Political Economy

Four Things India Must Do to Achieve Economic Equality, Social Justice

The cuts in funds for various welfare programmes in the latest budget reflect the lack of will on the part of India's political class to uplift the poor. It is time a wealth tax and a more progressive tax regime are in place.

It is budget week, and India Inc. seems to have declared, yet again, that this budget too is historic and visionary. Unfortunately, the numbers in the budget don’t seem to support these conclusions. An Oxfam report launched a few weeks ago focuses on wealth inequality globally especially economic structures that work to keep the wealth gap wide. The main takeaway from the report should be how a more equitable and just system can be created.

India’s 2023 budget numbers are a great way to understand why wealth and income inequality are a problem. A cursory analysis reveals how little the current political dispensation cares about the poor.

Also read: India’s Rich Have Got Richer During the Pandemic: Oxfam

For instance, the budget for agriculture has been reduced by 5% on account of an allocation of a total of zero for price support and market intervention schemes (PSS-MIS) and funds for Minimum Support Pricing (PM-AASHA). The budget for persons with disabilities has been reduced between 17% to 38% depending on which scheme one examines. Allocations for the National Mental Health Programme (NMHP) have been declining by 8% on average since 2018 and continue to decline this year as well.

While there are upsides to the budget in that capital infrastructure spending may spur growth in the future – that future is extremely long-term and contingent on a plethora of things such as implementation which India has a poor track record of.

From a gender perspective, allocations to address gender gaps (including flagship schemes) are at less than 1% of India’s GDP and less by 2% from last year’s budget estimates. India has the largest proportion of malnutrition children, yet since 2014 allocations to nutrition and allied areas have been cut by approximately 40%. This reduction is primarily across the all-important Mid-Day-Meal-Scheme (MDMS) and the Integrated Child Development Scheme (ICDS) both vital support systems for India’s poor and marginalised.

Representative image of school children having their mid-day meal. Photo: ILO Asia-Pacific/Flickr CC BY NC ND 2.0

The National Rural Employment Guarantee Act (MNREGA) in this budget has been allocated the least money it has ever seen historically with a 33% reduction as a proportion of GDP.  The budget does not favour social security, but one cannot just wish away the needs of the poor.

A four-fold solution

The Oxfam report outlines four measures that can be taken in the direction of equity and social justice, and they are: a) taxing the wealth of the richest 1% b) easing the tax burden on the poor and the marginalised c) improving access to public services like health and education and d) strengthening safety nets and the bargaining power of labour.

The most undisputed idea of these is the need for safety nets. Nobel laureates Duflo and Banerjee’s work on the ultra-poor demonstrates how a package of interventions covering health, education and importantly, livelihood skills and economic assets, provides the big ‘push’ to pull families out of poverty and keep them out of it.

Women working on an NREGA site building a pond in Gopalpura, Jhabua, Madhya Pradesh. Credit: UN Woman/Gaganjit Singh/Flickr CC BY-NC-ND 2.0

Representational image. Photo: UN Woman/Gaganjit Singh/Flickr.

Employment guarantee schemes and even minimum wages or the idea of a universal basic income work to achieve much the same goals – provide a floor of social security to those who need it the most. In all cases, the mechanism is either based on self-selection or is simply universal, removing the losses of inefficiencies acquired through the costs of trying to identify and accurately target the poor. Sadly, despite being undisputed, there is very little being done on the social security front for most Indians.

Bargaining power for the poor

Another recommendation is bargaining power. Why does bargaining matter from an economic point of view? In general, collectivisation has positive effects on people. In particular, collective bargaining allows labour to receive a greater share of productivity gains as wages, and this usually, as traditional business sense should suggest results in increased productivity which is good for a firm.

Also report: Poor Country With Affluent Elite, India Is Going Nowhere

When Oxfam suggests improved bargaining power as a solution for wealth inequality this is what it is referring to – the idea that not all parties have equal bargaining power in work arrangements. Inequality of bargaining power is a reality in India.

Firms usually have access to better legal representation and most contracts have clauses that inure to the benefit of the employer as opposed to the employee. The result of such unequal bargaining power is simply market failure that is the prevailing labour climate becomes inefficient for the vast majority of workers.

Need for aggressive investments in public health and education

Oxfam also suggests improving access to education and health along with other public services. This suggestion is straightforward but requires enormous political will to achieve.

India’s road to universal healthcare coverage (UHC) is long and difficult. The public health system in India is governed by a complicated set of regulations and standards that differ by India’s many states and Union territories. There are variations in delivery models, insurance coverage, availability, and access. Health disparities are all too apparent between the poorer and richer states with underfunded health systems and poor administration.

Representational image. A hospital in Andhra Pradesh’s Eluru. Photo: PTI

Rural areas still suffer from a shortage of doctors and medical infrastructure. There is little difference between the providers of health education, care services and preventive healthcare practices such as family planning and immunisation resulting in an overburdened cadre of frontline health workers. Reform has been a poorly implemented national health insurance programme with less than 40% of coverage and an increasing reliance on telehealth and technology-driven solutions, which have been given even more allocations in this budget, even though the provision of digital services is both uneven and insufficient.

India’s education system continues to have several challenges, including a lack of funding, inadequate infrastructure and a shortage of qualified teachers. Additionally, there is a significant disparity in the quality of education between rural and urban areas and between private and government schools. Curricula in India are also badly in need of reform with most being outdated and not well-aligned with the needs of the job market.

India’s reform agenda for education led by the National Education Policy (NEP) does a poor job of looking at the fundamental issues with the Indian education system. It does not address the issue of inadequate funding, and access to education for marginalised groups, overemphasises technology without a clear roadmap on digital access and equity and is almost entirely silent on teacher training and professional development.

Overhaul tax regime

The first and second proposals made in the Oxfam report are perhaps the most radical because they directly recommend the creation of a structurally just financial system. One of the most effective ways to do this is by increasing tax exemptions and deductions available to low-income individuals specifically for education and health spending.

Also read: How Privatisation Is Leading to Growing Inequality in India

Along with a wealth tax and a more “progressive” taxation system in the realm of indirect taxes (making luxury goods much more expensive through higher tax rates), the government could also consider implementing a tax credit system for the poor and marginalised. Tax credits are a form of direct financial assistance to individuals and families that are designed to offset the cost of taxes. For example, a tax credit for low-income individuals could be used to offset the costs of GST.

The budget offers a more “attractive” version of the new tax regime with a personal income tax rebate limit increased to Rs 7 lakh, however as most economists have already pointed out, this is a dangerous idea that takes away from a powerful incentive to save, that India’s population commits to.

For those who have middling incomes, there is very little to choose between the old and the new regime. Opponents of a wealth tax argue that it could act as a disincentive for wealthy individuals to invest and create jobs and would disproportionately affect those who have worked hard to accumulate their wealth.

This suggests that those who are poor do not work hard or cannot create jobs a false idea because it ignores the mountain of privilege that India’s wealthy are perched upon. The budget reduces the maximum income tax rate to 39% from 42.7% thus clearly signalling that wealth inequality is all but fine.

Ultimately the budget numbers do tell the story very well – India’s annual growth in per capita income from 2004-14 was at 13%, while from 2014 to 2023, it is at about 9%. People are not doing well and the budget does little to help.

Varna Sri Raman is an award-winning researcher with two decades of experience in social research and global development implementation.