Inequalities of Income and Wealth in India PDF

---- -,---~,,-. _,.._------~ --~~------ Ch~apter 18 --=---- INEQUALITIES OF INCOME -.AND WEALTH IN.~ !~ IAJ 1. Meaning of Inequality Inequality of distribution of wealth and income refers to that situation of...

---- -,---~,,-. _,.._------~ --~~------ Ch~apter 18 --=---- INEQUALITIES OF INCOME -.AND WEALTH IN.~ !~ IAJ 1. Meaning of Inequality Inequality of distribution of wealth and income refers to that situation of an economy in which · incom · n of the country 1s e of a small sectio · much Iarger than the average income of the nation and the · incom · n 1s e of a large sectio · much smalIer than th e average nat·10nal income· Problem of inequality of distribution of the wealth and income is concerned mainly with the inequ ality of distribution of individual income. It implies that income of a few individuals is very high while that of large number of persons is very low. The inequality in the distribution of income and wealth has been rising continuously. 1.1 Nature, Extent and Magnitude of Inequality of Income and Wealth Indian economy reveals several forms of economic inequality. Its main forms are as under: (1) Inequality of Income and Consumption, (2) Inequality of Wealth, (3) Regional Inequality. (1) Inequality of Income and Consumption There is no official organisation in India to compile data on personal distribution of income.. Moreover, data relating to distribution of income in the country as a whole is not directly available. Some insight into it is provided by the data on distribution of consumption (comp iled by NSS). It is due to this reason that the magnitude of the inequality of income has been estimated from the data regarding the distribution of consumption and income. We shall review the extent of inequalities of income and consumption separately. (i) Inequalities of Income: In order to examine the distrib ution of income in India, a Committee was appointed by the government under the chairmanshi p of Prof. P.C. Mahalanobis. The Report of the Committee was published in 1964. Besides this committee, National Council of Applied Economic Research (NCAER), Reserve Bank of India, World Bank and many other economists like Lydall, Iyengar and Mukherjee, Ojha and Bhatt, Ranadive, S.S. Bhalla and Bhattacharya, etc., have also conducted inquir ies in respect of distribution of income. The various estimates of different periods are not strictly comparable. It is because these relate to different periods and are based on different methods. However, from these estimations, one can have a broad idea about the pattern of incom e distribution in India. Table 1 shows different estimates of inequalities of income in Ind' 1a.  257 ,equalities of Income and Wealth in India d ( rcentage share) Table 1. Estimates of Inequalities of Income In In la pe OJh and Bhatt NCAER People Lyda II Ranadl~~ (~ 3-64) (1964-65) (1955-56) (1961-62 96 35 33.3 Share of Top 10 per cent 34 45.5 1 7.5 Share of Bottom 20 per cent 9.5 7.8 0.377 0.39 Lorenz Ratio - 0.351 Chaudhry) (s d Developm ent, by Parmitd"a Accordin g ource: Indian Econom y· Poverty an... ualities of mcome m 1n I It is clear from Table 1 that there are very large meq ulation had 34 per cent of the O to ~ydall in 1955-56, the upper 10 per cent of ~euiation had only 9.5 per cent of the national income. The lowest 20 per c~nt of e P th Ji the share of upper 10 per cent of national income available to it. According to Rana v~'the national income while that of 45 5 0 the populatio n had risen in 1961-62 to · perAcent d. to National Council of Applied 78 cent ccor mg the lowest20 per cent had fallen to · per ~r cent of the populatio n enjoyed 33.3 per Economic Research (NCAER), the upper lOr h l t o per cent could lay its hand cent of the national income in_ 196 4_- 65 ,, wh::S t :r Pf t. 2 ~~~ER in year 2009-1 0, top 20 per me while the bottom 40 per only on 7.5 per cent of the national income. 1 cent of populatio n of India holds 53.2 per cen\~ to a m~t obvious that the range of cent populatio n has only 15.3 per cent of tota mcome. IS income inequalities is very wide in 1nd ia.. bl. d. trib tion of househol. d N d d1sposa ti e the The United Nations also provides information on is u income. According to the Human Development. Report 2009 of Umte a ons, percentage share of income in India is as follows. Table 2. Piercentage Share of Income in India People. Percentage of Distribution of Income Lower 20 per cent 8.1 Upper 20 per cent 45.3 Lower 10 per cent 3.6 Upper 10 per cent 31.1 (Source: Human Developm ent Report, 2009) The above table reveals that lower 20 per cent people receive 8.1 per cent of national income. The upper 20 per c~nt get 45.3 per cent and upper 10 per cent get 31.1 per cent of share of the national income. Lower 10 per cent get just 3.6 per cent of national income. Use of Lorenz Curve is also made to measure inequality of income. Higher the Lorenz ratio greater are the inequalities of income. Different studies regarding inequaliti es of income in India reveal that Lorenz ratio is about 0.35. This ratio also speaks of wide range of income inequalities in India. Gini Coefficie nt is also used to measure inequality of income. Higher Gini Coefficient indicates more income inequalty. In India value of Gini Coefficien t was 0.51 in year 2013. This Coefficient also indicates wide range of income inequaliti es in India. [Gini Coefficient ranges from 0 to 1, with zero representi ng perfect equality and one representing perfect inequality.] (ii) Rural and Urban Inequalities: In India there are inequaliti es of income across rural and urban areas as well. Per capita income in rural areas is just about half of the per capita income 258 Economics in urban areas. But the gap between the rich class and the poor class in rural areas is not as much as in urban areas. Data regarding income distribution across rural and urban population is given in Table 3.. Table 3 Inequali ties of Income acroH Rural and Urban Areas (percent age share) Estimates of NCAER - People Estimates of RBI Rural Urban - Rural Urban Upper 1O per cent 25 37 34 42 Lower 20 per cent 9 7 4 4 (Source: Report of Mahalanobis Committee on Distribution of Income) The Table 3 shows that according to RBI estimates, the upper 10 per cent population living in villages enjoys 25 per cent of national income while the lower 20 per cent rural population enjoys just 9 per cent of national income. On the other hand, in urban areas this share is 37 per cent and 7 per cent respectively. Similarly, the estimates made by NCAER reveal that the top 10 per cent population in rural areas gets 34 per cent share in national income while the bottom 20 per cent has just 4 per cent share in national income. On the other hand, in urban areas, the same sections of the population have 42 per cent and 4 per cent share respectively in national income. (iii) Inequal ities of Consumption Expenditure: The distribution of consump tion in India also shows a considerable degree of inequality. Statistics relating to consump tion as computed from different sources are shown in Table 4. Table 4. Distribution of Consumption Expenditure (percen tage share) Household Category Estimates of NCAER '" ·> Estimates of NSSO Top 20 per cent 42.39 37.87 Bottom 20 per cent 8.66 8.47 Lorenz Ratio 0.32 / 0.29. (Source: Indian Econom y - Poverty and Develop ment, by Parmit Chaudhry) Table 4 shows that accordin g to NCAER survey, top 20 per cent account ed for 42.39 per cent and bottom 20 per cent for 8.66 per cent of total consump tion. Accordi ng to National Sample Survey Organisation (NSSO), the corresponding classes had 37.87 per cent and 8.47 per cent share in total consump tion. The correspo nding Lorenz ratios in the two cases are 0.32 and 0.29 respectively. World Bank estimate d distribution of househo ld expendi ture in India. Table 5 reveals the distribution of househo ld expense s as compiled by World Bank in its World Development Report 2017. Table 5. Percentage Share in Household Expenditure ~.Household Cateaorv 1983 · ,· 1990 · · 2005 ' 2011 Lowest 20 per cent 8.1 8.8 8.1 8.3 Highest 20 per cent 41.4 41.3 45.3 44.0 Highest 10 per cent 26.7 27.1 31.1 29.8 ' (Source: World Development Report, 2017)  -···-......... vveaith in India The Table 5 shows th 259 of highest 20 Per at there are Wide variati.. these variations hcent PopuI ti ons m the househ Id ·. a on and lowest 20 o consumption expenditures that the hou h ~ve increased. It indicat th p~r cent popuJation. From year 1983 to 2011 before betw se o d consumption expen~ at inequality is increasing in India. This shows I een the bottom and t re was now more unequally distributed than (iv) Population Below Pove op 20 per cent of the households in India. by th e number of peopl:r. ~lneb(BPL): In India, inequality of income is also determined methodology (accepted b IVlng. elow the poverty line. As per Tendulkar committee 1 monthly expenditure· 1 Y p annmg commission), in year 2011-12, the persons whose th Prices are treated as is ess an f' l,000 in urban areas and f' 816 in rural areas at 2011-12 poverty line is show:::;: ;~ng below the poverty line. The population size living below 1 Table 6. Trends of Pove. rty. I d. ID n ia (As per Tendulkar Methodology) Area 2004-05 2011-12 Number of Percentage Below Number of Percentage Below People Poverty Line People Poverty Line Rural 32.58 crore 42.0% 21.65 crore 25.7% Urban 8.14 crore 25.5% 5.28 crore 13.7% Combined 40.72 crore 37.2% 26.93 crore 21.9% (Source: NSSO Reports) Table 6 shows that in 2004-05, the number of people living below poverty line in rural areas was 35.58 crore and in urban areas 8.14 crore. The total number of people living below poverty line in the country was 40. 72 crore. Thus, in 2004-05, 42 per cent in rural areas and 25.5 per cent in urban areas and in the entire country 37.2 per cent of the population was living below poverty line. As against it, in 2011-12, the number of people living below poverty line in rural areas was 21.65 crore and in urban areas 5.28 crore. Their total number in the country as a whole was 26.93 crore. Despite economic reforms, the percentage of population living below poverty line has not declined much. In 2011-12, 21.9 per cent of India's population was living below the poverty line. Inequality in the distribution of income is also a prominent cause of poverty in India. (2) Inequalities in the Distribution of Wealth/Assets In India, alongwith inequality in the distribution of income, there also exists inequalities in the distribution of wealth. It can be estimated on the basis of distribution of landholdings, ownership of real estate (building property) and ownership of shares of companies. (i) Distribution of Landholdings: There is lot of inequality in the distribution of land holdings. According to National Sample Survey (2000-01) there is too much inequality in the distribution of landholdings in the villages. 6.4 per cent of big farmers possessed 37 per cent of total agricultural land, while 67 per cent of small farmers (having less than one hectare) owned only 22.25 per cent of agricultural land. In India, 67 per cent of farmers are so small that each of then owned one hectare or less than one hectare of land. It is evident from these statistics that the distribution of landholdings in India is very much unequal. (if) Ownership of Residential Buildings: Distribution of wealth in urban ~as is still worse. According to 8th round of National Sample Survey, upper 20 per cent of households in urban areas owned 93 per cent of the total urban land. Of these, the richest 5 per cent households  260 Economics owned 52 per cent of the urban land. According to NCAER, the upper most 10 per cent urban people own 57 per cent of residential buildings. On the other hand, the lower most 10 per cent urban people own less than one per cent of building property. It is clear that even in urban areas considerable inequalities in wealth exist. (Iii) Ownership of Assets of Private Sector Companies: In India, inequalities concerned with ownership of assets in private sector companies are still alarming. According to the Research Bureau of Economic Times, in India 20 big business houses had assets worth more than f 84,872 crore in 2001-02. As against this in July, 2016, 10 largest private sector companies had assets worth f 22,82, 934 crore. Hence, concentration of wealth is increasing in private sector. Some Indian industrialists like Mukesh Ambani, Lakshmi Mittal, Anil Ambani, Azim Premji, Sunil Mittal, K.P. Singh, Kumarmangalam Birla, etc., have accumulated huge wealth and are controlling many big business units. It testifies that due to concentration of economic power in the country the extent of inequalities of wealth is very wide. In short, in India inequalities of wealth and income are found botp in urban and rural areas. During the period of planning these inequalities have tended to increase. (3) Regional Inequality Regional inequality refers to inequality of economic growth and level of per capita income in different stafes of the country. Rate of growth and per capita income in some states of the country, namely, Goa, Haryana, Maharashtra, Tamil Nadu, Gujarat, Kerala, Karnataka, etc., is relatively very high. On the other hand, in states like Bihar, U.P., Assam, Manipur, Madhya Pradesh, Jharkhand, Odisha, etc., rate of economic growth and per capita income is relatively very low. If regional inequality is not controlled, it may endanger the national integration. Per capita income is considered to be the best measure to know regional inequality. Table 7 highlights the per capita income of different states. Table 7. Per Capita Income (At Current Prices) (Year 2014-15) ' ' Per Capita Income Low Income States Per Capita Income High Income States ~ p.a.) ~p.a.) -· 2,74,939 1. Bihar 31,380 1. Goa I 1,50,260 2. Uttar Pradesh 43,861 2. Haryana 1,39,382 3. Manipur 52,211 3. Kerala 4. Maharashtra 1,34,081 4. Assam 54,618 5. Kamataka 1,32,749 5. Madhya Pradesh 56,516 6. Tamil Nadu 1,30, 197 6. Jharkhand 56,737 7. Gujarat 1,24,518 7. Odisha 63,108 (Sources: Economic Survey, 2016-17; Handbook of Statistics on Indian Economy, 2016) Above table shows that Goa has the highest per capita income among states, followed by Haryana, Kerala, Maharashtra, Karnataka, Tamil Nadu and Gujarat. These states have higher per capita income than the national average. In 2014-15, all India average per capita income was t 86,879. Per capita income of some states is less than the national average. Bihar has the lowest per capita income in the country. Throughout the planning period, per capita income of Goa, Haryana, Maharashtra, Gujarat, Punjab and Kerala remained higher than all-India average per capita income. It can be concluded that economic planning has failed _to remove the difference between 'rich' and 'poor' class. Rich states  261 equallties of Income and Wealth in India 111 become richer. Regio. of income have further increased. Percentage of population nal d'ispan.ties have. b I th.. -r. bl 8 rving 1 e ow e poverty lme in some poor and some rich states is given in the foUowmg 1a e · Table 8 · Percentage of Population belo w Poverty Line (Based on 11endulkar Me th o doIogy) (Year 2011 -12) - - State % of Population below Poverty Line State % of Population below Poverty Line -1. Chhattisgarh 39.9 1. Goa 5.1 7.1 2. Jharkhand 37.0 2. Kerala 8.1 3. Bihar 33.7 3. Himachal Pradesh 8.3 4. Odisha 32.6 4. Punjab 11.2 5. Uttar Pradesh 29.4 5. Haryana (Source: NSS O Reports) 2. Causes of Inequalities of Income and Wealth in India nd Ineq ualit y in the Own ershi p of Land : The main cause for inequality in weal~ a (l) rship of land. Prior to income in India has been zamindari system and inequality in the owne a result, there was _grav~ independence, zamindari system was widely prevalent in India. As era, although zami~dan inequality in the owrtership of land. In the post-independence ality of the ownership of system was abolished, yet there is no material reduction in the inequ ality of income in the rural land. Inequality in the ownership of land is the main cause of inequ small farmers is very low. areas. In rural areas, income of landless agricultural workers and large incomes and these They lead a miserable life. On the other hand, big farmers have very resources, so they use incomes are ever growing. Big farmers have vast capital ties of seeds, tractors, capital-intensive inputs like chemical fertilizers, high yielding varie e goes on multiplying. tubeweUs, pesticides, etc., and get rich harvest. In this way, their incom produce more from their On the other hand, small farmer due to deficiency of capital, fail to of ownership of land that tiny holdings. They remain poor and backward. It is the inequality increases inequality of income and wealth in rural sectors. areas some people own large (2) Private Ownership of Property in Urban Areas: In urban area is poor. In this sector, properties. On the other hand, large population living in urban other occupations earn capitalists by investing their capital in industries, trade, transport and face great hardships to handsome income. People of middle and poor class in urban areas igent but due to lack of earn their livelihood. No doubt, these classes are educated and intell inequality of wealth and capital their economic situation remains poor. Consequently, income continues to persist in urban areas. (3) Laws of Inheritance: Prevailing laws of inheritance in India have also contributed in e. According to these laws perpetuating inequalities in the distribution of wealth and incom offsprings. As a result th~ on the death of a rich person, his property is inherited by his life. On the con ~, on descendants of the rich are i~vari~bly ri~h from the very start of their They can add something to the_death of~ poor person, his children mherit nothing but debts. few opportunities for that their meagr~ mcome only by dint of hard work. But they get very distribution of wealth and ~- Accordingly, laws of inheritance in India have rendered the mcome unequal on a permanent basis.  ~ 262 Economics (4 ) Inequality of Professional Training: Another important factor accounting for inequalities is the difference in professional training. Income in certain professions like, medical, engineering, company executive, law, etc., is relatively more than other professions. It is because of high cost involved in the initial training for these professions. People of poor strata cannot afford it. Largely, persons from ~ch families opt for these professions and inequalities continue to persist. (5) Inflation: Prices have been rising in India since 1956. Rising prices hit hard the poor class. Their real income goes down. On the other hand, traders and industrialists gain because of inflation as value of their stock goes up. Inflation is thus also responsible for aggravating inequalities of real income. (6) Credit Policy of Financial Institutions: In the post independence era, there has been expansion of banking and other specialised financial institutions like Industrial Development Bank of India Industrial Finance Corporation Industrial Credit and Investment Corporation, ' ' State Finance Corporations, Life Insurance Corporation, etc. These financial institutions have given financial assistance mostly to rich capitalists. Poor class has got very little financial assistance from them. Accordingly, it is the capitalist class that has been able to expand its industry and business more. Wealth and income of this class have increased tremendously. On the other hand, poor class for want of adequate credit facilities has been unable to make any significant improvement in its economic conditions. Thus the existing credit policy of the financial institutions has also contributed to the inequalities of wealth and income. (7) More Burden of Indirect Taxes: Large number of taxes have been imposed in India after independence. The burden of indirect taxes like excise duty, sales tax, customs duty, value added tax, goods and services tax, etc., has been quite heavy. The incidence of indirect taxes is much more on the poor than on the rich. This burden reduces the real income of the poor. Increased burden of indirect taxes has thus widened the inequality of real income. (8) Corruption and Smuggling: Post-independence era has also witnessed large-scale corruption and smuggling activities in India. It has also aggravated inequalities of income. Those capable of giving bribe, succeed in procuring industrial licences, permits and quotas. Consequently, there is tremendous increase in the income of both the beneficiaries of these favours and the government officials who grant these favours. Those indulging in smuggling activities and their patrons acquire huge amounts of ill-gotten money. On the contrary, honest and law-abiding citizens have to remain content with small incomes. Corruption and smuggling account for the generation of black money. (9) Unemployment: Unemployment and under-employment are important factors for inequality of income in India. In a state of unemployment, a man is deprived of all sources of income. In India, the number of unemployed has increased with every plan. There were about 33 lakh unemployed persons registered in various employment exchanges of India in 1951, their number increased to 4.83 crore in December 2014. Since most of the unemployed persons belong to the poor sections of the society, an increase in their number over time has resulted in inequality in income. (10) Tax Evasion: Widespread tax evasion is responsible for inequalities in the distribution of "'!ealth. Officials responsible for the collection of taxes are not so efficient. Consequently, people succeed in evading the tax. They either do not pay any tax or pay much less than the actual tax due. Such unscrupulous people submit false accounts to the tax authorities and  263 India Jt1equalities of Income and Wealth in th thin gs in suc h a ma nne r as to reduce their tax liability to e s~ c~ ed in T.manipulating d ney was mm1mum. 1ax evasion Iea s to creation of black money. In 2006-07, black mo ti d 7,S0,OOO is assumed at 30 per cent, then f · I d·a n es mate at ~ 25 ,00 ,00 0 cro re in Ind ia. If tax rate 1. t of black mo ney m n crore of tax was evaded on th'1s mcome. The increasing amoun ome in India. has acc ent uat ed inequa litie s in the distribution of wealth an d inc economy nt Policy to Reduce Inequalities of Income and Wealth 3. Governme inequalities of wealth an ~ nt has been endeavouring to reduce E~er since independence governme en to achieve this th ntry. Th e ma in fea tur es of the policy adopted or measures tak income m e cou objective are as under: al sector to red uce Re for ms : Va riou s lan d refo rm s have bee n introduced in the rur (~) lan d obj ect ive of land reform policy is to bring do wn inc om e. Th e ma in inequalities of wealth and ective, different state governments ha d shi p of lan d. To ach iev e this obj inequality in the owner after ind epe nd enc e. No t on ly wa s Ab oli tio n Ac ts, im me dia tely passed Zamindari uted am on g abo lish ed but the lan d in exc ess of the ceiling was also distrib Zamindari system Ce ilin gs on o use d to cul tiva te it as ten ants earlier. Laws relating to the farmers wh ay from the ir s hav e als o bee n pas sed. La nd in excess of the ceiling is tak en aw Landholding or am on g the lan d is dis trib ute d am on g tho se having uneconomic holdings owners. Th is ver y slow. Most of farm ers. Ho we ver , the pro gre ss of land reforms in India has be en landless ld not, therefore, be achieved. the objectives of land reforms cou of cto r: Go ver nm ent has pu rsu ed a policy of rap id dev elo pm ent (2) Extension of Public Se the ext ens ion of this sector. On e of the m be ing ma ny obj ect ive s of public sector. There are is is on e of the ma in objective s of the es of we alth an d inc om e. Th reduction of inequaliti ch eck the alm ost all big com me rci al ban ks. Th is ha s he lpe d to nationalisation of reb y ha s alth an d inc om e in the han ds of private ent rep ren eur s an d the concentration of we. However, since 1991, un de r the ne w qua liti es in inc om e an d we alth helped to reduce ine po lic y of the re has bee n rev ers al of the go ver nm ent policy. Th e economic policy, ble m of ng inc rea sin gly pur sue d. Th is is exp ect ed on ly to ad d to the pro ation is bei privatis inequality. d of Sm all -Sc ale an d Co tta ge Industries: Du rin g the pe rio (3) Encouragement to pm ent of small-scale an d cot tag e ind ust ry ha s to pro mo te the dev elo planning, the policy is ho pe d tha t con cen tra tio n of we alt h pro mo tio n of the se ind ust rie s, it bee n adopted. With the icy, the re are mo re op po rtu nit ies of ted. As a res ult of thi s pol an d income will be preven yed in agricultural sec tor ha ve go t tor. Dis gui sed ly un em plo employment in industrial sec. Co nse qu ent ly, in the se ind ust ries. Th us, inc ome of the po or ha s inc rea sed employment tag e ind ust rie s lities hav e nar row ed do wn. With the dev elo pm ent of cot economic inequa we ver , wi th om e hav e go t opp ort uni tie s to en ha nc e the ir inc om e. Ho people with Jow inc sm all -sc ale ng ou t to mu ltin ati ona ls, un de r the ne w eco no mi c policy, privatisation an d op eni trib uti on. ry ma y no t spr ead eno ug h to pro mo te equ ali ty in inc om e dis indust vie w to ch eck ing d Restr ictive Trade Pr ac tic es: Wi th a (4) Control over Monopolies an es an d Re str ict ive Trade ver nm ent pa sse d M on op oli the concentration of wealth, go s Ac t is to pre ve nt co nc en tra tio n 69. Th e ma in ob jec tiv e of thi Practices (MRTP) Act in 19 lic ens ing to me et ~er. Go ver nm ent ha s als o ad op ted the po lic y of ind ust ria l o~ economic _po red uc e the rou gh ind ust ria l lic ens ing policy, efforts are ma de to this very ~bJective. Th Lic ens ing Re gu lat ion Ac t we re er. Bu t MR TP Ac t an d concentration of eco no mi c pow 264 Economics liberalised from time to time. In the year 2002, MRTP Act was repealed. All this has increased income and wealth inequalities. In place of MRTP Act, Competition Act 2002 was enacted. (5) Employment and Wage Pollcles: Inequality of income can be reduced by providing employment to the unemployed persons. During five-year plans, emphasis has been laid on providing more and more of employment opportunities. In this context, many special programmes and projects have been introduced. In 2005, government enacted Mahatma Gandhi National Rural Employment Gurarantee Act (MGNREGA). It provides at least 100 days of guaranteed employment at a minimum wage rates. Recently, National Rural Livelihood Mission (NRLM) and National Urban Livelihood Mission (NUI.M) have been launched to promote self-employment. Government has sought to reduce inequalities of income by enacting Minimum Wages Act, Bonus Act, etc. However, the wage policy of the government has benefitted labourers of the organised sector. Unorganised sector has not derived any benefit out of these policies. Government has also introduced many social security measures such as Employees' State Insurance Act, Provident Fund Act, Maternity Benefit Act, etc., to improve the economic conditions of the labourers. But even these measures have not succeeded in removing inequalities of income. (6) Pricing and Distribution Policies: To reduce inequality of income pricing and distribution policies have also been introduced. These policies aim at helping the weaker sections of the society. Government has adopted dual price policy in respect of many essential items like sugar, kerosene, wheat, rice, etc. As a result of this policy, poor persons get these goods at a cheaper rate. Arrangements have been made to make available essential goods to the poor people through public distribution system at subsidised prices. However this measure too has not succeeded in removing the inequalities of wealth and income. (7) Fiscal Policy: FI.SCal Policy is th~ policy which is concer~ed with the management of taxation a system and public expenditure with view to achieving definite objectives. The Government of India has so directed its fiscal policy as to achieve the objective of reduction in inequality of income and wealth. The main measures of India's fiscal policy adopted to reduce inequalities of income and wealth are as follows: · (i) Taxation Policy: Policies of direct and indirect taxes aim at minimising inequality of income. The direct taxes like income tax, corporation tax, and capital gains tax have been levied at progressive rates on the rich class. The poor are exempted from the payment of income-tax. The indirect taxes on luxuries are levied at higher rate. The burden of these taxes are borne by the rich section of the society. (ii) Public Expenditure Policy: The public expenditure policy of the government also aims at reducing the extent of inequalities of income. The money collected from the rich is used to increase income of the poor. In other words, the public expenditure redistributes income from the rich to the poor in the following.ways: (a) Social · Secmity Benefits: The government provides assistance to the poor against many insecurities and to raise their standard of living. These benefits are of several types like siclmess benefit, maternity benefit, family pension, social security for handicapped and old age persons. (b) Subsidies: Policy of granting subsidies has also been adopted in order to remove inequalities of income. With a view to improving the economic condition of poor and weaker sections of the society, government gives subsidies on electricity, irrigation, water supply, health facilities, housing, education, etc. Public  Jnequalitles of Income and Wealth in India 26.5 enterprises sell many c~mmodities like chemical fertilizers, IPG, kerosene oil, etc., at !ess than the cost price. (S) M;asures to Correct Regional Imbalances: Following measures have been taken to to re uce regional imbalances: (i) Greater share out of central finance is made available backw~rd ~tates by the Finance Commission. These states are given larger share of central taxes, hke income tax, excise duty, etc. (ii) For the efficient administration of poor states, central government gives them financial assistance. (iii) Special Area Development Programmes have been launched in backward states, such as, Dry Farming Programme, s Desert Development Programme, Drought Prone Area Programme, etc. (iv) Special facilitie es, for industrial development in backward districts are provided like tax-concessions, subsidi etc. 4. Is Complete Equality of Income Feasible and Desirable? ce Complete equality of income means that each person gets equal income and there is no differen person gets in the personal income of all the residents of a country. It refers to a situation in which every generates the equal incorne without any discrimination. It is argued that an equal distribution of income equality of the maximum economic welfare for society. However, the concept of complete or perfect feasible nor distribution of personal income is only a myth. The complete equality of income is neither summarised as possible nor desirable. This conclusion regarding equal distribution of income may be follows : (1) Complete Equality of Income is Not Possible: In reality the complete equality of al income is not possible since nature has been very arbitrary in apportioning mental, physic the and aesthetic talents. Some individuals have the mental qualities essential for entering in as relatively high paying fields of medicine, management, engineering, etc. Others rated e normals get low paying occupation. Some are blessed with physical capacity to becom their highly paid workers. The weak' and unhealthy must settle for much less. Nat_urally, income is bound to differ. (2) Complete Equality of Income is Not Desirable: The complete equality of income is also not desirable. Two main arguments may be advanced to support this conclusion. (i) Hampers Incentive to Work: Perfect equality of income will hampe r incentive to work and innovate. If people find that their income is always at par with others, they will have no incentive to work hard and effectively. (ii) Low Capital Formation: The complete equality will lead to low capital formation. Equality of income will result in more consumption and less savings. On the other hand, income inequality gives rise to sizeable amount of private savings, as rich persons save of more. These savings when invested result in capital formation which is the core economic growth. Indeed it is primarily as a result of this capital formation that the productivity and standard of living of the entire economy are improved. is required is In brief, the complete equality of income is neither possible nor desirable. What goal of reasonable reduction in the prevailing high inequality of income and wealth and to achieve the equality in the distribution of income. Conclusion in India. The The inequalities in the distribution of income and wealth are quite severe e in the country. Government of India has been endeavouring to reduce inequalities of wealth and incom 266 Economics Several measures have been adopted in this direction but it could not gain much success. Following measures were suggested by the Planning Commission to minimise inequalities of wealth and income: (i) Agricultural land and urban property should be re-distributed. (ii) Public entezprises should distribute essential goods at subsidised prices to low-income consumers. (iii) More credit facilities be made available to small farmers and cottage and small industries. They should be provided essential raw materials on priority basis. (iv) Rural and urban poor should be organised. It will be easier for the administration to help them when they are organised. (v) Minimum employment facilities be provided. Emphasis has also been laid on the reduction of inequalities in the distribution of wealth and income during the course of various Ave Year Plans. , Quaatl na ----- ----- ----- ---------------------------------· I. Essay Type Questions 1. In a mixed economy like Indian economy, are inequalities of income inevitable? Give reasons for your answer and indicate how taxation can be used to reduce economic inequalities? 2. Discuss the extent of inequalities of income in India. What steps have been adopted by the government to reduce inequalities of income? 3. What are the causes of inequality of income and wealth in India? What steps have been taken by the government to solve this problem? 4. Discuss the nature and extent of inequalities of income and wealth in India. What measures would you suggest to reduce these inequalities? II. Short Answer Type Questions 1. Llst the main measures adopted by the government to reduce inequalities. 2. What do you understand by inequality of income and wealth? 3. Write a note on income inequality in India. , 4. Write a short note on measures taken to reduce income inequality in India. 5. , "Despite economic progress, inequalities are widespread in India." Comment. , 6. Explain the extent of inequalities of income and wealth in India. , 7.. What are the causes of inequalities of income and wealth in India? 8. What measures are taken by the government to reduce inequalities of income and wealth? Ill