What the World Inequality Report 2018 portends for India

The World Inequality Report (WIR) 2018, published by the World Inequality Lab, has thrown up data that calls for critical reflection on the income and wealth trends and patterns across the globe. The objective of the report is "to contribute to a more informed global democratic debate on economic inequality". One of the key findings is that income inequality has increased all over the world, but in varying degrees and speed. Income inequality was lowest in Europe and highest in the Middle East regions in 2016. The report highlights the role of public discussions and political institutions in shaping economic policies.

The rise of income inequality since the 1980s signifies the decline of the socialism and the rise of capitalism. The report suggests that governments boost up investments in education, healthcare and other basic public goods, including environmental sustainability. This is going to be a herculean task for countries with a narrow tax base and high public debt.

The WIR 2018 analysed income inequality from a historical perspective, connecting social, economic and political dimensions. It focused on emerging and developing nations such as BRICS-Brazil, China, India, Russia, South Africa -- and the Middle East. India is one of the emerging economies where only 6.3% of the population constitutes the income tax base of the government. As per the Government of India, the newly introduced Goods and Services Tax (GST) expanded the indirect tax base during 2017-18. The GST has been acclaimed as one of the most radical and progressive reforms and has been legislated after 25 years of economic reforms in the country.

As the structure of global economic governance is changing, it is pertinent to look into the implications of the findings of WIR 2018 on India's economic situation. This will have repercussions for income distribution and decentralised development to achieve 'economic development' and 'social justice'. The report has highlighted that inequality in India has attained a historic high post-1980. It noted that income inequality fell considerably between 1947 and 1977 but has risen since. The financial assistance of the World Bank and International Monetary Fund to the national economy has pushed the country to undertake structural reforms. Economic liberalisation changed the role of the state from regulator to facilitator of the economy. The shift also brought private players and markets into economic policy-making.

All these factors have changed the face of the economy, from labour to capital-intensive sectors. Agriculture is the most affected primary sector as a result of these economic reforms. The 10th to 12th Five Year Plans and the policies pursued post-2000 attenuated the privatisation and commercialisation of agriculture. As a result, the wage rates in the agriculture sector have come down, compounding the income disparities.

The decline of growth in agriculture forced the rural population to migrate to cities in search of alternative livelihood. Although the economic growth rate post-2000 has been high, its benefits have been concentrated only among the top 10% of the richest people. These are people earning at least more than five times the national average income. "Since 1980, it is also striking that the top earners captured more of the total growth than the bottom 50%". The Oxfam report also corroborates this trend: "The richest 1% got 73% of the wealth, whereas 67 crore Indian people saw only 1% percent of growth in their wealth".

The above facts and figures clearly indicate that the trajectory of the Indian growth story is highly unequal and has perhaps added to common people's misery. The deviation from central social planning to market-based policy-making and the role of the Indian State in pursuing such a concentrated capitalistic mode of development is a violation of Article 39(c) of the Constitution - that the State shall direct policy towards ensuring that "the operation of the economic system does not result in the concentration of wealth and means of production to the common detriment".

The farmer who toils hard in the field to feed the nation does not have any say in the pricing of the crops. The government is still mulling over the implementation of MS Swaminathan Committee recommendations, especially to fix the minimum support price at 50% more than the average weighted cost of production.

The WIR 2018 report has important lessons not only for India but also for other emerging and developing economies. (i) Enhancing the role of progressive taxation; there has to be stringent laws and policies, along with institutional systems, to ensure that the elites don't capture the highest growth benefits; checks and balances against those who evade taxes; and most importantly, sensitising citizens about the interlink between paying taxes and their role in nation-building. (ii) Transparency in the tax policy systems; GST provides one such opportunity to enhance transparency to taxpayers, but it needs to overcome systemic constraints, such as financial inclusion and accurate databases (iii) Adequate budgetary allocations to education, health and social sectors on a priority basis.

The unequal access to education and health sectors creates incentives for private players to accumulate wealth in these sectors; and (iv) Investing in the future, that is, reaping the full potential of the demographic dividend.

India has to expand its direct tax base to reduce the public debt. The revenue mobilising capacity of the Indian state is weak. This needs appropriate measures to strengthen the architecture of the tax policy framework. To evolve a robust policy, the government needs to engage in serious public discussions with economic think-tanks and social policy experts. Inclusive growth and redistribution are critical to achieving inclusive governance and equity.

(The writer is a PhD Fellow, Centre for Political Institutions, Governance and Development, Institute for Social and Economic Change, Bengaluru)