NEWS  In the post-pandemic world, addressing inequality is key to sustaining growth and well-being.

CONTEXT

• COVID-19 in the last one year has once again reminded us of the growing inequalities in India.
• A recent Pew Research Report shows that India’s middle class may have shrunk by a third due to the novel coronavirus pandemic while the number of poor people earning less than ₹150 per day more than doubled.
• The report also warned that the situation may actually be worse than estimated because of worsening inequalities.
• International organisations like the World Bank, the International Monetary Fund and the International Labour Organization have also warned about rising inequalities in several countries including India due to the pandemic.

WIDENING INEQUALITIES

• Inequalities in India have been high even in the pre-COVID-19 period, but the economic shock due to the pandemic has been much more severe for the country for two reasons:
  • First, pre-COVID-19, the economy was already slowing down, compounding existing problems of unemployment, low incomes, rural distress, malnutrition, and widespread inequality.
  • Second, India’s large informal sector is particularly vulnerable.
• Inequalities were increasing earlier also but the pandemic has widened them further.
• For example, the share of wages earned by workers have declined as compared to that of profits cornered by the investors.
• The quarterly net profit of the BSE200 companies reached a record high of ₹1.67 trillion in the third quarter of FY21 and was up by 57% year-on-year. But the informal sector and workers have suffered a lot with loss of incomes and employment in the last one year.
• In other words, the recovery is more k-shaped with rising inequalities.
• Further, women have lost more jobs and many are out of the workforce and Inequalities have increased in health care and education.

WAY FORWARD

Reduction in inequalities is important for its own sake and for improving demand which can raise private investment, consumption and exports for higher and sustainable economic growth.

The three-pronged approach can be used for reducing inequalities. These are: 

1. Focus on employment and wages

• The creation of quality or productive employment is central to the inclusive growth approach.
• For this the investment rate which declined from 39% in 2011-12 to 31.7% in 2018-19 has to be improved.
• In turn, investment in infrastructure including construction can create employment.
• In this direction, the recent Budget has rightly focused on capital expenditure for infrastructure.

2. Raising human development

• There is a need to create equality of opportunity by improving human development, through increasing public expenditure on health and education.
• Education and health achievements are essential for reducing inequality of opportunities.
• India should move towards universal health care and spend 2%-3% of GDP on health.

3. Providing quasi universal basic income and other social safety nets

• This can be done through cash transfers to all women above the age of 20 years;  expanding the number of days provided under the Mahatma Gandhi National Rural Employment Guarantee Act and a national employment guarantee scheme for urban areas.
• These schemes would provide income support to the needy.
• Apart from the ideas above, increasing farmers’ income especially for small and marginal farmers is needed to reduce inequalities and create demand. Farmer producer organisations should be strengthened.
• States have to be given a bigger role in agri-marketing reforms and the terms of trade for agriculture have to be improved.

CHALLENGES IN IMPLEMENTATION OF THIS APPROACH

Seven challenges in employment:

• creating productive jobs for seven to eight million per year
• correcting the mismatch between demand and supply of labour (only 2.3% of India’s workforce has formal skill training as compared to 96% in South Korea, 80% in Japan, and 52% in the United States

Strategies

• Manufacturing should be the engine of growth, for which the labour-intensive exports are important.
• Focussing on the growth of micro, small & medium enterprises and securing rights of migrants involved in informal sectors.
• Getting ready for automation and technology revolution
• Ensuring social security and decent working conditions for all
• Raising real wages of rural and urban workers and guaranteeing minimum wages.

Raising human development challenges:

• In India, public expenditure on health is only 1.5% of GDP.
• In education, there are islands of excellence that can compete internationally even as a vast majority of masses of children are churned out with poor learning achievement.
• Also, ongoing pandemic have highlighted the digital gap in education.

WHAT ELSE CAN BE DONE?

• Enhancing tax and non-tax revenues of the government is needed to spend on the above priorities.
• The tax/GDP ratio has to be raised, with a wider tax base.
• Richer sections have to pay more taxes.
• Similarly, the inequalities between the Centre and States in finances should be reduced.
• State budgets must be strengthened to improve capital expenditures on physical infrastructure and spending on health, education and social safety nets.
• Apart from economic factors, non-economic factors such as deepening democracy and decentralisation can help in reducing inequalities.
• Unequal distribution of development is rooted in the inequalities of political, social and economic power.

We have to find opportunities and spaces where the power can be challenged and redistributed. In the post-COVID-19 world, addressing inequality is important for higher and sustainable economic growth and the well-being of the population.

Reference:

1. https://www.thehindu.com/opinion/op-ed/the-pillars-of-an-equitable-post-covid-india/article34247987.ece