Does India Have An Inequality Problem?

For an individual on the urban poverty line, it would take 17 years. And no country in history has had two decades of sustained double-digit growth!

So, the real questions are: What makes growth inclusive and what policies can facilitate it? Kuznets argued that with capital accumulation, the demand for labour would eventually go up and increase wages. Moreover, the returns from acquiring skills would go up, which would not only encourage greater investment in human capital, on average, but also open doors for upward mobility. Thus, the process of growth would reduce inequality in the long run.

Focusing on mobility allows us to look beyond inequality versus growth. It also highlights the aspects of inequality that are especially harmful. Inequality directly hurts growth prospects when those born poor but talented spend their lifetime in low-return occupations. When inequality creates impediments for the poorer sections to take advantage of economic opportunities (for example, by not being able to send their children to good schools), it hurts growth prospects. Of course, economic inequality is not the only barrier to mobility and social norms relating to gender and caste, for example, can accentuate the problems significantly.

While average levels of income and educational outcomes have improved following economic liberalisation, upward mobility in India has remained low over time. There is also evidence for limited intergenerational upward mobility across caste, location, and gender (Asher, Novosad, and Rafkin, 2021). Those who are born in poorer sections tend to stay poor, leading to the persistence of inequality.

Across caste lines, upward mobility has risen for Scheduled Castes and Scheduled Tribes owing to affirmative action and has remained high for those from Forward Castes and Other Backward Castes over time. Among the various sub-groups, however, Muslims experience the least upward mobility. [4] Across locations, urban and southern regions with high average educational levels experience the highest upward mobility. Also, regions with high values of development attributes (education, consumption, manufacturing employment, and school supply) have higher upward mobility, while regions with caste segregation and land inequality have lower upward mobility. Across gender, men experience higher upward mobility than women.

So, India surely has an inequality problem, driven by limited upward mobility driven by unequal opportunities. This leads to an uneven distribution of gains from growth.

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