Inequality in India is not accidental — it is the result of deliberate policy choices

A G20 report released on November 4 warns that global inequality has reached ‘emergency’ levels, threatening democracy, economic stability, and climate progress.

The report says that the top 1 per cent of the global population increased their average wealth by 41 per cent compared to the bottom 50 per cent between 2002 and 2024. The report of the ‘G20 Extraordinary Committee of Independent Experts on Global Inequality’, was headed by Nobel Laureate Joseph Stiglitz.

Astoundingly, a relatively poor country like India shows a higher-than-average capture of resources by the elite, with the top 1 per cent of its population having increased their wealth by an astounding 62 per cent. The figure for China is 54 per cent.

Wealth refers to assets (property and savings minus liabilities) accumulated over a lifetime or more (including intergenerational wealth). This is different from income, which is the flow of earnings over time (wages, earnings, or investments). However, they are interlinked because wealth can generate income, and income can be used to generate wealth.

The malaise of disproportionate wealth was not always so acute. A study by the World Inequality Lab noted that in India, wealth inequality declined after Independence and began rising from the 1990s onwards. However, it has skyrocketed in terms of wealth concentration among the richest Indians since the early 2000s.

It is wrong to see wealth inequality as a natural by-product of growth. The ‘Growth First’ hypothesis among economists holds that the pie must grow before it can be redistributed, and that one must choose between efficiency and equity. Yet there has been no trickle-down of wealth since the 1990s. The policies considered synonymous with growth: deregulation, privatisation, and tax cuts have only favoured the rich.

The G20 report believes that government policies the world over are responsible for those that favour capital over labour, regressive taxation, and underfunding of social welfare.

India seems to fit this worldwide trend. It has relatively low taxes on capital income (from dividends, real estate, and stocks), long-term capital gains on listed securities are taxed at just 12.5 per cent (above Rs1.25 lakh), and dividends are taxed at the individual’s slab rate, but often benefit from exemptions and lower effective rates. By contrast, income tax on salaries and wages goes up to 30 per cent. These measures, thus, benefit the wealthy disproportionately. India also does not impose inheritance tax, allowing smooth intergenerational transfer of wealth to the children of the rich without any redistributive component.

India’s reliance on indirect taxes has increased while corporate taxes have declined. Indirect taxes, because they are flat-rate taxes, impact the poor more than the rich. According to Oxfam India, the poorest 50 per cent Indians contribute two-thirds of the GST collected, and the top 10 per cent contribute just 3 per cent! This means the government has shifted the tax burden from the richer to the poorer consumers.

Economic inequality is widened if there is over-reliance on indirect taxes, and they are not balanced by progressive direct taxes or comprehensive social welfare programmes.

Further, employment in the public sector has reduced with strategic public assets being sold to corporates by the Government of India. Air India and VSNL were sold to the Tatas. Strategic disinvestment of Bharat Petroleum has been initiated. The railways are being significantly transformed as the Tejas Express trains, freight corridors, freight parks, and station redevelopment (Habibganj and Gandhinagar) are either taken over by private players or are being jointly developed with them. The government and the LIC are also disinvesting their majority stake in the IDBI Bank, and strategic stakes in power generation and transmission companies have been sold or opened to private investment. The Airport Authority of India has leased major airports to the Adani Group.

The inadequate regulation of monopolistic practices has allowed a few crony capitalists to dominate markets, and reduce competition, leading to further concentration of wealth.

Meanwhile, the upward social mobility of the poor is limited by low public outlays on health (1.9 per cent of the GDP in FY2024-2025) and education (about 3 per cent of the GDP in 2024). The potential of rural employment guarantee schemes such as MGNREGA and food subsidies has been diluted by inconsistent delivery, ghost workers, and corruption.

Despite increasing demand, the MGNREGA budget is stagnant at Rs 86,000 crore. It is also plagued by fraud. In Gujarat, Rs 4.37 crore in unpaid wages were reported. In the state’s Dahod district, a Rs 71 crore MGNREGA scam involving a minister’s son has led to the three FIRs being filed. One can well imagine the situation in other states under less public scrutiny.

Weak labour market protection and limited social security (especially for the informal sector) have limited the bargaining power of the workers. Many workers live below subsistence levels because of limited minimum wage enforcement.

Government incentives encourage those with existing wealth to participate in the stock market (low long-term capital gains tax and dividend tax, as well as low securities transaction tax) and real estate investment (tax deduction on home loans for first-time buyers, favourable tax treatment for real estate investment trusts). Larger firms also enjoy easy access to finance, while limited access to credit for small enterprises means they struggle to compete with larger firms.

Such State policies force the poor deeper into the rut of poverty, hobbling their social mobility, access to opportunity, and political participation.

Meanwhile, the wealthy are in a position to influence policy and regulatory frameworks to their benefit through funding of political parties. They also shape media narrative through their advertising outlays, if not outright purchase of media companies, allowing them to shape public discourse and narratives, and push contrary voices and opinions to the margins.

Wealth inequality and the digital and educational divide have made it much harder for the poor to access enabling State institutions, including the judiciary and the bureaucracy, for services due to all citizens.

Thus, the erosion of trust in democratic institutions among the poor is reinforced, making them vulnerable to populist and authoritarian leaders. That is the danger and the ‘emergency’ that the G20 report on wealth inequality seems to warn about. However, as the Stiglitz report argues, “Inequality is a policy choice. The negative trends can be reversed.”

Bharat Bhushan is a New Delhi-based journalist.

(Disclaimer: The views expressed above are the author's own. They do not necessarily reflect the views of DH.)