The Inequality Question
Inequality Question

The Prime Minister Narendra Modi, in a recent speech, suggested that the politics of wealth distribution will transfer wealth away from Hindus to Muslims. The majoritarian theme and language used in his speech has already become a major public issue. Here we note that his attempt to deflect the burning question of inequality shows how deep the question is and how reluctant the current government is to answer it. In this article, we share short summaries of two major reports published in the last one year. These reports recount how the current government is squarely responsible for increasing inequality in India.

Oxfam Report, 2023

Oxfam India’s “Survival of the Richest: The India Supplement” revealed a truth that we knew all along – that neo-liberal economic policy, being rabidly followed by the BJP Government at the Centre, has drastically increased inequality and widened the gap between the rich and the economically deprived classes. It reveals the way in which the taxation policy has resulted in the economically deprived classes effectively subsidizing the rich and also the impact of the inequality.

Below are some of the key findings of the Report.

The inequality that has grown:

  1. The top 30% own more than 90% of the total wealth. The wealthiest 10% own more than 72% of the total wealth, the top 5% own nearly 62% of the total wealth, and the top 1% own nearly 40.6% of the total wealth in India. In contrast, the bottom 50% of the population (700 million) has around 3% of total wealth.

  2. Since the pandemic begun and till Nov 2022, billionaires in India have seen their wealth increase by 121%, or INR 3608 Crore per day in real terms (Around INR 2.5 crore every minute).

  3. In comparison, following the pandemic in 2019, the bottom 50% of the population has continued to see their wealth reduce. By 2020, their income share was estimated to have fallen to only 13% of the national income and they have less than 3% of the total wealth.

Impact of India’s Taxation Policy:

(a)    Reduction in Corporate Taxes:

1.    In 2019, the Central Government reduced the corporate tax slabs from 30% to 22%, with newly incorporated companies paying a lower percentage of 15%.
2.    These tax cuts resulted in corporate tax collections declining by approximately 16% in their first year and resulted in a total loss of INR 1.84 lakh crore. Corporate tax collections were 82% of the collections in 2019-20 and 68% of the collections in 2018-19.
3.    In 2020-21, the projected revenue foregone by the government in the form of incentives and tax exemptions to corporates is INR 1,03,285.54 crore.
4.    Consequently, the burden of taxation has shifted away from the corporates towards the individual income taxpayer. 

(b)    Increase in Indirect Taxation:

  1. To increase revenue, the Union Government adopted a policy of hiking the GST and excise duties on diesel and petrol while simultaneously cutting down on exemptions.

  2.  Since 2020-21, the share of indirect taxes in the state exchequer has risen by 50%.

  3. Since the implementation of GST, the share of direct taxes out of the total gross tax revenue receipt declined by 5% by 2020-21. Similarly, revenue from corporate taxes as a percentage of gross tax revenue declined by 8%. Under the GST regime, there is a decline in the proportion of corporate taxes in the total revenues of the government.

  4. The bottom 50% of the population at an All-India level pays six times more on indirect taxation as a percentage of income compared to top 10%.

  5. GST: Of the total taxes collected these food and non-food items, 64.3% of the total tax is coming from the bottom 50%. A little less than two-third of the total GST is coming from the bottom 50%, one-third from middle 40% and only 3-4% from the top 10%.

  6. Simultaneously, increase in excise duties on diesel and petrol when the price of oil barrels fell to record lows (INR 1,722 a barrel in April 2020). Between 2014-15 and 2021-22, the excise duties on petrol increased by 194%, while the excise duties on diesel were hiked by 512%.

    (1) In October 2021, PRS Legislative Research reported that taxes made up 54% of the price of petrol (of which 31% were central excise duties and 23% were States’ Sales Tax/VAT). For diesel, taxes comprised 49% of the retail price (of which 34% were central excise duties and 15% were States’ Sales Tax/VAT).

  7. While income tax is based on the income they earn, extracting more from individuals with higher income, an indirect tax like GST and excise of diesel and petrol would tax all individuals the same amount, irrespective of their income. In this way, a person with a lower income would end up paying more as a percentage of their income.

  8. Of the Total GST collected,
    (1).    64.3% of the total GST is from the Bottom 50%, i.e., almost 2/3 of the total GST is coming from the bottom 50%
    (2).    1/3 from middle 40% and
    (3).    Only three to four % from the top 10%.

  9. The poor pay a larger part of their income towards taxes than the rich.
    (i)    The bottom 50% spends 6.7% of their income on taxes for food and non-food items.
    (ii)    Middle 40% spends half of that at 3.3% of their income on food and non-food items.
    (iii)    The top 10% wealth group spends a mere 0.4% of their income on food and non-food items.
    (iv)    The bottom 50% of the population at an All-India level pays six times more on indirect taxation as a percentage of income compared to top 10%.

The failure to tax rich people and corporations fairly is not only a missed opportunity to reduce inequality – it actually worsens it, as governments must resort to taxing the rest of the society more, or cut spending on health, education and other public services, and social protection that support the reduction of inequality. Heavy reliance on consumption taxes like VAT increases inequality and is regressive in nature because poor people pay a larger share of their incomes. Inequality also has a massive negative impact on basics such as food, health and education – all necessary civic amenities in which the government expenditure has been declining. 

The India Employment Report, 2024

The India Employment Report 2024 released by the Institute for Human Development and International Labour Organization on March 26, presented a gloomy picture of the Indian economy. The report has flagged concerns about poor employment conditions: the slow transition to non-farm employment has reversed; women largely account for the increase in self-employment and unpaid family work; youth employment is of poorer quality than employment for adults; wages and earnings are stagnant or declining.

The report uses the ‘employment condition index’ to understand the economy. The index is based on seven labour market outcome indicators: (i) percentage of workers employed in regular formal work; (ii) percentage of casual labourers; (iii) percentage of self-employed workers below the poverty line; (iv) work participation rate; (v) average monthly earnings of casual labourers; (vi) unemployment rate of secondary and above-educated youth; (vii) youth not in employment and education or training.

The report has focused on almost two decades: 2000 to 2022. The report brutally exposes the current government’s claim of having ensured all-round development and generated millions of jobs.

Employment Quality

Informal employment has risen — around half the jobs in the formal sector are of an informal nature. Self-employment and unpaid family work has also increased, especially for women. Almost 82% of the workforce is engaged in the informal sector, and nearly 90% is informally employed, the report said. Self-employment remains the primary source of employment — 55.8% in 2022. Casual and regular employment accounted for 22.7% and 21.5% respectively.

The share of self-employment remained almost stable around 52% between 2000 and 2019, while regular employment increased by almost 10 percentage points, to 23.8% from 14.2%. This is reversed by 2022, with self-employment increasing to 55.8%, while the share of regular employment declined to 21.5%. Casual employment consistently declined to 22.7% in 2022 from 33.3% in 2000.

Participation of Women

The female labour force participation rate (LFPR) in India remains among the world’s lowest. Female LFPR declined by 14.4 percentage points (compared to 8.1 percentage points for males) between 2000 and 2019. The trend reversed thereafter with female LFPR rising by 8.3 percentage points (compared to 1.7 percentage points for male LFPR) between 2019 and 2022.

There is a considerable gender gap — women’s LFPR (32.8%) in 2022 was 2.3 times lower than men’s (77.2%). India’s low LFPR is largely attributed to the low female LFPR, which was much lower than the world average of 47.3% in 2022, but higher than the South Asian average of 24.8%, as per ILO data.

As on 2022, 48.4% women are not in employment, education, or training. This is nearly five times that of men (9.8%).  

Structural Transformation

There has been a reversal of the slow transition towards non-farm employment after 2018-19. The share of agriculture in total employment fell to around 42% in 2019 from 60% in 2000.

This shift was largely absorbed by construction and services, the share of which in total employment increased to 32% in 2019 from 23% in 2000. The share of manufacturing in employment has remained almost stagnant at 12-14%.

However, since 2018-19, this slow transition has stagnated or reversed with the rise in the share of agricultural employment.

Youth Employment

Youth employment and underemployment increased between 2000 and 2019 but declined during the pandemic years. However, unemployment among youths, especially those with secondary-level or higher education, has intensified over time.

In 2022, the share of unemployed youths in the total unemployed population was 82.9%. The share of educated youths among all unemployed people also increased to 65.7% in 2022 from 54.2% in 2000.

The unemployment rate among youths was six times greater for those who had completed secondary education or higher (18.4%) and nine times higher for graduates (29.1%) than for persons who could not read or write (3.4%) in 2022. This was higher among educated young women (21.4%) than men (17.5%), especially among female graduates (34.5%), compared to men (26.4%).

The unemployment rate among educated youths grew to 30.8% in 2019 from 23.9% in 2000, but fell to 18.4% in 2022. Even though there has been a rise in youth employment recently, the quality of work remains a concern, especially for qualified young workers.

Forty percent of technically qualified youth engaged in vocations which do not correspond to their qualifications. Highly skilled youth are taking up blue collar jobs. At an aggregate level only 4% of youth have access to formal vocational training. In 2005, only 11.61% of youth had access to vocational training. That increased to a mere 15.62% in 2022. Among them only 3.6% were OBCs, 3.66% were SCs, and 1.79% STs. The education-employment gap gives a lie to the government’s claim of having bridged this gap through the National Education Policy (NEP 2020).

The Lies of the Present Government

Employment grew at only 1.6% annually between 2000 and 2012. After 2012, it declined to 0.01%. It increased after 2019, but mainly in agriculture. The share of manufacturing in employment was stagnant throughout the Modi years, at around 12% to 14% per year. This indicates the failure of Make in India and other flagship employment generation schemes. During these years, employment in manufacturing increased by only 1.7% annually (2000 to 2019) and then by 3.5% between 2019 and 2022. This is a far cry from the government’s claim of generating lakhs of manufacturing jobs every year.

Two-thirds of incremental employment after 2019 comprised self-employed workers, among whom unpaid women family workers predominate. Nearly 82% of the workforce engages in the informal sector, and nearly 90% is informally employed. A large number of youths are employed in the gig and platform economy where jobs are insecure, poorly paid and the labor regime is very oppressive and controlled by algorithmic functions.

As much as 62% of the unskilled agriculture workers and 70% of such workers in the construction sector at the all-India level did not receive the prescribed minimum wage in 2022. A large proportion of regular workers (40.8%) and casual workers (51.9%) did not receive the average daily minimum wage prescribed for unskilled workers.

All this is proof of low-quality employment, characterized by poor wages, job insecurity, lack of social security and workplace rights. The way the report draws attention not only to unemployment but also to the poor quality of employment makes it highly significant. 

While unemployment is a potent issue in Indian politics, the quality of employment still remains somewhat as a hidden problem, as does inequality as a political question on the whole, encompassing inequalities of caste, class and gender and their impact on all spheres of life. The Prime Minister’s anger at the slightest hint of an effective politics of quality shows the power that this has to throw up an alternative, democratic political discourse.