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
