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Economic Inequality and Policy Responses in India



  May 02, 2024

Economic Inequality and Policy Responses in India



1. What did Thomas Piketty’s study reveal about economic inequality in India?

Thomas Piketty’s research showed that economic inequality in India is now worse than it was during British colonial rule. Specifically, in 2022, the top 1% of India’s population owned 40.1% of total wealth and earned 22.6% of total income, highlighting significant disparities.

2. What are the trends in wealth and income distribution in India according to the study?

The study noted a sharp increase in wealth and income inequality beginning in the 1980s, with the top 10% of earners seeing a significant rise in their share of national income from 30.1% in 1982 to 57.7% in 2022.

3. Why is there a call for a wealth tax in India?

Given the stark disparities in wealth and income, Piketty and his co-authors argue that India’s tax system, which is largely income-based, is regressive. They propose a wealth tax on the rich as one measure to address inequality.

4. What is the argument against implementing a wealth tax?

Critics argue that a wealth tax could have unintended consequences, such as reducing investments, impacting workers and landowners negatively, and ultimately slowing economic growth. They suggest that instead of taxing the rich, increasing economic freedom for the poor might be a more effective solution.

5. How has the size of India’s economic pie changed?

The total real income of the bottom 50% in India has increased over four-fold between 1991 and 2022, despite their shrinking share of total national income. This indicates that while income distribution has become more skewed, the overall economic growth has raised income levels across the board.

6. What does the study suggest about the effects of market liberalization on inequality?

Market liberalization since the 1980s has been associated with growing inequality. However, the same period has seen significant economic growth, suggesting that while the rich have benefited disproportionately, liberalization has also contributed to broader economic expansion.

7. What role do special privileges play in wealth accumulation?

The study indicates that much of the wealth disparity in India can be attributed to special privileges that protect the wealthiest from competition, thus maintaining their wealth share. Reducing these privileges and enhancing competition is suggested as a way to address inequality.

8. What could be the broader impact of increasing competition in the economy?

Increasing competition is expected to reduce the wealth share of the wealthiest by ensuring that capital and opportunities are more evenly distributed, potentially leading to a more equitable economic landscape.

9. What are the potential benefits of offering more economic freedom to the poor?

Enhancing economic freedom for the poor could allow them to compete more effectively in the marketplace, potentially increasing their income and improving their standard of living by allowing them a larger share of the economic pie.

These FAQs provide a foundational understanding of the complex issues surrounding economic inequality in India and the debates over appropriate policy responses.


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