World Inequality Report 2022

In News

• India has emerged as the most unequal country with the top 1% of the population holding more than one-fifth of the total national income in 2021.

• The report is released by Paris-based World Inequality Lab, a global research initiative.

Major Highlights of the Report

• Contemporary income and wealth inequalities are very large:
  • The average annual national income of the Indian adult population is Rs 2, 04,200 in 2021.
  • The bottom 50 per cent earned Rs 53,610, while the top 10 per cent earned over 20 times more (Rs 11,66,520)
  • The top 10% of the population holds 57% of the total income while the bottom 50% share has gone down to 13%.
  • The average household wealth in India is Rs 9, 83,010, with the bottom 50 per cent owning almost nothing, with an average wealth of 6 per cent of the total Rs 66,280.
• Gender inequality:
  • Further, the report underscores the gender inequality in the country.
  • It is observed that the female labour income share is equal to 18%, one of the lowest in the world, slightly higher than the Middle East (15%).
  • Women’s share of total incomes from work (labour income) was about 30 per cent in 1990 and is less than 35 per cent now.
• The rise has not been uniform:
  • Certain countries have experienced spectacular increases in inequality (including the US, Russia, and India) while others (European countries and China) have experienced relatively smaller rises.
• Drop-in global income:
  • The report has also flagged a drop in global income during 2020, with about half of the dip in rich countries and the rest in low-income and emerging regions.
  • This is attributed primarily due to the impact of “South and Southeast Asia, and more precisely” India.
• India’s middle class:
  • India’s middle class is relatively poor with an average wealth of only Rs 7,23,930 or 29.5 per cent of the total national income, as compared with the top 10 per cent and 1 per cent who own 65 per cent (Rs 63,54,070) and 33 per cent (Rs 3,24,49,360), respectively.
• Pre-tax national income:
  • The share of top 10 per cent and bottom 50 per cent in pre-tax national income has remained broadly constant from 2014 onwards.
• Global scenario:
  • The poorest half of the global population “barely owns any wealth” possessing just 2 per cent of the total, whereas the richest 10 per cent of the global population own 76 per cent of all wealth.
  • The Middle East and North Africa (MENA) are the most unequal regions in the world, whereas Europe has the lowest inequality levels
  • In Europe, the top 10 per cent income share is around 36 per cent, whereas in MENA it is 58 per cent. In East Asia, the top 10 per cent makes 43 per cent of total income and in Latin America, the share is 55 per cent.
• Nations have become richer, but governments have become poor:
  • Even as countries have become richer over the last 40 years, their governments have become significantly poorer, a trend which has been magnified due to the pandemic.
  • The share of wealth held by public actors is close to zero or negative in rich countries, meaning that the totality of wealth is in private hands.

Issues

• Deregulation and liberalization policies: Since the mid-1980s, deregulation and liberalization policies have led to one of the most extreme increases in income and wealth inequality in the world.
• Unequal benefits out of economic reforms: While the top 1 per cent has largely benefited from economic reforms, growth among low and middle-income groups has been relatively slow and poverty persists.
• Globalization: After three decades of trade and financial globalization, global inequalities remain extremely pronounced.
• The Covid-19 pandemic and the economic crisis: Hit all world regions, but it hit them with varying intensity. Europe, Latin America, and South and Southeast Asia recorded the largest drops in national income in 2020 while East Asia succeeded in stabilizing its 2020 income at the level of 2019.
• Unemployment: The main reason for the low level of income of the majority of Indian people is unemployment and underemployment and the consequent low productivity of labour. Low la­bour productivity implies a low rate of economic growth which is the main cause of poverty and inequality of the large masses of people.
• Inflation: Another cause of inequality is inflation. During inflation, few profit earners gain and most wage earners lose. This is exactly what has happened in India. Since wages have lagged behind prices, profits have increased. This has cre­ated more and more inequality. 
• Tax Evasion: In India, the personal in­come tax rates are very high. High tax rates en­courage evasion and avoidance and give birth to a parallel economy. This is exactly what has hap­pened in India during the plan period.
• Regressive Tax: The indirect taxes give maximum revenue to the government. But they are regressive in nature. Such taxes have also cre­ated more and more inequality over the years due to the growing dependence of the Government on such taxes.

Suggestions

• A wealth tax on multimillionaires: The report has suggested levying a modest progressive wealth tax on multimillionaires. “Given the large volume of wealth concentration, modest progressive taxes can generate significant revenues for governments.
• Investment in various sectors: In our scenario, we find that 1.6 per cent of global incomes could be generated and reinvested in education, health and the ecological transition.
• Ceiling on Land Holding: A ceiling on landholdings has been imposed in the rural areas. Each household (or family) is allowed to hold a certain amount of land. Any surplus above this is taken over by the Government and is redistributed among the landless workers and marginal farmers.
• Self-Employment Projects: Various self-employment projects have been taken both in rural and urban areas to solve the growing unemployment problem.
• Transfer Payments: Various types of transfer payments (such as unemploy­ment, compensation, soft loans, pensions to free­dom fighters, concessions to senior citizens, etc.) have been made for improving the welfare of cer­tain weaker sections of the society.

Source: IE