UPSC Editorial Analysis: Addressing India’s Inequality Gap

*General Studies-3; Topic: Inclusive growth and issues arising from it.*

Introduction

• A recent study by a G20 panel of independent experts warns of “unprecedented levels of inequality” worldwide.

• The report shows that between 2000 and 2024, the richest 1% captured two-fifths of all new global wealth, while the bottom 50% received only 1%.

• This deepening divide threatens economic stability, social cohesion, and democratic health—challenging India’s aspiration of achieving Viksit Bharat by 2047.

Understanding the Scale of Inequality

• Global Picture

• According to the report, extreme inequality is rising in both advanced and developing economies, Wealth concentration at the top is accelerating due to: – unequal access to capital and technology – monopolistic market structures – tax avoidance and profit shifting – globalisation’s unequal benefits

• The world’s poorest remain vulnerable to economic shocks, while the richest accumulate wealth faster than ever.

• India’s Inequality Trends

• India’s economy grew faster than the world economy, but its inequality grew even faster than global trends.

• Studies by the World Inequality Lab and Oxfam indicate: – Top 1% owns over 40% of India’s wealth – Bottom 50% owns ≈ 3%

• Inequality mirrors structural issues: – mismatch between growth and job creation – stagnation of real wages – concentration of wealth in capital-intensive sectors – unequal access to education, healthcare, technology

• Policy choices over two decades have strengthened economic elites while weakening redistributive mechanisms.

Why Inequality Threatens Growth and Development

• Impact on Economic Growth High inequality depresses demand because the rich spend less marginally than the poor. The IMF states that when the income share of the top 20% rises, economic growth falls; when the income share of the bottom 20% rises, growth improves. Extreme inequality: – reduces productive investment – limits human capital formation – fuels unemployment – weakens long-term growth potential

• High inequality depresses demand because the rich spend less marginally than the poor.

• The IMF states that when the income share of the top 20% rises, economic growth falls; when the income share of the bottom 20% rises, growth improves.

• Extreme inequality: – reduces productive investment – limits human capital formation – fuels unemployment – weakens long-term growth potential

• Social and Political Impact Unequal societies face higher social conflict, resentment, and reduced trust in institutions. Inequality reduces the ability of the poor to participate in political decision-making. Wealth concentration increases the political influence of elites, leading to: – policy capture – decline in democratic accountability – rise of authoritarian tendencies The report notes that countries with high inequality are more prone to democratic backsliding.

• Unequal societies face higher social conflict, resentment, and reduced trust in institutions.

• Inequality reduces the ability of the poor to participate in political decision-making.

• Wealth concentration increases the political influence of elites, leading to: – policy capture – decline in democratic accountability – rise of authoritarian tendencies

• The report notes that countries with high inequality are more prone to democratic backsliding.

• Threat to India’s Democratic Fabric India’s large population of poor and marginalised groups is at risk of exclusion from governance. Inequality widens the gap between citizens and institutions, causing: – erosion of social mobility – declining faith in electoral democracy – increased communal and caste divisions These trends weaken the constitutional promise of justice, equality, and dignity.

• India’s large population of poor and marginalised groups is at risk of exclusion from governance.

• Inequality widens the gap between citizens and institutions, causing: – erosion of social mobility – declining faith in electoral democracy – increased communal and caste divisions

• These trends weaken the constitutional promise of justice, equality, and dignity.

Causes of Rising Inequality

• Structural Causes Nature of recent growth dominated by capital-intensive sectors (technology, finance, telecom) rather than labour-intensive sectors.

• Nature of recent growth dominated by capital-intensive sectors (technology, finance, telecom) rather than labour-intensive sectors.

• Policy-Driven Factors Lower corporate taxes, removal of wealth taxes, privatisation, and deregulation favour capital owners.

• Lower corporate taxes, removal of wealth taxes, privatisation, and deregulation favour capital owners.

• Globalisation and Technology Automation has displaced low-skill workers while boosting returns for capital-owners.

• Automation has displaced low-skill workers while boosting returns for capital-owners.

The G20 Expert Panel’s Findings and Recommendations

• Inequality Is a Policy Choice The report argues that inequality is not inevitable. Countries like the Nordic nations demonstrate that public policy can reduce inequality while maintaining growth. Proposal for an International Panel on Inequality The panel recommends establishing a global institution similar to the IPCC: – to collect reliable global data on inequality – to track poverty and income/wealth distribution – to guide governments on corrective actions This would generate scientific evidence and strengthen global cooperation. Emphasis on Political Action Governments must adopt redistributive measures and regulate market concentration. Wealth taxes, digital economy taxation, and closing tax loopholes are key recommendations. The report emphasises the need to: – rebuild social protection systems – invest in public services – strengthen labour rights – ensure fair wages and inclusive growth

• The report argues that inequality is not inevitable. Countries like the Nordic nations demonstrate that public policy can reduce inequality while maintaining growth.

• Countries like the Nordic nations demonstrate that public policy can reduce inequality while maintaining growth.

• Proposal for an International Panel on Inequality The panel recommends establishing a global institution similar to the IPCC: – to collect reliable global data on inequality – to track poverty and income/wealth distribution – to guide governments on corrective actions This would generate scientific evidence and strengthen global cooperation.

• The panel recommends establishing a global institution similar to the IPCC: – to collect reliable global data on inequality – to track poverty and income/wealth distribution – to guide governments on corrective actions

• This would generate scientific evidence and strengthen global cooperation.

• Emphasis on Political Action Governments must adopt redistributive measures and regulate market concentration. Wealth taxes, digital economy taxation, and closing tax loopholes are key recommendations. The report emphasises the need to: – rebuild social protection systems – invest in public services – strengthen labour rights – ensure fair wages and inclusive growth

• Governments must adopt redistributive measures and regulate market concentration.

• Wealth taxes, digital economy taxation, and closing tax loopholes are key recommendations.

• The report emphasises the need to: – rebuild social protection systems – invest in public services – strengthen labour rights – ensure fair wages and inclusive growth

Implications for India

• Rising inequality will obstruct India’s transition to a developed nation by 2047.

• It fuels social unrest, identity conflict, and political polarisation.

• Weakening demand slows economic growth.

• Poor human development outcomes (health, education, nutrition) limit productivity.

Way Forward

• Strengthen Progressive Taxation Reintroduce wealth/inheritance taxes in calibrated form. Combat corporate tax erosion and digital tax planning.

• Reintroduce wealth/inheritance taxes in calibrated form.

• Combat corporate tax erosion and digital tax planning.

• Expand Social Sector Spending Increase public investment in: – primary healthcare – education – nutrition – urban/rural employment Social protection must be universal, portable, and technology-enabled.

• Increase public investment in: – primary healthcare – education – nutrition – urban/rural employment

• Social protection must be universal, portable, and technology-enabled.

• Generate Quality Employment Encourage labour-intensive manufacturing and services. Improve labour law enforcement, ensure living wages, and enhance skilling.

• Encourage labour-intensive manufacturing and services.

• Improve labour law enforcement, ensure living wages, and enhance skilling.

• Regulate Monopolies and Digital Giants Enforce competition laws against cartelisation and concentration. Protect data rights and ensure equitable digital access.

• Enforce competition laws against cartelisation and concentration.

• Protect data rights and ensure equitable digital access.

• Strengthen Federalism and Local Governance Empower states and panchayats with fiscal resources for inclusive development.

• Empower states and panchayats with fiscal resources for inclusive development.

Conclusion

• Inequality is now a global emergency, just like climate change. The G20 expert panel’s report signals that the world—and especially India—must act decisively to prevent social, economic, and political destabilisation.

• Achieving Viksit Bharat 2047 is impossible without inclusive growth, fair opportunity, and an economic system that distributes the gains of progress equitably. The time to act is now.