Income inequality doubled in India in 2 decades
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December 8, 2011
Inequality in earnings in India has doubled over the last two decades, making it one of the worst performers among emerging economies.
A new report by the Organisation for Economic Cooperation and Development (OECD) shows that the top 10 percent of wage-earners, earn 12 times more than the bottom 10 percent, compared to a ratio of six since the early 1990s.
The report Divided We Stand: Why Inequality Keeps Rising shows that the benefits of growth in India have been concentrated in the states that are already rich, thus contributing to the widening gap in income compared to the poorest and most populous states — like Bihar, Madhya Pradesh and Uttar Pradesh.
The OECD also says India has the highest number of poor in the world. Not just that, income support is also substantially below the OECD average, with little or no benefits for unemployed in the country.
In both India and Indonesia, informal employment includes a disproportionate number of women, home-based workers, street sellers and workers sub-contracted by firms in the formal sector, says the report.
Although “Brazil, Indonesia and Argentina have recorded significant progress in reducing inequality over the past 20 years”, India, China, The Russian Federation and South Africa have become less equal over time.
The report shows that 42 percent of Indians live below the poverty line, as against the official Indian figure of 37 percent, which means that 42 percent of the 1.2 billion population lives on less than Rs 65 a day.
Recently, the Indian government was criticised for artificially trying to reduce the number of people below the poverty line. The government had said that an individual income of Rs 25 a day would help provide for adequate “private expenditure on food, education and health” in villages. In cities, it said, individual earnings of Rs 32 a day were adequate.
India has also not fared well in poverty reduction, the report says.
A World Bank report in May had said attempts by the Indian government to combat poverty were not working, as its programmes were beset by corruption, bad administration and under-payments.
LONDON: India has become “less equal over time” and earnings inequality in the country has increased significantly since the early 1990s, Paris-based think tank OECD said today.
The observations are a part of OECD’s report focusing on inequality patterns and related policy challenges in the emerging economies of India, China, Argentina, Brazil, Indonesia, Russia and South Africa.
The Organisation for Economic Cooperation and Development (OECD) is a 34-member grouping of mostly advanced nations, that together account for over 60 per cent of global output.
“Brazil, Indonesia and, on some indicators, Argentina have recorded significant progress in reducing inequality over the past 20 years. By contrast, China, India, the Russian Federation and South Africa have all become less equal over time…,” OECD said.
India is one country that has experienced “significant” increase inequality over time, where the ratio between the top and the bottom deciles of the wage distribution has doubled since the early 1990s.
“The main driver has been an increase in wage inequality between regular wage earners — i.e. contractual employees hired over a period of time,” the think tank pointed out.
However, OECD noted that inequality in the casual wage sector — workers employed on a day-to-day basis — has remained more stable.
Going by the report, India has the highest headcount poverty rate of the seven countries - with about 42 per cent of its population still living on less than USD 1.25 per day.
“During the two decades to 2008, the fall in the extent of absolute poverty was particularly dramatic for Brazil, China and Indonesia, while India and South Africa recorded more modest reductions,” the report said.
Further, OECD noted that bringing down inequality as well as promoting better jobs in these nations would require a multi-pronged approach including better incentives for more formal employment and preparation to finance higher social spending in the future.
In the OECD region, the report said the gap between rich and poor in member nations has reached its highest level for over 30 years.
“… the average income of the richest 10 per cent is now about nine times that of the poorest 10 per cent across the OECD,” it added.