Income Inequalities in India - How Much Does Taxation Help? : Daily Current Affairs

Date: 23/01/2023

Relevance: GS-3: Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment.

Key Phrases: Liberalization, Poverty, Progressive Taxation Systems, Decentralising Investments, Promoting Women’s Entrepreneurship, Strong Regulations, Inequalities, Monopolies.


  • Despite three decades of economic liberalization, India continues to be a nation of contrasts, where significant growth and success coexist alongside persistent poverty and deprivation.

Key Highlights:

  • India’s growth remains impressive, beating the expectations of economists and policymakers around the world.
  • Between 2011-12 and 2019-20, India grew by an average of 5.4 per cent annually, positioning itself among the fastest-growing emerging economies in the world.
  • Even post-Covid, India has emerged as a global bright spot, with most international organisations projecting growth rates of 6.8 –7.2 per cent in 2022-23.
  • As is the case with capitalist-leaning economies, this rapid growth has also led to various forms of inequalities, including income-based, gender-based, region-based, and inequalities affecting historically disadvantaged social groups.
  • These inequalities are a by-product of this rapid economic growth and highlight the need for more inclusive and equitable policies to address these disparities.

Key Findings:

  • Oxfam’s recent report, “Survival of the Richest”, shows that the top 10 per cent of the Indian population holds almost 72 per cent of the country’s wealth.
  • India still has the world’s highest number of poor, about 228.9 million, and yet is estimated to produce 70 new millionaires per day.
  • The tax burden also falls unevenly. Currently, indirect taxes, such as the Goods and Services Tax, form a large portion of tax revenue with the poorest half of the population bearing nearly two-thirds of the GST burden.
  • Gender-Based Discrimination: Research shows that women have been systematically exiting the workforce over the last five decades, despite rising household incomes and narrowing gender gaps in education, resulting in the “missing working woman” phenomenon in India.
  • WTW’s Gender Wealth Inequality Index shows that Indian women’s expected lifetime earnings are only 64 per cent of their male counterparts.
  • India Is Not Alone In Its Experience: Countries across the world have been grappling with growing inequalities, which have worsened in the aftermath of Covid-19.
    • Data from the World Inequality Report 2022 shows that income inequality in the US is among the highest across developed countries:
    • In 2021, in the US the top 10 per cent captured 45 per cent of total income, while the bottom 50 per cent owned just 13 per cent.
    • This is worse in emerging economies like Brazil where the bottom 50 per cent of the population earns 29 times less than the top 10 per cent.

Income Redistribution Measures Showing Promise:

  • Countries that have successfully managed to assuage income inequalities have typically had long-term political commitment, accompanied by targeted government interventions to address structural biases in economic superstructures.
  • Four types of income redistribution measures show promise.
    1. Progressive Taxation Such As Wealth Taxes: Countries like Norway have had wealth taxes for over a century, and others such as Denmark are now introducing a “top-top tax”, which adds an extra five per cent tax on incomes above $358,000.
      • Oxfam estimates suggest that globally an additional tax of five per cent on the world’s multimillionaires and billionaires could lift up to 2 billion out of poverty and fund a plan to fight hunger.
      • Introduction of a three per cent wealth tax on India’s billionaires can fund the National Health Mission for 5 years.
    2. Decentralising Investments across geographical areas to address regional inequalities within a country.
      • Nearly all advanced economies face large differences in economic performance between regions, with growth and employment typically concentrated in large cities.
      • Japan stands out as having achieved the lowest levels of regional inequality amongst the OECD countries, a testament to the success of its long-term strategy of ensuring strong connectivity and spreading out human capital investments across the country.
    3. Promoting women’s entrepreneurship, particularly in rural areas. Women’s entrepreneurship is a critical mechanism to create wealth accumulation opportunities in light of persisting gender gaps.
      • Bangladesh stands out among the Global South for its innovative schemes, such as the establishment of an Equity and Entrepreneurship Support Fund (EEF) to help women in the SME sector avail of low-cost loans.
      • Also the formation of Women’s Entrepreneurship Development Units at all branches of the Central Bank of Bangladesh to support and train women entrepreneurs in accessing finance and improving product marketing.
      • Such schemes are critical in an ecosystem where only seven per cent of micro, small and medium enterprises are women.
    4. Limiting monopoly and strengthening regulatory frameworks.
      • Countries such as the United Kingdom have created strong regulatory institutions in infrastructure sectors such as Ofcom (Office of Communications), Ofgem (Office of Gas and Electricity Markets), etc.
      • It ensures that natural monopolies meet critical service delivery requirements and key performance standards.
      • Strong regulators put some curbs on the power of monopolies to generate abnormal profits, thereby limiting wealth inequalities.


  • The adoption of progressive taxation systems, decentralization of investments, support for women's entrepreneurship, and the implementation of strong regulations by policymakers can be a first step in addressing India's increasing inequalities over the long term.
  • The goal of creating a $5 trillion economy in India by 2025 can be realised only if growth opportunities are spread out.
  • Most importantly, India’s central and state governments, which gathered at Davos to attend the World Economic Forum’s Annual Meetings 2023, must question if the investments being attracted can help in decentralising development and addressing inequalities.

Source: The Indian Express

Mains Question:

Q. Adopting progressive taxation systems, decentralising investments, promoting women’s entrepreneurship, and creating strong regulations can be a start in the long-term agenda towards addressing India’s growing inequalities. Discuss (250 words)