, tying up of sensitive and very high value transactions through technology with proper linkages to trigger possible tax evasive transactions can perhaps be thought of as a mechanism to identify wealth creation and its adverse impact in the economy. It is very apt to quote here our Honourable Finance Minister’s recent observation while addressing All India Federation of Tax Practitioners at the National tax Conference 2020 that “Unless it is so small that you cannot go in for digital, it is always encouraging to know there will be digital ways of doing things so that every (transaction) somewhere is into the realm of getting noticed”. Digitisation of transactions, capturing data and linking the data with production, employment, tax collections, and interpretation of data with reference to the policy requirements would go a long way in formalising and integrating the informal with formal economy for the overall benefit of the country and the people. The whole public need to be exposed to national and international developments, educated and impressed upon the need to have a formal economy and convinced with the all round benefits such an  economy can bring in to the whole society aspiring for Universal welfare. The Visual and print media have to play a very creative and motivating role in the development of the economy and the nation and make the people feel and convince that democratic process is well adhered to in the policy enunciations and their implementation. Appropriate economic and administrative policies with effective governance standards can definitely help to reach the destination.        

The Country which has all the potential in terms of wealth, strong institutions, very talented human resources and worldly recognised innovative technological initiative and talent, cannot and should not suffer from the slowdown / growth of the economy any more. It is really heartening to observe in this regard that as per Human Development Index 2020, India’s Innovation Rank has jumped from 81 to 48 in six years ie from 2015 to 2020. However, the inaction and silence of the wealthy segment of the population cannot remain so any longer at the cost of the vast majority and widen the inequality levels further costing the ECONOMY irreparable damage and spoiling the image of the Government and the people. It is time to act to generate and spread the wealth and welfare for all and add strength to the democracy by enhancing the equality levels in letter and spirit to ensure good quality of life for all. It is time to fix the gap between the thoughts, words and action and see that the results reflect pretty well in the economy and reach equitably to all stakeholders. Poverty somewhere and prosperity everywhere cannot go together. Mismatch between these two create all the ills in the economy.   

As the saying goes without deviation from norms progress is not possible. I would like to end this note with a Quote from F Max Muller on India. “If I were to look over the whole world to find out the country mostly richly endowed with all the wealth, power, and beauty that nature can bestow in some parts a paradise on earth_ I should point to India. There are many bright dreams to be dreamt about India, and many bright deeds to be done in India, if only you will do them."    

 

Dr T V Gopalakrishnan

A Senior Citizen