India is an unequal country. Yes we do rank 4th in having the most number of Billionaires in 1 Country but 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?
Let's talk about 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 the GDP of a country, then inequality would follow.
What does this mean? Think of capital as all the accumulated wealth - real estate, investments etc.
So return on capital is hence the incomes generated from this accumulated wealth. So now if the return on capital is greater than the growth of an economy, then only the rich will keep getting richer while the working class remains unaffected because their wages of the working class is linked to the GDP growth of the country.
Also the income generated from capital is held exclusively in the hands of a few elites whereas income generated from labor is distributed among a larger group of people which explains why this feature gives rise to inequality. In India, before Liberalization, between 1950’s to 1980, the income share of the top 1%, 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, obviously the working class had it better during the socialist era before liberalization" But its not quite the case.
According to Indian Economist Swaminathan Aiyar, "before liberalization the poverty ratio didn’t fall. At the same time the population of India had doubled so the number of poor people had also increase.
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 permit Raj was abolished 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 wealth gained by corrupt means So if the degree to which corrupt individuals can amass wealth by bending laws to is greater than the degree to which honest individuals uphold fair government practices, then inequality will ensue.
And this corruption fueled inequality flourish in a place where there are no incentives, laws and institutions to hinder corruption. And maybe that's an explanation on why inequality is rife in India.
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