Why is Income Inequality so common in India?

At the same time, do you know that it would take 941 years for a minimum wage worker in rural India to earn as much as a top-paid executive in a garment company? Why Inequality is Rife in India. To understand Inequality, we have to start with the most comprehensive Explanation. And this comes from a best-selling book called Capital in 21st Century written by Thomas Piketty. In this book, Piketty states that if the return on capital is greater than the Growth in a country’s GDP, Inequality will follow.

What does this mean?

Think of money as all the accumulated wealth – real estate, investments, etc. So return on capital is hence the income generated from this accumulated wealth.

So now, if the return on capital is greater than the Growth of an economy, only the rich will keep getting richer while the working class remains unaffected because their wages of the working class are linked to the country’s GDP growth. Also, the income generated from capital is held exclusively in a few elites’ hands. In contrast, revenue generated from labor is distributed among a larger group of people, explaining why this feature gives rise to Inequality.

In India, before Liberalization, between the 1950s and 1980, the top 1%’ income share had fallen. This was the socialist era before the then finance minister, Manmohan Singh, introduced the liberalization reforms. So now the first thing that comes to mind is “since the income share of the top 1% had dropped. the working class had it better during the socialist era before liberalization”, But it’s not quite the case. According to Indian Economist Swaminathan Aiyar, “before Liberalization, the poverty ratio didn’t fall.

At the same time, India’s population had doubled, so the number of poor people had also increased. However, because of the Growth in the GDP induced by Liberalization, nearly 138 million people were able to raise themselves above the poverty line between 2004 and 2011.” Yes, Inequality might have increased, but India still fared because it abolished permit raj, and Indians had better access to new opportunities to make something of themselves. So even Piketty’s Explanation doesn’t account for the Inequality in India.

However, there might be one clue from an article in the Atlantic. According to this article, much of the Inequality in developing countries is due to corrupt means. If the degree to which unscrupulous individuals can amass wealth by bending laws is greater than the degree to which honest individuals uphold fair government practices, Inequality will ensue. And this corruption-fueled Inequality flourishes in a place where there are no incentives, laws, and institutions to hinder corruption. And maybe that’s an explanation of why Inequality is rife in India.

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