Income Disparity between the Rich and the Poor in India - Literature review Example

Income Disparity between the Rich and the Poor in India (Name) (Date) Income Disparity between the Rich and the Poor in India Income disparity refers to the unequal distribution of the total income of a nation amongst its entire population. In recent years, India has been all over the media due to the epic growth in its economy. What is particularly impressive about this growth is that the country faces numerous challenges, which would otherwise discourage their efforts to achieve such levels of growth. In spite of this, more than half of the country’s population languish in abject poverty and survive on less than a dollar a day, which shows that any positive economic growth is confined to specific regions. A typical household in India earns an average of 30,000 Rupees in a year. Half of these households earn incomes that are considerably lower than the typical household while the other half earns a lot more. The country experiences serious income volatility arising from irregular income from such activities as agriculture and informal businesses. This paper seeks to explore the subject of income disparity in India and such issues as high population, urbanization, wage disparity and unequal wealth distribution that are responsible for the widening income gap between the rich and the poor, more than six decades after independence. Located in South East Asia, India is the second most populated country after China. The country boasts of a rich cultural heritage and vast commercial wealth and is ranked as the tenth richest country worldwide. Despite continued financial stability over the years, India continues to experience a widening of the income gap between the rich and the poor. Challenges such as corruption, poverty and unequal wealth distribution have contributed towards this income disparity and continue to be a stumbling block towards the country’s quest to become a leading economy in the world. Although India has been experiencing remarkable economic growth in the last twenty years, the country still has the highest number of people living in extreme poverty. Rajadhyaksha (2007), states that there is a direct relationship between the level of total income in a country and the level of development. Several studies have shown that countries that developing countries, such as India, often have a majority of its workforce earning low incomes, resulting in high levels of income disparity. Nachimuthu (2009) argues that given the high population in India, regional disparities are bound to exist, which eventually give rise to income divisions among the rich and poor. It is, therefore, no surprise that the majority of the high-income earners in India reside within the country’s urban areas while the low-income earners reside in rural areas where informal employment is common. It is easy to pinpoint the cause of income disparity, especially in a country like India with such a high population. In this case, it means there is an unequal distribution of wealth, probably as a result of corruption, which results in a lot of wealth concentrated in urban areas. Furthermore, as a result of unequal redistribution of the country’s resources some of the cities in the urban areas experience growth faster than those within the rural areas. Because of this, these cities are likely to increase the per-capita income for their workers at a faster rate than those in the rural areas. This eventually leads to income inequality. Another cause of income disparity in India could be the existing laws that govern the ownership and inheritance of property. Land is the most significant asset in the rural areas since most of the households that reside in these areas depend on agriculture for sustenance. While under the British rule, India had a land tenure system, known as Zamindar system, which was focused mainly on the generation of income for the country as opposed to the uplifting of households or economic development (TR Jain, 2009). Under this land tenure system, a few people referred to as Zamindars would own the entire land in a village. While this system was abolished after independence, the ownership patterns are still evident as few people own land in India. As a result of the land tenure system, unequal wealth distribution has resulted in a majority of land available being owned by a few households. This means that an estimated 80% of the rural population own about 20% of the land. This ownership eventually translates into inheritance patterns, which leads to a majority of the rural population being low-income earners since the land they own only generate enough for basic necessities. Those who own huge tracts, on the other hand, receive incomes that continue to increase and have access to numerous capital resources (Alok Goyal, 2009). According to an article published by The Times of India, in 2011, the widening income gap has been on a gradual increase since the 1990s and will continue to do so as long as there is an inequality in wages earned by workers employed on a contractual basis (The Times of India, 2011). The salaried population in India continues to be middle-income earners, with the variations in salaries creating such divisions as lower middle class and upper middle class as they earn just enough to cater for their basic needs. Entrepreneurs, on the other hand, seem to benefit from the income disparity as luxury commodities and services flood the Indian market. As development continues to take place in India, it is likely that the resulting economic growth with have impacts on various aspects of the economy. Income, for instance, will change in the sense that both upper and middle-income earners will experience a rapid increase as opposed to that of the low-income earners. This is because low-income earners depend mostly on agriculture, which experiences slow economic growth. Upper and middle-income earners, on the other hand, participate mostly in the industrial sector, which is more modern and experiences high growth. In addition to this, the agricultural sector is more labour intensive than the latter, meaning that a large percentage of the income earned is spent on labour. Jinjun Xue (2012) states that the most significant causes of the widening income gap in India are lack of access to education and family background. In the event of high economic growth, it is likely that the rich, who often have high levels of education, are the ones who benefit the most. Such benefits will trickle down from the highest political or social class to the middle class, with little or no benefits for the lowest social class. Xue further asserts that as a result of this social stratification, the income gap may not be eliminated since one causes the other and vice versa. It is a never-ending cycle. In the years following India’s independence, several financial institutions established branches within the country. These institutions contribute immensely to the country’s economy through their provision of funds and credit facilities; however, they tend to be biased in the provision of such credit and financial services. For instance, these institutions provide more financial assistance to entrepreneurs who are high-income earners, as opposed to low-income earners. This way, the rich continue to expand their businesses and subsequently, their income also continues to increase tremendously. The low-income earners, on the other hand, cannot access such facilities because of the institutions’ existing credit policies. In addition to this, most of the low-income earners who reside within the rural areas often have limited or no education, and as such do not own any bank accounts. Furthermore, some of these banks may opt not to have branches in the rural areas and instead focus on businesses within the urban areas. According to Panagariya (2008), an increase in the number of jobs in the informal sector, as well as lack of access to adequate education also contributes towards the widening income gap. Lack of adequate access to education has resulted in a high population without the necessary skills to compete in the job market. As a result, a high number of Indians are unable to acquire decent jobs and instead opt for labour-intensive jobs that do not require a lot of skills. In such a case, income inequality arises from the fact that skilled workers are likely to experience a rapid increase in their wages as compared to their unskilled counterparts during periods of growth and development. Widespread unemployment also contributes to the widening income gap. As a result of the country’s high population, a lot of people cannot find work and, therefore, have no income at all (Alok Goyal, 2009). Unfortunately, most of these unemployed Indians reside within the rural areas further leading to the widening of the income gap between the rich and the poor. The law governing inheritance of assets is also one of the major causes of the widening of the income gap between the rich and the poor. In India, children get to inherit the wealth of their parents in the event of their demise. Given the land tenure system that was in existence, in India, during the pre-independence period, a minority of the population owns most of the land. Likewise, a minority of the population earns a greater percentage of the country’s total income. As such, the Indian economy is socially divisive. Through inheritance, several generations of one Indian family can remain part of the top social class for years to come. If a person’s parents were rich, their entire lineage would probably be rich. In the same way, a person who was born poor was likely to die a poor person, having inherited nothing but the family’s debts. Blatant corruption and inefficient administration have also contributed towards income disparity in India. Several studies show that as the country experiences economic growth, consumption and spending by high-income earners continue to rise. Inflation of food prices has made it difficult for low-income earners to afford basic necessities. Despite the provision of subsidies to the poor, by the Indian government, the prices of basic commodities continue to be high. In certain instances, the government may reduce these subsidies or because of administrative inefficiencies, misappropriate funds for such programs. In most cases, a majority of the poor are unable to enjoy such benefits from the government because of the absence of an effective system of delivery. Despite reports of a reduction in the level of poverty in India, the income gap between the rich and the poor continues to widen. Government expenditure and taxation have been used, by most countries, as strategies for the redistribution of wealth and are less likely to change as the years go by (International Monetary Fund, 2006). In India, for instance, the government may choose to tax luxury commodities higher than basic necessities or spend on certain social activities that may not be affordable to the low-income earners. These patterns may not change as years go by and as such, effects of unequal redistribution of wealth continue even as the country experiences economic growth. Even as the Indian government struggles to maintain the growth trends that the country is currently experiencing, there are still several challenges that are an obstacle to any planned changes. Lack of adequate infrastructure, regional imbalance, corruption, lack of reforms and underperforming sectors contribute towards the income disparity that the country strives to eliminate (Dipak Mazumdar, 2008). If India can manage to do away with the widening income gap, the country will have access to endless opportunities both within the country and beyond its borders. This way it can finally sustain long-term growth and compete on equal footing with other global economies. The income disparity in India is a cause for concern for the government as it poses a serious risk to any economic development planned by the country for the future. It is not right to have a situation whereby a majority of the country’s population works for a minority of the population. This minority population alone earns an income, which is equivalent to almost 33% of the entire country’s Gross Domestic Product while the majority population earns 12 times less than the latter. Only an estimated 5% of the GDP is spent on social protection that would otherwise prevent such problems as class stratification and regional imbalance. When the recent global economic meltdown occurred, it was expected that any economic inequality would be reduced since incomes for both the rich and the low-income earners would be affected (Dipak Mazumdar, 2008). However, despite a reduction in the overall public spending, the market for luxury commodities has continued to experience growth. This shows that even in times of inflation, the income for the rich will hardly be affected. In cases where income disparity exists, the demand for basic commodities and services will be depressed. This is a sign of an inefficient economy. In conclusion, it is noteworthy that during periods of high economic growth, India has managed to reduce the widening gap between high and low-income earners. However, it is not clear when and whether this gap will be eliminated completely in the coming years. . Unless this issue is resolved, states Ritika Chopra (2011), not even the increase in economic growth will be enough to eradicate the high rate of poverty suffered by the country. Although India needs to introduce new economic reforms, currently there are no prospects of the government doing so or changing its strategies through which it channels the wealth and economic growth to its many regions. REFERENCES Alok Goyal, M. G. (2009). Business Environment. New Delhi: FK Publications. Bandyopadhyay, S. (2013, March 27). Why Inequality in India is on the Rise. Retrieved from http://blogs.lse.ac.uk/indiaatlse/2013/03/27/why-inequality-in-india-is-on-the-rise/ Chopra, R. (2011, October 23). Income gap between rich and poor has widened, says Planning Commission. Retrieved from India Today: http://indiatoday.intoday.in/story/rich-and-poor-division-penury-hdr-planning-commission/1/157212.html Dipak Mazumdar, S. S. (2008). Globalization, Labour Markets and Inequality in India. Ottawa: IDRC. International Monetary Fund. (2006). Regional Economic Outlook: Asia and Pacific. Washington, D.C.: International Monetary Fund. Nachimuthu, V. (2009). 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