Home >Politics >Policy >Why income inequality in India may be fuelling populist politics

New Delhi: After Congress president Rahul Gandhi promised a nationwide farm loan waiver if voted to power in the 2019 Lok Sabha elections, the ruling Bharatiya Janata Party (BJP) is contemplating a nationwide farm income support scheme, news reports suggest. Both parties seem to have settled on the populist card to woo voters, months ahead of the big Lok Sabha fight, even as state governments across the country cut back on capex spending to roll out debt relief packages for farmers.

While the recourse to populism exposes the limited imagination of India’s political class, it also suggests an urgent redistributive urge in one of the world’s fastest growing economies.

This urge seems to be shaped by the growing concern on income inequality in India.

Among large economies for which consistent time series data is available for the past two decades, India has seen the highest increase in the share of people who think that incomes should be made more equal in their country, data from the World Values Survey (WVS) shows.

In 1989-93, barely 13% of Indian respondents said incomes should be made more equal. By 2010-14, this figure had increased to 48%—the highest in the world. The latest round of the WVS (2010-14) also asked respondents whether they thought “an essential characteristic of democracy is that the state should make incomes equal". Again, India, along with Turkey, had the highest share of respondents (32%) who replied in the affirmative.

Thus, even before inequality became fashionable in the post-Piketty world, concern about inequality has been growing in the country.

One big reason for this is the country’s high levels of inequality. Inequality in the country may not be as high as the French economist would have made us believe, but it is worryingly high, as this column has pointed out earlier.

Even household surveys, which are likely to underestimate inequality, present a disturbing picture of inequality in India. Estimates of income inequality provided by the nationally representative India Human Development Survey (IHDS) suggest that income inequality is far higher than consumption inequality and is comparable to countries in Latin America, infamous for their high levels of inequality.

The levels of wealth inequality are higher, data from the All India Debt and Investment Survey (AIDIS) analysed by the economists Ishan Anand and Anjana Thampi show. Their estimates show that the top 1% in India accounted for nearly 28% of the country’s wealth in 2012, an increase of 11 percentage points since 1991.

The rise in income inequality also manifests itself in the slowdown in wages across industries. Data from the Annual Survey of Industries (ASI) shows that wages of workers have lagged productivity growth even as managerial compensation has seen an impressive rise.

Over the past three decades, the wage share of net value added has been declining even as the profit share has been rising, the data shows. In effect, the productivity growth in the industrial sector has benefited managers and owners far more than blue-collar workers.

Given that white-collar workers accounted for less than a sixth of the workforce over the past two decades according to the ASI data, the gains from higher productivity and growth seem to have accrued only to a small minority.

The distribution of such white-collar jobs is very unequal. Data from IHDS shows that it is the upper castes who account for a disproportionately high share of white-collar jobs.

Not surprisingly, therefore, upper castes also tend to be more affluent compared to other social groups.

The key difference between upper castes and other social groups lies in their greater access to education. The rising premium on education in India’s job market and the absence of any discrimination against them has meant that upper castes have been able to access well-paying jobs more easily compared to other social groups and have, in turn, been able to maintain their position on the socioeconomic ladder.

Despite the improvements in educational mobility in the country, India has one of the highest levels of inequality in access to education, research by a team of World Bank economists showed last year.

As the inequities in opportunities across the country do not receive the attention they deserve, politicians are able to sell populist palliatives and get away with that.

Mint’s Vishnu Padmanabhan in New Delhi contributed to this story

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