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
- 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.
- 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.
Causes of Rising Inequality
- Structural Causes
- 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.
- Globalisation and Technology
- 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.
- The panel recommends establishing a global institution similar to the IPCC:
- 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.
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.
- 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:
- Generate Quality Employment
- 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.
- Strengthen Federalism and Local Governance
- 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.
