Let us make an in-depth study of the major causes and measures of inequality of income and wealth in India.
In India, inequality in the distribution of income has increased for various reasons.
The main reasons are the following:
The main reason for low level of income of the majority of Indian people is unemployment and underemployment and the consequent low productivity of labour. Low labour productivity implies low rate of economic growth which is the main cause of poverty and inequality of the large masses of people. In fact, inequality, poverty and unemployment are interrelated. Since sufficient employment could not be created through the process of planned economic development, it was not possible to increase the income levels of most people.
Another cause of inequality is inflation. During inflation, few profit earners gain and most wage earners lose. This is exactly what has happened in India. Since wages have lagged behind prices, profits have increased. This has created more and more inequality. Moreover, during inflation, money income increases no doubt but real income falls. And this leads to a fall in the standard of living of the poor people since their purchasing power falls.
No doubt, inequality has increased due to rise in prices. During inflation workers in the organised sector get higher wages which partly offset the effect of price rise. But wages and salaries of workers in unorganised sectors (such as agriculture and small-scale and cottage industries) do not increase. So their real income (purchase income) falls. This is how inequality in the distribution of income increases between the two major sectors of the economy — organised and unorganised.
3. Tax Evasion:
In India, the personal income tax rates are very high. High tax rates encourage evasion and avoidance and give birth to a parallel economy. This is exactly what has happened in India during the plan period. Here, the unofficial economy is as strong as (if not stronger than) the official economy. High tax rates are responsible for inequality in the distribution of income and wealth. This is due to undue concentration of incomes in a few hands caused by large- scale tax evasion.
4. Regressive Tax:
The indirect taxes give maximum revenue to the government. But they are regressive in nature. Such taxes have also created more and more inequality over the years due to growing dependence of the Government on such taxes.
5. New Agricultural Strategy:
No doubt, India’s new agricultural strategy led to the Green Revolution and raised agricultural productivity. But the benefits of higher productivity were enjoyed mainly by the rich farmers and landowners. At the same time, the economic conditions of landless workers and marginal farmers deteriorated over the years. Most farmers in India could not enjoy the-benefits of higher agricultural productivity. As a result, inequality in the distribution of income in the rural areas has increased.
Various measures have been adopted by the Government during the plan period to reduce inequality in the distribution of income.
Four important measures are the following:
1. Payment of Bonus:
Firstly, the payment of bonus (called annual payment) has been made compulsory in every industry.
2. Ceiling on Land Holding:
Secondly, a ceiling on landholdings has been imposed in the rural areas. Each household (or family) is allowed to hold a certain amount of land. Any surplus above this is taken over by the Government and is redistributed among the landless workers and marginal farmers. Moreover, in 1976 a ceiling on urban property has also been imposed.
3. Self-Employment Projects:
Moreover, various self-employment projects have been taken both in rural and urban areas to solve the growing unemployment problem.
4. Transfer Payments:
Finally, various types of transfer payments (such as unemployment, compensation, soft loans, pensions to freedom fighters, concessions to senior citizens, etc.) have been made for improving the welfare of certain weaker sections of the society.