Redistribution of Income

Redistribution of Income

The shape of the Indian economic pie must change

#GS-02 Social Justice

For Mains:

The need to change economic dimensions:

  • India has the largest number of working age persons in the world seeking work and better incomes.
  • The Indian economy also has among the lowest employment elasticities (that is the number of jobs created with each unit of GDP growth).
  • India is becoming one of the most unequal societies in the world both socially and economically.
  • The country’s problem of dividing the economic pie to rectify both historical social and new economic discrimination cannot be resolved merely by judging whose needs are greater.
  • Governments are struggling to meet conflicting demands for “ease of doing business” for capital, and “ease of earning and living” for citizens.

Politics and Economics:

  • On the left, populism has a “socialist” voice: it demands rights for all workers, across races and religions, who are unable to earn enough and have little social security.
  • On the right, populism wants to protect racial and religious majorities from immigrants and minorities competing with them for limited economic opportunities.

Why discrimination occurs:

  • Thomas Piketty in Capital and Ideology describes, how societies were historically divided into three classes — a clerical and religious class, a noble and warrior class, and a common, labouring class.
  • The Hindu caste system divided work into four broad categories but the fundamentals remain the same.
  • Society and economy worked harmoniously because aspirations to change castes and vocations were pushed into the afterlife.
  • Piketty says, “Every human society must justify its inequalities: unless reasons for them are found, the whole political and social edifice stands in danger of collapse. Modern inequality is said to be just because it is the result of a freely chosen process in which everyone enjoys equal access to the market and to property and automatically benefits from the wealth accumulated by the wealthiest individuals, who are also the most enterprising, deserving, and useful. Nearly everywhere a gaping chasm divides official meritocratic discourse from the reality of access to education and wealth for society’s least favored class.”
  • Financing of wars gave money owning class power over governments.
  • International trade, the driving force for the economic power of European nations (supported with armed force), provided another avenue for growth of the financial class.
  • With the victory of monetarism (and Friedman) over welfarism (and Keynes), money became the master.
  • Central banks with responsibility to look after the health of money, acquired independence from elected governments whose responsibility is the health of citizens.

What could be done:

  • The shape of the economic pie must change so that the majority benefits much faster than a tiny minority on top.
  • This will require reforms of institutions and economic ideology.
  • The Government must listen and respond to the needs of common citizens more than to big business lobbies.
  • Ease of living for the majority must drive government policies more than policies for attracting big investments with ease of doing business.