A dime for the poor, a dollar for the rich?

The epic saga of Ramayana depicts how the end of Lord Ram’s exile demarcated the promise of prosperity and wellbeing of all living in his realm. Each stratum of the kingdom rejoiced in the hope of social justice. Centuries forward from that era, today, the central government promises to end another exile – that of India from the heights of GDP, which it is said to have occupied until over some 200 years ago. The aspiration is to return to its place among the top 3 economies of the world. 

However, unlike with the return of Ram, would the dream of becoming the third largest economy a reason for the country’s poor to look forward to? Should the focus be on chasing a $5 trillion GDP, or ensuring that it is distributed equitably within society? Why only dimes for the lower strata and the big dollars only for the privileged section of society? 

The Union budgets are seen as one of the best tools available to governments to ensure fair distribution of resources and establish social and economic justice.

Getting to a $5-trillion economy will require government to spend massively on infrastructure growth. And indeed, the government has been increasing its infrastructure spending with every budget. In the budget for 2023-24, a whopping Rs 10 lakh crore, or some 3.3% of GDP, was directed toward infrastructure building.  

At the current pace and macroeconomic outlook, even if the assumption of the Indian economy ballooning to $5 trillion were to come true, the per capita income of Indians – and that’s itself just an average between the highest earners and the poorest earners -- would still lag miles behind the per capita income of the Japanese and the Germans, whose GDP we are expected to overtake. As of 2022, World Bank data showed an average person in Japan earning about $33,800 annually, while his German counterpart earned $66,500. In comparison, the average Indian earned $2,400 in a year. 

Of course, this figure will rise somewhat once we hit the $5 trillion GDP or Top 3 economy spot, but will it bring any significant positive impact in the lives of middle- and low-income earners? Or will all the income gains go to the existing high earners? Currently, the average citizen is getting only a dime of the total pie, while the top earners are gulping much of the income every year. 

The Oxfam report stated that the top 10 per cent currently own 80 per cent of the nation’s wealth. With limited to no provisions to address income inequality, the government will leave a messy trail as it sprints toward the $5 trillion finish line. Rising inequality will bring on it a higher burden to lift people from the lower strata. When the latter have to struggle to survive, the gleaming glory of being the third largest economy will soon fade into the need for more welfare and social service provisions. Heavy inequality can also prove troublesome for the government’s treasuries. In terms of GST collection, some 64 per cent of it currently comes from consumption by people in the lower 50 per cent of the economic bracket. 

It can be argued that the investments made by the government are going to ripple in the economy and create jobs and provide gainful incomes to the masses. However, such trickle-down of generated income as represented by Kuznet’s inverted U curve is yet to reflect in real time figures where the unemployment rate still looms at 9.8 per cent in urban, and 7.3 per cent in rural, India as of April 2023, based on CMIE data. 

The starkness of inequality can be seen in the figures where the top 10 per cent accumulated 45 per cent of the total wealth generated in 2022, which rose to more than 80 per cent in 2023. Similar inequality can be seen in tax contributions as well. Disrupting the entire construct of equitable distribution and social justice, the middle-class was burdened with direct tax, and the lower 40 per cent of the population into contributing a majority of the indirect tax. Thus, the government’s ‘third largest economy’ dream is being financed by the middle- and low-income earners in proxy, with minimum tangible benefits accruing to them from that growth. 

Budget expectations 

The government is expected to present an interim budget in view of the coming elections and not bring about any major changes in taxation and spending. However, keeping in line with the set target, infrastructure spending is likely to remain at the FY23 levels if not rise higher. But the budget also has the responsibility to ensure that the poor receive  the assistance they need from government to survive and sustain. 

Running social service schemes for a nation where 11.28 per cent of the people are still below poverty line, more than 20% illiterate, a significant percentage of those literate receive subpar education, and almost 8% are still unemployed requires colossal social expenditure. Even if the economy achieves the $5 trillion feat, it would not solve the above-mentioned issues. As the Centre keeps the infra works going, the allocations on social spending are taking a hit. The funds allocated to NREGS, for instance, has been on a decline since 2020. 

From budget 2022-23 to 2023-24, the total funds allocated for NREGS dropped to Rs 60,000 crore from Rs 89,000 crore. Then there’s also the unequal distribution of largesse across the nation. As Gujarat builds GIFT City for economic boom and prosperity, Uttar Pradesh still has the highest number of workers dependent on NREGS for wages. The budget also faces the challenge, among others, of feeding the poor who cannot afford daily meals. The $5 trillion economy is not going to make the more than 810 million people to whom the government distributes free grains ‘atmanirbhar’. 

We will see what the priorities of the government are when the Finance Minister presents her budget on February 1. While marching towards a $5 trillion economy, what is more important is whether every citizen is equipped to become capable of participating and partaking in the growth. 

(Sankhla is an Economics honours graduate and Patavardhan is Assistant faculty in the Department of Economics, Christ University)