India's inequity boom is staring us in the face
1 min read . Updated: 16 Mar 2023, 12:39 AM IST
PremiumIndian income tax data leaves no space for doubt that the better-off got richer while the rest had a hardscrabble pandemic. This may be more than a blip. Let’s face the problem squarely
If insufficiency of direct data left any doubts about how India’s income gaps fared during the pandemic, the latest income tax data placed in Parliament should quell them. Our taxpayer base, which had risen from 40 million in 2015-16 to 65.4 million in 2018-19, fell in 2020-21 to 63.4 million, a clear sign of overall distress. If divided into three slabs—those earning up to ₹5 lakh, those who earn ₹5-10 lakh and those with annual earnings of more than ₹10 lakh—that form a pyramid, our count of individual taxpayers shows people having dropped out of the lower bracket. This defies the usual pattern of emergence from poverty, by which we would expect the under ₹5 lakh group to swell. It has been the most populous, of course, but its share was reducing fast even before covid struck. In 2014-15, more than four-fifths of all payers were in that cohort; in 2018-19, three-fourths were; and in 2020-21, less than two-thirds. In absolute terms, that covid-stricken fiscal year had 41.2 million in the lowest slab, down from a peak two years earlier of nearly 50 million. There was also upward mobility, though, as the two higher slabs both expanded. We had 14.1 million mid-earners and 8.1 million top-earners in 2020-21.
Other data also points to hardscrabble times. According to an ICE360 survey of 120,000 urban households across 100 districts, for example, the mean household income for the lowest earning households fell sharply to an annual ₹65,000 in 2020-21 from ₹1.37 lakh five years earlier. In contrast, the richest of those surveyed saw theirs rise to ₹7.31 lakh from ₹5.26 lakh. Readings of India’s periodic labour force surveys also reveal a similar outcome, with the country’s have-nots turning worse off, even as ‘haves’ flourished during the pandemic. The disruptions caused by covid, thus, clearly had a skewed impact on household budgets. But we can’t pin this K-shaped divergence in fortunes on covid’s ravages alone. Major policy moves, such as the invalidation of high-value currency notes in 2016 and a rocky goods and services tax rollout hurt vulnerable sections of our population. Apart from modestly earning homes, many small and medium businesses, which are among the biggest employers in the country, were left badly bruised. While the Centre’s push for formalization did have other benefits, it turned the path of millions into a slippery slope. They had hardly found their feet when a deadly virus came along and drew a global flush of liquidity from central banks that pushed up asset values almost everywhere and made the wealthy a lot wealthier. Since only a bit of this is reflected in taxpayers’ income reports—think of dividend flows, etc—disparities must have grown worse than captured by such data.
All this bodes badly for India. We need to keep widening our consumer base for our market to attract investment. All products and services must sell in increasing volumes over the years, not flag off once the privileged are sated. This means we must expand job prospects, which painfully languish, and also do what it takes to cool inflation, which is an unseen tax imposed on the poor. Although the government took care to offer the hard-up food lifelines (and rural dwellers basic-wage jobs as well), we must not leave it at that. Our inequity boom predates covid and is unlikely to subside on its own. In fact, the outbreak only aggravated it. It’s a problem that we must squarely confront before it stalls our economic progress and stirs unrest. And we need a solution in the broad context of our growth strategy.
