10) In what ways higher levels of economic inequality hinders economic growth and social mobility in the long run ? Discuss this statement in the light of growing inequality in India. Make a case for re-introduction of inheritance tax in India.

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Topic: :   Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment

11) In what ways higher levels of economic inequality hinders economic growth and social mobility in the long run ? Discuss this statement in the light of growing inequality in India.  Make a case for re-introduction of inheritance tax in India. (200 Words)

 

The Times of India

Business Standard

  • alok rai

    Economic equality is one of the fundamental notion of the Indian democracy, to adore this fundamental notion our constitution fathers implicitly mentioned several provisions in the constitution which direct the government to work for the economic equality in the nation.
    Here it should to be noted that although the efforts of the government in this regard are appreciable, but still the raising inequality hinders the economic growth and social mobility of the nation. Ginny coefficient clearly reveled that the gap between rich and poor have increased. However India achieved the applaudable economic pace but the benefits of the economic growth not reached to the lower strata in the same manner as it reached to the upper strata. It can be proved by the simple statics that the 8-9% of the tribal population are the 40%of the total migrants due to the development projects. Thus the economic growth not seems very impressive in uplifting the marginalized section. Realizing this only GOI in it’s 10th Five Year plan propagated the idea of inclusive growth.
    Notably, this raising inequality proved to be inimical for the nation in long run. It not only hinders the nations Indian stand on various development scale it also promote the antagonism in the society. Far deviation from MDG and rise of Left wing extremism are exemplary in this regard. Scholars also argued that the raising inequality also lead to the concentration of wealth in the few hands, which overshadowed the socialist feature of our constitution and hampering the larger national interest.
    So the need of the hour is to address the issue with immediate attention than only the real mean of this economic growth can be achieve.

  • Anjana

    Poverty

  • Akshay

    The inequality of income is the biggest challenge India is facing. Though some level of inequality is inevitable in a society, however at present, inequality of income and concentration of wealth has reached grossly enormous proportions. Firstly, inequality of income has pushed a large section of population in circle of poverty and debt trap. such people remain deprived from basic health and medical services. A country aspiring to reach high economic growth cannot afford to have poor focus on its human capital. Poverty hampers the health, life expectancy, education and inturn labour productivity. Secondly, inequality of income is directly correlated with social discord and disharmony. It indulges people in crimes and terrorism. It hampers efficient working of institutions and economy. Thirdly, Peace and political stability are prime factors for instilling investors confidence and attracting FDI and FII.

  • Rockstar

    10) In what ways higher levels of economic inequality hinders
    economic growth and social mobility in the long run ? Discuss this statement in
    the light of growing inequality in India. Make a case for re-introduction
    of inheritance tax in India. (200 Words)

    Inequality in income leads to demand side problems for
    an economy since people having less disposable income do not generate demands
    for commodities other than the bare essential.

    In Indian agriculture, the weak economic position of marginal
    and small farmers reduces the economies of scale in farming, they are unable to
    use new technologies and thus leading to lower output. We have seen how
    the land reforms, debt waiver schemes, low interest credit to farmers have
    majorly helped the economical stronger farmers.

    The wealthy increase their monopoly. Bigger companies can
    increase their market share and small/ medium scale industries bear the brunt
    of high competition from them.

    The deprivation of opportunities forces the marginalized to
    work in low paying jobs. Skill development is sidelined which further reduces
    the efficiency.

    The state has to increase its spending in Social Security
    Schemes to cater to the needs of increasing number of lower income groups,
    which increases the fiscal deficit. Adding to the problem is the high
    rate of tax evasion by corporates and individuals.

    The social status of women, dalits etc is further reduced in
    case of lower income groups. The bargaining power of people with economic power
    is very high. They are able to influence policy decisions of the government
    more than those with lower income. The rise in income inequality increases the
    level of poverty thereby starting a vicious cycle of illiteracy, high population,
    and unemployment and so on. High crime rate is also attributed to the
    frustration that comes in people due to accumulation of wealth in a few hands.

    Money makes money

    In recent times, economists have voiced for reintroduction of
    Inheritance Tax for lowering of income inequality. According to some, the
    biggest source of economic inequality today is inherited wealth. It discourages
    rentier income and encourages professionalism and enterprise. It can help the
    govt to shore up tax revenues.

    • lucky

      well written…

    • Zenith

      Good coverage. Great Answer

    • Sachin

      Overall good answer….
      if some facts can be introduced regarding inequalities then it would be superb…

    • vipin kumar

      some points missing like inequality gives birth to social restlessness that may lead to violence like naxalism

  • Anit ifs

    Any society reaches it’s theoritical pinnacle when its wealth and power has been maximised. The Romans, the Greek, the Mauryans were all so embossed with their own power that they didn’t realise the impending doom. A doom that struck them becuase in the process of Greatness, they had deprived everyone else with even a modicum of normalcy.

    Inequity is that vile symptom that shows itself when the society has been twisted abnormally to direct all the resources to certain individuals. These powerful and rich wallow in glut, while the poorest can barely make ends meet. It represents the moral discrepancy, the hypocricy of the society and the ultimate flaw in the shared trust in society building.

    any society, institution ultimately is built because of the trust that the people have reposed in it to legitimately fulfill their aspirations. Its a collective initiative where each man is a cog. The bizzare situation of a few men having to do nothing and still earning more than half of societies gains is only the result of modern life. A farmer would never have given 80% of his gains to a slob who does nothing on his own.

    Strife, civil wars, communist idealogies follow when a certain threshold of tolerance is breached. The violence so unleashed can take sectarian forms. Religious struggle has replaced the class struggle of yesteryears. Nationalist idealogies can serve as a blindfold to essentially the struggle of inequity in societies.

    Unless immediate steps are taken to put to use the stashed incomes of the rich to improve the lives of poor, to utilise what is legitimately the hard earned labour of the entire society, we are on a definite way to destroying the fabric of trust in the framework of social life. A jungle rule isn’t difficult to acheive, civilisation is. Let’s preserve it.

    • preet

      But how it hinders economic growth nd social mobility ????

      • Anit ifs

        lack of resources with society for the upliftment of improvished
        – decreasing reward and increased hard work for the lower segments
        – lack of environmental support and basic necessities for a wide section of population and increasing additional benefits for a select few.
        – below average resource optimisation due to skewed distribution
        – lack of reward for the majority of population as the rewards are confisticated by an intricate financial, legislative systems to ultimate pockets of rich few
        – formation of glass cieling due to excessive resources by some and increasing demands to climb social ladder
        – invisible boundaries set up to deter ‘outsiders’ from being part of power cliche’ and thus people can’t determine what is best for their community

    • priya

      objective of language or any medium is to facilitate and not to hinder communication…..pls do away with this 18th century shakesperean language of elizebethian times….and trust me you’ll make a lot more sense…poor examiner has to first grapple with the words …filter them…dig out the meaning n then might just penalize you for all the effort…..
      PS full points if this was a test of eng language .
      .

      • Anit ifs

        haha.. nicely put

        I hope it works in the mains that i gave..

        until then “shakespearean language of Elizabethian times ” would continue……

  • Saiku

    80/20 Rule points to the inconvenient fact that 80% of wealth is owned by 20% of people. If we take this as a norm, then India stands on the wrong side of the rule. Since LPG reforms, India has pressed pedal on economic growth path but it squeezed majority of population into back seat.

    Want of money makes poor people scramble for immediate needs. They can’t look for long term dividends and ignore health and education. With ignorance and lack of knowledge, they can be subjected to blind faith and superstitions. They will follow rigid social hierarchy and unreasonable cultural practices hindering them from social mobility. When privileges are based on birth and respect is derived from wealth, demographic dividend can’t be reaped.

    With strict KYC norms, banks are less willing to open bank accounts and lend money. With informal money lenders around, they can be caged in bonded labour. Though many welfare schemes are targeted towards their upbringing, their benefits are usurped by middle men without their knowledge. With no bargaining chip, their interests are not considered in land acquisition leading to their displacement and migration for livelihood opportunities.Poverty can push them to crime world and extremism.

    Inheritance tax is one tool to bring down economic disparities but at the risk of capital flight and killing entrepreneurship. Rich can find out round way establishing trustees, money laundering and evade taxes. It violates the fundamental right to property. We have to make sure trickle-down approach works efficiently. Avoiding crony capitalism and tax holidays (MAT, DDT) can be far effective. Poor must not remain trapped in vicious cycle of “poor remain poor”.

  • chaitanya krishna

    No country in the World is totally equal and thus it is important for us to understand the limitations of such inequality if we were to tackle it at a positive level.

    This limitation can be understood in economic terms, where economic growth is dependent on effective channeling of the resources in the national level both human and capital. But with accumulation of wealth, it is possible that the capital is not channeled to productive investments and rather are invested in luxury items and lavish lifestyles. Also the lack of resources with poor people would result in them not achieving their full potential due to lack of health, education on par with the rich people.

    This is very applicable in India, where the top 10 percent is holds more than 74 percent of wealth and the dismal conditions of the government to implement its social security programmes owing to many the lack of fiscal space. This lack can be achieved by bringing the Inheritance tax which could further the social mobility of the downtrodden people by providing them with adequate opportunities.

  • Junker

    Review Please.

    Ans. Economic Inequality results in:

    – less resources with the poor to improve their conditions – this adversely affects both their ability to move up the social ladder and also contribute effectively in the economic progress

    – high levels of inequality breed strife, civil wars and communist ideological thinking – such struggles can retard economic and social inclusion

    – decreased levels of trust within the society that affects the basic building block of the society – increase costs of socila capital and building consensus + increasing social distance

    – it promotes exploitation of many for the profit of few – distorts production – as large majority has no money to spend – so goods for them are not produced

    – adversely affects human development – the old, women and children are the worst sufferes as unable to fend for themselves

    – increased level of spending on social security initiatives – less money left for development.

    Thus high levess of inequality in a country can destroy the entire social fabric – examples are many – the French revoultion, the Russian revolution, etc were a result of economic exploitation only.

    Of the many means available to tackle this – Inheritance tax is an alternative:

    – usually levied on the net value of assets passed on to legal heirs of a deceased person

    – It discourages rentier income and encourages professionalism and enterprise

    – will also add to the govt coffers – improve the fiscal position

    • Amarjyoti Sarkar

      a neat and relevant answer…….

      • Junker

        thank you for your review.:)

    • priya

      gud ans…relevant n crisp

      • Junker

        thank you for your review 🙂

  • kid monkey

    world is going towards capitalistic orientation where “capital earns capital and influence”. since the introduction of 1991 reforms even India is no exception to this principle. The situation further deteriorates when “law and order” and “rule of law” fail in such capitalistic environment. “corruption” by aiding informal gains accentuates the poor rich divide. Thus in capitalistic societies, “unless economic redistribution” and “progressive taxation” are emphasized by the governments the divide widens further on perpetual basis. Oriental cultures further allows “inheritance of wealth and scarcity” to next generations over long run by causing blocks to social mobility. The capital and influence further creates inequalities in opportunities. The poor remains with lesser and lesser opportunities over time. this vicious cycle continues by siphoning the freedom of the poor.

    unless corrective measures are brought, this situation can not be improved. Reintroduction of inheritance tax, hence can be welcomed. but this move alone cant bring the desired change. we need to improve our political environment as early as possible by implementing “rule of law” and “law and order”. the corruption levels are also to be reduced as early as possible. USA’s gini index is far more worse than that of ours. but a poor man in India faces more discrimination due to lack of above said things. we need to correct these gaps to cherish equality as promised by our constitution.

    • priya

      when the qn asks you to make a case for something (inheritance tax in tis case)…you have to essentially make a case for it…by elaborating on it….and feel the language could have been more simple and lucid and arguments more direct….

      • kid monkey

        i will…. thank you.

  • Ravinder Singh

    Economic growth triggers
    inequality when it is exclusionary in nature. India’s growth too
    remain far from inclusion inequality hinders and it is only after
    11th 5 year plan that government started thinking for
    inclusive growth. Higher inequality hinders ecomic growth in the
    following sense:

    Inequality impedes a
    country reaching in full economic potential, as it excludes the one
    who are poor and having less resources to invest.

    Inequality results in
    uneven development with cities consisting of majority of rich and
    countryside having people living in subsistence.

    Inequality creates other
    social problems like incerase in theft, robbery, and conflicts where
    people having less resources wanted to have more.

    Distress migration,
    problems of slums, environment degradation, and unemployment all can
    be traced as a result of inequality.

    Inequality decreases the
    human development indicators like education, life expectancy and
    standard of living of those having less resources.

    Therefore to ripe the full
    potential of the country, inclusive policies are needed and
    re-introduction of inheritance tax is just one example. It will be
    imposed on those having inherit property upto some amount.

    It will be having a positive
    bearing on those having no or less property therefore will be
    progressive in nature. But it requires a thorough study of the
    implication of introducing the new tax like cost of collecting and
    revenue generated. It will be along with several other provisions
    like DTC will be a positive step in creating an egalitarian tax
    regime.

  • Chhavi

    economic inequality is a situation where in within the same society certain individuals or groups have amassed huge wealth where as many others have only little or meager resources.

    economic inequality hampers social mobility and growth as

    1. wealthy individuals lobby with politicians or government to obtain policies and laws in their favour often through corrupt means usually against the larger public interests. They may monopolize certain important sectors. Thus opportunities are denied to individuals in lower strata of society.
    2. creates class divisions in the society, where in one wealthy class exploits the other
    working class. Thus it enhances exploitation of man by man.
    3. it leads to social conflict, strife, civil wars which hampers growth, adversely affecting human development.

    Recent thought by GoI to tax inherited wealth thorough an “inheritance tax” is a welcome step.
    1. shore up revenues for state, thus help GoI to meet its fiscal deficit target.
    2. it will encourage professionalism in business enterprises.
    3. inherited wealth forms the biggest source of economic inequality so inheritance will minimize it.
    4. most developed countries such as USA, Germany have an inheritance tax.

  • vaibhav

    “Rich goes richer and poor goes poorer.This situation is aptly fit for india and whole world in present scenario.India has 28% of its population BPL(rangarajan committee).The no. of poor in exact numbers have not reduced in past decades.Also 80 most rich persons of world contribute about 1.9 trillion of income.

    The economic inequality hinders economic growth & social mobility in long run:
    1. It does not lead to inclusive growth as major proportion of population remains unaffected.

    2. The marginalised sections of society like SC,ST,Ph,women are worst sufferers.

    3.The concentration of wealth further in hand of riches make poor people more poor.The poor people find it impossible to move upwards in society.They are at disadvantage in nearly all aspects like education,health right from their birth.

    4.Farmers peasants migrate to far off places or to urban areas which creat further problem in urban areas.Also they feel pain in leaving their society families.

    The inheritance tax is imposed on the inherited proprty of a person to reduce income inequality in society. Govt. is thinking again of imposing this tax after its removal in 1985.Its advantage-
    1.It will increase amount of direct tax collected.
    2.Reduce fiscal deficit
    3.removes inequality

    The reason for its removal was told that its collection and management costs more than money collected from it.In the present situation where there are 25%of world poor in India this type of step should be welcomed to reduce income inequality

  • Joy

    Economic inequality in India as compared to 1990 figures
    have increased roughly 6 times with the richest 10% earn approximately 12 times
    as much as the poorest 10%. The world
    figures are no less fascinating, as the top 80 Billionaire’s collective wealth
    is the same as India’s total GDP for 2014 i.i.1.9 trillion. Also the top 1% had
    their wealth grow 600 billion in 6yrs from 1.3 trillion in 2010 to 1.9 in 2014.
    However such figures have grave consequences on economic growth of a nation.
    The share of capital grows in the GDP, which means the rich get richer and the
    poor get poorer with no equitable distribution in the near future as well.
    Corruption and lobbying becomes frequent as the rich want to influence policy
    making in order to retain their wealth. Most importantly, the poor living at a
    meagre $1.25 per day suffer due to massive malnutrition, unemployment and
    diseases. Children in these households have a higher mortality rates. All these
    factors make a strong case for implementing an inheritance tax in India.
    Earlier known as estate tax, it was levied on inherited wealth and could be up
    to the tune of 80%. Aimed at lessening income inequality, it was abolished in
    1985 by Rajiv Gandhi Government as it failed to achieve its objectives. In
    developed economies like US, UK, Germany such taxes are in place. However the
    citizens also receive social security. Therefore improper implementation could
    lead to another means of tapism and corruption.

  • Ajitesh89

    It is rightly said that the reforms, economic growth, progress– are empty if they do not translated into jobs. Over 11 Million young population joining the workforce every year in India. State should enable this population to participate in economic activities through job creation and skill development.

    Govt understand the issue and support the employment growth prospect along with economic growth. Recently launched make in India initiative will definitely create jobs in manufacturing. However, what is required more is Skill development. Govt launched Skill India mission, that will support skill development in rural and urban India.

    However, it is still not clear how this new initiative prove better than previous schemes of skill development. India is at its crucial stage of demographic dividend. Govt launch various schemes like Apprentice protsahan yojana, Ustaad (for traditional workforce), Nai Manzil (skill for madarssa pass out), Skill development programs (targeted to develop the skills of 10 lakh in 3 years).

    There is a need to develop all round economic structure if nation want to fulfill the dream of full workforce participation in nation building. Govt should work in the line of Gandhi that Nation should work towards “Production by masses instead of mass production.”

    High economic inequality in long run obstruct economic growth and social mobility in long run. Economic inequality arises when larger amount of resources rests on fewer hands. This inequality hamper the overall progress of nation.

    1. In long run, as economic inequality increases, poverty among the masses also increases. It causes both supply side and demand side bottlenecks. Due to persistent poverty, skilled workforce creation will be strangled. This will definitely reduce the productivity in long run. In addition, poverty also reduces the purchasing power of the masses that would reduce demand.

    2. Poor workforce who are engaged in primary activities like agriculture, micro business and other allied activities would not be able to provide desired output in long run, if poverty persisted.

    3. Govt spending towards the social security and improvement of the poor will increase that will hamper other sectors of economic development.

    4. In long run, persistent poverty would produce social instability. Crime and other uncivilized activities will increase. Many insurgent groups may arises that may chose the path of extremism and may become national threat in long run.

    5. The poverty conceive large migration from rural to urban areas. This may, in long run, causes regional imbalance and loss of social identity of masses.

    A section of economists believes that imposition of Inheritance tax can be a measure to reduce economic inequality. However, it is a common belief that this imposition have less benefits and it will not able to achieve its intents. It is believed that this tax imposition is not profit seeking as it require huge administrative costs. In addition, this tax, if impose, causes a high amount of money drain out of the nation.