Page 1 : 2 _, , , , , , INCOME INEQUALITY, , , , , , , , , , , , , , a, , 3.1 Introduction, , 3.2 Extent of Income Inequality in India, 3.3 Causes of Income Inequality, , 3.4 — Effects of Income Inequality, , 3.5 Policy Measures to Reduce Income Inequality, , SS, 3.1 INTRODUCTION, , Ownership of factors of production is the source of income to the people. Rent, wages/, salaries, interest and profit are the different sources of income for landlords, labourers,, capitalist and business organisers. It is the ownership of factors of productioni.e, land and, capital or the ability to render services i.e. labour of different types and the ability to organise, , business activities that enable people to earn income. Income earned by people however is, not the same., , Distribution of income is far from equitable. In reality, every where,, oriented economies, a majority gets a small share of the national income, appropriates a large share. In this chapter we, income inequality in India and the policy meas', , especially in market, and a small minority, analyse the extent, causes and effects of, ures to reduce income inequalities., , OF INCOME INEQUALITY IN INDIA, , Distribution of income is inequal in India as it is in all other countries. Inequality in income, in our country is a historical fact. We could trace it back to the rule of Indian Kings and, Princes, and subsequently to foreign rulers, In the post independent period under the Five, Year Plans the government has devised vari, , , , Inequality in the distribution of income is reflected in the percentage shares of income or, consumption accruing to portions of the population ranked by income or consumption, levels. The Portions ranked lowest by personal income teceive the smallest shares of total

Page 2 : ;, , Income Inequality , Gini Coefficient, , The extent of inequality is normally measured by Gini coefficient. Gini coefficient is a, measure of inequality. It is the ratio of the area between the line of perfect equality and the, observed Lorenz curve to the area between the line of perfect equality and the line of perfect, inequality. The value of Lorenz ratio is 0 to 1, A lower ratio implies a more equal distribution,, while higher ratio implies unequal distribution., , INCOME DISTRIBUTION, , The income inequality Prevailing in India is given in Table 3.1. The distribution of income, in our country is inequitable as it is the case elsewhere. The bottom 20 percent receive, about 8.6 percent of the national income and the top 10 percent about 28.3 percent in 2005., , Table 3.1: Percentage Share of Income or Consumption, , , , , , , , Population (percent) 2005, Lowest 10% 3.8, Lowest 20% 8.6, Highest 20% 42.4, Highest 10% 28.3, , , , , , , , Source : World Bank, World Development Indicators, 2012, Table 2.9., , Income distribution studies conducted in India by RBI, NCAER, P.O. Ohja & V.V. Bhatt,, KR. Ranadive, N.S. lyenger and P.R. Brahmananda & also data from World Bank and, other sources indicate that the income is inequitably distributed. The bottom 40 percent of, the population receive about 20 percent of the total income whereas the top 40 percent, have more than 60 percent of the income. The bottom and top 20 percent reveal extreme, inequalities. The top 10 percent receive more income than the bottom 40 percent. Over a, period of time, inequalities tend to reduce along with development. Comparative Analysis, of income distribution shows that there is no much difference in inequalities between the, developed and developing countries., , RURAL-URBAN INEQUALITY, , Iyenger and Brahmananda's Study : Inequality in income distribution is studied not only, on the basis of household groups throughout the economy but also on the basis of rural, and urban sectors. Such an analysis helps us to understand the disparity between the sectors, as well as within the sector itself. A study by N.S lyenger and P.R Brahmananda have, , _ calculated Gini-Lorenz ratios of the distribution of nominal per capita household, , consumption expenditure based on NSS data., Their study revealed the following :, , (i) The Gini Lorenz Ratios for both rural and urban sectors were higher in the 1950s than, in the 1960s and thereafter., , (i) The Gini Lorenz Ratio by and large remained constant since 1966 both in rural and, urban sectors. The ratios stabilised around 0.30 and 0.33 in the respective sectors., , (iii) ‘The inequalities in both the sectors have not increased since 1960s., , (iv) Between the two sectors inequalities have been more in the urban than in the rural, Sector., , Hashim's Study : According to S.R. Hashim, income distribution in India as reflected by, household consumption expenditure shows remarkable stability over the period 1951-52

Page 3 : —_— i , Indian Economy (T.Y.B.A.F.: SEM-V)), , 24 Gat consumption expenditure distribution for urban area hag, ; ab eriod, varying between 0.33 and 0.37 but without showing ,, over B as shown a little improvement since the, , ratio for rural area hi, ee cabal owthand stability have contributed to this., , beginning of 1980s. Agricultural gr, , study : NSSO has estimated the Lorenz ratio based on household consumption, udy :, , , , , , NSSO, expenditure for the year 2004-05., Table 3.2: Lorenz Ratio Based on Household, Consumption Expenditure in 2004-05, Lorenz Ratio, Rural India 0.30, Urban India 0.37, , , , , , , , , , Source : Economic Survey, 2010-11, p. 297., , The NSSO study clearly shows that the inequality is higher in urban India than in rural, , India (see Table 3.2)., Wide Rural - Urban Disparities in Inequality among the States :, , According to Economic Survey 2010-11, lower inequality was seen inrural areas of Assam, (0.197), Meghalaya (0.155) and Manipur (0.158) than in Kerala (0.341), Haryana (0.323),, Tamil Nadu (0.315) and Maharashtra (0.310). Similarly, lower inequality was seen in urban, areas of Arunachal Pradesh (0.243), Jammu and Kashmir (0.244), Meghalaya (0.258) and, Manipur (0.175) than in Chattisgarh (0.439), Goa (0.405), Kerala (0.400) and Madhya Pradesh, , (0.397)., , COMPARATIVE ANALYSIS OF INCOME INEQUALITY IN THE WORLD, Comparative analysis of income inequality in India and some selected countries is done on, the basis of income distribution, Gini coefficient and quintile income ratio., , (i) Income Distribution, , Let us compare income distribution in India with some selected developed and developing, countries. Table 3.3 brings out the comparative position., , Table 3.3 : Income Distribution in Different Countries, , , , , , , , , , , , ee Percent of Population Lowest 20% Highest 20%, India (2005), 8.6, , China (2005) 9.9 Pakistan (2008) 12.9 United Kingdom (1999) "4 o., United States (2000) 107 isd, , ie 45.8, , , , , , Souirce: World Bank, World Development Indicators, 2012, Table 2.9., , Data in the Table 3.3 does not belo, . ng to thesame H i i, — e \ ne year. However income distributi, under, ‘gO = si oa re - oe period of time, therefore it is eo, a6 ‘ i, Innis telmedie oe and highest 20 percent of the population,, India is less developed as well as advanced countries., , Recent studies reveal further wideni, TR widening the gap between the top rich and bottom poor in

Page 4 : Income Inequality :, (i) Gini Index/ Coefficient, , Gini Index measures the extent to which the, individuals or households within a, value of zero represents, , distribution of income (or consumption) among, country deviates froma perfectly equal distribution. A, Perfect equality, while a value of 100 measures perfect inequality., , Gini Index of selected countries for the year 2010-11 based on HDR 2011, is given in Table, 34., , Table 3.4: Gini Index, , , , , , , , , , Countries Gini Index, India 36.8, China 41.5, United States 40.8, South Africa 57.8, Brazil 53.9, Thailand 53.6, Sri Lanka 40.3, Malaysia 46.2, Hong Kong 43.4, Argentina 45.8, , , , , , , , Source: Economic Survey 2012-13, p. 273., , Itcan be seen from the table 3.4 that the Gini Index is 36.8 in India. It reflects high extent of, unequal distribution of income among households in India. However, India's Gini index, , was more favourable than those of comparable countries like South Africa, Brazil, Thailand,, Sri Lanka, Malaysia, Argentina, China and US., Table 3.5 brings out the wealth of share from bottom 10 percent to top 10 percent., , Table 3.5 : Wealth of Share, , , , , , Social Class Wealth Share (%), (Percent Population), , Bottom 10 0.2, 10-20 0.4, 20-30 0.8, 30-40 3,, 40-50 18, 50-60 2.6, 60-70 3.8, 70-80 5/7, 80-90 9.4, , Top 10 74, , , , , , , , , , Source : Global Wealth, Databaook, 2014,, , According to Thomas Picketty, the French conomist, income inequality in India is, , ‘dening. Centre of Statistical Organisation, however, states that the inequality of income, has been declining. f - eBay

Page 5 : s, , Indian Economy (T, Y.B.AE.: SEM-y,, 3,3 CAUSES OF INCOME INEQUALITY _, , Th import ant causes of income inequality are the following :, " a, , D, , , , i) Unequal Distribution of Assets : Ownership of land and capital is the important, , 0 ; Pre of income. Unfortunately both land and capital in India are unevenly, Picuiied Inspite of land reforms and other measures we have a large number Gt, Jandless labourers, marginal and small farmers. The average size of holdings Of the, marginal farmers is 0.39 hectare and of small farmers is 1.43 hectare as against more, than 17 hectares of the big farmers. Capital too is concentrated ina few hands, Which, enables them to accumulate more wealth. Unequal distribution of means of production, thus increases the gap between the rich and the poor., , (ii) Social Discrimination: The caste system in India has accentuated the income, disparities. People of lower caste and Harijans are usually denied occupations which, bring regular and more income. Caste system prevents vertical mobility of labour,, Historically they have been even denied the facilities of education thus indirectly, , forcing them to do only manual work, The tribal population has also been subject to, such discriminations which keep them in perpetual poverty., , (iii) Natural Difference in Abilities : People differ in their nature and inborn abilities or, talents. Some are hard working and enterprising and thus in a competitive world, earn more. Many people are gifted with talents and greater abilities which énable, them to earn more than others. Those who are not intelligent enough, lack the desire, to work hard, lazy by nature, not innovative enough are left behind. However the, , extreme inequalities that we witness in the world including in our country cannot be, explained by these factors alone., , (iv) Discrimination in Education and Employment : Higher and professional education, can be availed mainly by the well to do section of the society. Employment, opportunities are secured through the social and political connections. A society based, , on caste and class creates social and economic atmospheres which help perpetuate, the existing inequalities., , (v) Government Schemes : To promote investment, employment, exports and activities, related to development, government offers a number of incentives. The scheme of, incentives include subsidies, tax concession, low cost loans etc. The benefits of these, incentives are expected to reach the poor. Unfortunately most of these schemes benefit, more the well to do section of the society than the poor. Subsidies for agriculture are, usually availed by big farmers. Small scale industrialists and exporters are some other, beneficiaries under these schemes. Too generous incentives, at times unwarranted, , and unjustified, granted due to various pressure groups and vested interests have, aggravated the inequalities,, , (vi) Corrtiption: Bribe is the main form of co, , ruption that prevails widely in our country., Granting favours, taking quick decisio, , ins without following the required procedure,, sanctioning undue concessions by the authorities or political leaders against a, consideration enable them to earn more than otherwise ordinarily possible. Corruption, which itself is illegal and immoral leads to other ile;, , al activities lik ling etc., Properties are acquired illegally by bribing eet” hier., , (vii) Black Marketing: Shortage of essential goods and services is ve, of these items may indulge in black-marketing, , at a unjustified higher prices. Members of the, Such practice amass wealth,, , Ty Common. Suppliers, whereby goods and services are sold, business community who indulge in