How Neoliberalism Has Widened Inequality in India, Alienated Socially Vulnerable Groups

Since inequality is a functional component of neoliberal capitalism, the state's role has been relegated to protecting the interests of capital rather than making a commitment towards addressing inequality.

The State of Inequality in India report, recently released by the Institute of Competitiveness, on the request of the Economic Advisory Council to the Prime Minister of India, has thrown open the infirmities of neoliberal economic reforms, which India officially adopted in the 1990s.

More than 90% of the population is earning less than Rs 25,000 per month is a shocking revelation of the burgeoning inequality under the present political economy in India. The Periodic Labour Force Survey 2019-20 shows that the top 10% of the population captures 30-35% of the total income and the bottom 50% gets only 22% of it. Between 2017-18 and 2019-20, the top 1% income rose by 15%, while the bottom 10% income went down by 1%.

Source: Data from the Periodic Labour Force Survey 2019-20

The widening inequality and concentration of wealth among a small section of the population violates the constitutional mandate of creating an egalitarian society based on the principles of social justice and freedom from social and economic exploitation. Even though our constitution owes its ideological foundations to a liberal capitalist framework, it emphasised on the aspects of welfare and justice to transform India into a better society.

The classical liberalism as propounded by John Locke and Adam Smith during the 17th and 18th century wanted the state to play a non-interventionist role based on the principle of ‘laissez-faire’ to encourage individual entrepreneurial skills and freedom. More than the problem of inequality, the prosperity of nations has been emphasised by classical liberal thinkers.

According to classical liberalism, inequality has to be tolerated, so that individual entrepreneurial freedom and potential could be realised.

According to Richard Peet (1975), inequality and poverty are considered as functional components of capitalist mode of production. Thus, even today, international institutions and national governments working within a liberal framework capture only absolute poverty rather than relative poverty, which captures the widening inequality within the population.

Also read: Indians Account For 80% Of Those Who Became Poor Globally in 2020 Due to COVID-19: World Bank

The classical liberal model was not able to save the economy from the great depression during inter-war period. The welfare state model based on Keynesian compromise helped the western countries to recover after the devastating two world wars.

India after independence adopted a similar welfare state model with positive liberalism as ideological foundations in the Indian constitution.

After coming out of colonial rule, the Indian state, along with an underdeveloped private capitalist class willing to invest in the development process, took the centre stage in guiding the political economy. Liberalism encourages individual freedom and a non-interventionist state, but positive liberalism further encourages the state to be interventionist in creating an appropriate environment in an unequal society for everyone to enjoy individual freedom.

Given that India is a country which is socially divided based on the caste system, coupled with strong economic inequality, the state took centre stage in balancing human development and strengthening private capital. Thus, the state-led economy with strong social security measures and affirmative actions were the ideological foundation of positive liberalism in the Indian constitution to create an egalitarian society.

A neoliberal political economy

The economic crisis in the 1970s and 1980s pushed us towards a neoliberal political economy, redefining the role of the state and the economy.

Neoliberalism reinforces the values of classical liberalism based on the principle of ‘laissez-faire’. But it moves beyond that in assigning a positive role for the state to create markets in those areas where there are no markets for private players to make profit. The state does this smartly in the name of “good governance”, through policy intervention it creates space for private players.

Since inequality is a functional component of neoliberal capitalism, the state’s role has been relegated to protecting the interests of capital rather than making a commitment towards addressing inequality. In a country like India, where we have inherited structural inequality in social and economic spheres from the time of independence, withdrawal of the state is having an adverse impact on the majority, who still depend on the state’s support system for their education, health, and everyday survival.

For instance, in the education sector, we have spent only 0.64% of the gross domestic product in 1950-51, which gradually increased to 3.93% in 1990. However, the Kothari Commission had in 1966 recommended to spending 6% of the GDP on education. But since 1990, we have been hovering around 3-4% of the GDP expenditure in education, in spite of making education a fundamental right.

Reduced expenditures have meant that the quality of education in government schools has declined as standard facilities and human resources have taken a hit. More than 90% of the schools during 1990 were under the government management, whereas the number of private schools has been increased substantially to reach more than 20%.

Neoliberalism encourages contract-based employment, where people can be easily hired and fired. According to the 8th All India School Education Survey (AISES 2016), the number of para teachers in India increased 302.5% between 2002 and 2009. During the same time, the number of part-time teachers increased by 210.6%.

Similarly, we spend around 1% of the GDP on health, which indirectly creates a market for the private medical practitioners due to poor facilities at government hospitals. Such deliberate reluctance to spend on the part of the state has adverse effects on health indicators. In 2019, the prevalence of anaemia among women during their fertile years (15-49 years of age) was around 53%, which was only next to Nigeria where around 55% of women and girls suffer anaemia.

The states’ failure to take deliberate action on providing clean drinking water has encouraged a greater market for packaged drinking water. After the formalisation of neoliberal policies, we see this attitude of government in many sectors, where the states’ action or inaction creates favourable space for the private players.

Growing inequality

The London School of Economics researcher Maitreesh Ghatak has said in his research that the top 1% of the population had around 10-16% of wealth share till the 1990s, which has increased manifold to reach 42.5% in 2020. But the bottom 50% wealth share has decreased from 12.3% in 1961 to 2.8% in 2020.

Since 2020, India’s Gini coefficient, which is a measure of inequality, has been at its peak of 82.3, according to a Credit Suisse Global Wealth Report, published in 2022. On the other hand, between 2020 and 2021, the number of millionaires in India has increased from 689,000 to 796,000.

Further Thomas Piketty exposes the growing inequality during the neoliberal period in India. During the 1930s, around 21% of the total income went to the top 1% of the earners, which reduced to 6% in the early 1980s, and again reached 22% during the contemporary neoliberal period.

The profound policy changes after the adoption of neoliberalism has further widened the gap between the rich and the poor. It further alienates the socially disadvantaged groups, who were discriminated based on caste, gender, religion, and ethnicity, and who are still dependent on state support to break away from the centuries-old discriminatory shackles.

Our development discourse is still relying on the trickle-down theory, which failed to a larger extent. It’s also focussed on GDP-centric development rather than human-centric development. Our policy directives during the neoliberal period have violated the constitutional vision and commitment towards creating an egalitarian society. The new labour codes, privatisation of key public sectors, and shrugging off the constitutional responsibility of the state in providing social security to the vulnerable sections of the society and working class is going to further widen inequality and structurally isolate a majority of the population in India.

There is an urgent need to rethink our political economic choices and reorient our political discourse to reclaim the constitutional values and priorities to create an egalitarian society based on social justice and people’s democracy.

Venkatanarayanan S. is associate professor and head of the department of political science and history at Christ University, Bengaluru.