The inequality challenge for India@75

During the period 1950-51 to 2019-20, for which evidence is available, in real terms, growth in GDP was 4.9% per annum while growth in GDP per capita was 2.9% per annum. Thus, over seven decades, GDP multiplied by just over 29, doubling every 14 years, while GDP per capita multiplied by almost 8, doubling every 24 years. This provides a sharp contrast with the period 1900-01 to 1946-47 during the colonial era, when national income growth was 1% per annum and per capita income growth was 0.2% per annum. At these growth rates, national income would have doubled in 70 years, while per capita income would have doubled in 350 years! Political independence, which restored economic autonomy and enabled India to pursue its national development objectives, made the change possible.

In comparison with other countries during the post-colonial era, this performance was not as good as that of East or Southeast Asia, and it was not as bad as that of Africa. It was average. A comparison between the three Asian giants—India, China and Indonesia—at similar levels of development when they attained political independence in the late 1940s, is instructive. Between 1970 and 2019, using national accounts statistics compiled by the United Nations, per capita income as a proportion of that in industrialized countries rose from 4.3% to 5.2% in India, 4.6% to 25% in China and from 3.4% to 10% in Indonesia, while their per capita income as a proportion of that for the world economy rose from 12% to 18% for India, 13% to 87% for China and 10% to 35% for Indonesia.

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Economic growth in India has been associated with unequal outcomes that have created divides between regions, sectors and people. The west and south of the country have surged ahead, while the east and north have lagged behind, widening the gap between richer and poorer states. Over the period 1950-51 to 2019-20, the agricultural sector’s share in GDP fell from 58% to 15%, whereas the share of the rural population (dependent directly or indirectly on agriculture) in our total population decreased from 85% to 65%, so that the ratio of GDP per capita in the agricultural sector to that in the non-agricultural sector dropped from one-half to one-tenth, leading to a massive rural-urban divide. Modest growth during 1950-1980 was associated with a steady decline in economic inequality between people. But rapid growth since 1980 has been associated with a dramatic increase in economic inequalities. For India, the World Inequality Report estimates that in 2021, the share of the top 1% in national income was 21.7% and that of the top 10% was 57.1%, while that of the bottom 50% was only 13%. Similarly, the top 1% held as much as 33% of total wealth and the top 10% held 65% of total wealth, while the bottom 50% had a mere 6% of total wealth. This enormous rich-poor divide places India among the highest-inequality nations in the world.

Rapid economic growth in India, starting 1980, did lead to a substantial reduction in absolute poverty. Yet, the scale of absolute poverty that persists is striking. Poverty reduction could have been much greater were it not for rising inequality. Lost livelihoods during the covid pandemic probably accentuated the problem. Although poverty lines and poverty estimates are always a source of contention, the number of poor people in India in 2022, perhaps 20-25% of our population, might be close to the total population of India in 1947.

Economic growth can be transformed into meaningful development only if it brings about an improvement in the living conditions of people. For the poor, their daily lives are a struggle. Malnutrition—particularly among children and women—persists, hunger and destitution are common, child labour is a necessity for many, shelter is makeshift or absent, access to educational opportunities is sparse, and healthcare is neither available nor affordable. And sustainable livelihoods for the poor remain a distant dream.

A big failure of the development process in India since independence is that economic growth has not led to commensurate employment creation. The number of jobs created in any year are nowhere near enough to absorb the increment in the workforce, let alone the mounting backlog of the unemployed. Underemployment has always existed. Open unemployment is rising. Youth unemployment, particularly among the educated, is alarming. The problem is more of a treadmill than a time bomb. Even so, it is essential to recognize that employment is not only a source of growth, but also a means of mobilizing our most abundant resource—people—for development. Just as important, employment is the only sustainable means of eradicating poverty and mitigating inequality.

As we celebrate the past 75 years, flying the national flag in every home, let us also think about our people for whom little has changed in their lives, with a resolve to ensure that poverty and illiteracy do not exist 25 years from now when we celebrate the first centenary of our independence from colonial rule.

Deepak Nayyar is emeritus professor of economics, Jawaharlal Nehru University.

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