Income Inequalities: Causes and Cure

Inclusive development and education key to bridge the wide economic disparity.

By Dr Tejinder Singh Rawal   |   Published: 3rd May 2017   11:21 pm Updated: 4th May 2017   5:12 pm

India, post-liberalisation, is a country with glaring income inequalities. The economy grew at a sluggish pace of 3% per annum for four decades post-Independence, before suddenly exploding into a higher growth trajectory after the start of the liberalisation process. It then clocked a growth rate of 8%, which resulted in widening of the gap between the rich and the poor.

Thus on one hand, the world’s most expensive private residential property is situated in India at Mumbai – Antilia, the place where Mukesh Ambani and the five members of his family live in 600 rooms spread over the 27-storied house, while on the other just 10 km away is Dharavi, the world’s largest slum where 7 lakh people live in an area of 2 sqkm, making it the most densely-populated place on earth.

A look into the consumption pattern of people shows that the problem is more severe than what it looks. A comparison between rural and urban consumption shows that the ratio is skewed towards urban. In the urban areas, the growth in consumption is among the top 10%. The share of the unorganised sector in the national income has been gradually reducing, which means that it is the urban elite who is earning and spending most of the income.

Uneven Development

While there are many causes for this lopsidedness, a major reason is that development has not created enough jobs. India continues to be an agrarian economy with 70% of the population living in rural areas, and more than half of the population depending on agriculture for livelihood.

India’s capacity to generate employment was traditionally low; it has continued to be low even during the high growth period. Latest technological developments stifle this growth further, as robots assume the roles that earlier belonged to human beings. Progress coupled with automation makes the wage distribution more skewed while reducing employment potential less. Low paid and low skilled jobs seem to dominate the job market, with few people moving up the scale from low skilled to higher skilled jobs.

Capitalism in India has always exploited the sociocultural features of the economy, such as caste and community to its advantage, thereby generating surpluses out of such exploitation. Some communities and castes are considered ‘business classes’ and certain communities employable. This bias has resulted in some communities getting richer while others continue to suffer.

A person not belonging to a business community finds himself at a considerable disadvantage as compared to a person from a business community, in terms of networking and establishing his credibility. Even the biggest of the business houses are identified with the owners, and the caste, community or class the owner belongs to. Seven decades of self-rule has hardly done anything to dilute this unfortunate situation.

An example of such a behaviour is the existence of legal structure such as the Hindu Undivided Family, which on one hand allows some communities to do business under this legal form while on the other, it promotes patriarchal practices where women are denied any recognition as a co-partner in a family owned business. This distorts both the caste and gender equations.


A major feature of Indian economy has been exclusion: exclusion based on gender, race, religion and region. Exclusion from business, from employment, education and in general exclusion from the growth process. India continues to be a bundle of contradictions, where 18th century and 21 century continue to coexist.

Dr Tejinder Singh Rawal. (The author is a Chartered Accountant and can be reached at

One may come across people who still gather firewood from the forest and live in huts barely large enough to squeeze the family in, and also see jet-setters who live the life that would be envy for even the people in the West.

The solution lies in inclusive development, where the fruits of development percolate down to the last man and where nobody is discriminated against. Education holds the key and so does skill development. More than anything, the mindset of the policymakers, employers and the population in general needs to change. If this doesn’t happen, rich will continue to get richer, and poor will continue to get poorer.