• India
  • May 20

Explainer / EAC-PM releases State of Inequality in India Report

The Economic Advisory Council to the Prime Minister (EAC-PM) suggested that the government should come out with a guaranteed employment scheme for the urban unemployed as well as introduce a universal basic income and allocate higher funds towards the social sector to reduce inequality in India.

The report titled ‘The State of Inequality in India’, commissioned by the EAC-PM, was prepared by the Institute for Competitiveness. It was released by EAC-PM chairman Bibek Debroy.

Economic Advisory Council to the PM

• Economic Advisory Council to the Prime Minister (EAC-PM) is an independent body constituted to give advice on economic and related issues to the government of India, specifically to the Prime Minister. 

The Terms of Reference of EAC-PM include: 

i) Analysing any issue, economic or otherwise, referred to it by the Prime Minister and advising him thereon.

ii) Addressing issues of macroeconomic importance and presenting views thereon to the Prime Minister.

• These could be either suo-motu or on reference from the Prime Minister or anyone else. They also include attending to any other task as may be desired by the Prime Minister from time to time.

What is the purpose of the report?

• Inequality and inequity contribute to poverty and deprivation, which further drives the socio-economic exclusion of certain groups. In the Indian context, inequalities and socio-economic inequities intensify to produce a vicious cycle of poverty and deprivations, requiring multidimensional frameworks to investigate the processes at work.

• The experiences of deprivations are particularly more embedded in the Indian socio-economic fabric due to the multi-layered intersectional oppression that cuts across class, caste, gender and religion and continues to push certain groups towards complete exclusion. 

• This exclusion is manifested in economic, political and socio-cultural forms.

• The State of Inequality in India Report is a step in presenting a holistic understanding of the depth, structure and nature of inequality in India. 

• Consisting of two parts – Economic Facets and Socio-Economic Manifestations – the report looks at five key areas that influence the nature and experience of inequality. 

• These are economic variables like income distribution and labour profile and socio-economic variables like health, education and household characteristics that attempt to give a comprehensive diagnosis of developmental lacunae.

• Based on the data derived from various rounds of the Periodic Labour Force Survey (PLFS), National Family and Health Survey (NFHS) and UDISE+, each chapter is dedicated to explaining the current state of affairs, areas of concern, successes and failures in terms of infrastructural capacity and finally, the effect on inequality. 

• The report stretches the narrative on inequality by presenting a comprehensive analysis that shapes the ecosystem of various deprivation in the country, which directly impacts the well-being of the population and overall growth. It is a study that cuts across the intersections of class, gender, and region and highlights how inequality affects the society.

• With a first-time focus on income distribution to understand the capital flow, the report emphasises that wealth concentration as a measure of inequality does not reveal the changes in the purchasing capacity of households.

• The information available on inequality, which this report brings out, will help formulate reform strategies, a roadmap for social progress and shared prosperity. 

• It will help determine the nature of change required for the reduction of inequality and poverty as well as sustained growth of the country. 

• Moreover, information transparency with the public on matters of such intense importance as inequality leads to proactive involvement of all stakeholders resulting in innovative and sustainable solutions.

Key points in the report:

• Extrapolation of the income data from the Periodic Labour Force Survey (PLFS) 2019-20 has shown that a monthly salary of Rs 25,000 is already amongst the top 10 per cent of total incomes earned, pointing towards some levels of income disparity. The share of the top 1 per cent accounts for 6-7 per cent of the total incomes earned, while the top 10 per cent accounts for one-third of all incomes earned. 

• In 2019-20, among different employment categories, the highest percentage was of self-employed workers (45.78 per cent), followed by regular salaried workers (33.5 per cent) and casual workers (20.71 per cent). The share of self-employed workers also happens to be the highest in the lowest income categories. The country’s unemployment rate was 4.8 per cent in 2019-20, while the worker population ratio was 46.8 per cent.

• The Labour Force Participation Rate (LFPR) is a measure to examine the working-age population in a country by looking at the section of people who are currently employed or seeking employment. According to the report, LFPR for 15 years and above for the educated workforce (secondary and above) stood at 48.8 per cent in 2017-18 and 2018-19. In 2019-20 this increased to 51.5 per cent.

• In the area of health infrastructure, there has been a considerable improvement in increasing the infrastructural capacity with a targeted focus on rural areas. From 1,72,608 total health centres in India in 2005, total health centres in 2020 stand at 1,85,505. 

• States and Union Territories like Rajasthan, Gujarat, Maharashtra, Madhya Pradesh, Tamil Nadu and Chandigarh have significantly increased health centres (comprising Sub-Centres, Primary Health Centres, and Community Health Centres) between 2005 and 2020. 

• The results of NFHS-4 (2015-16) and NFHS-5 (2019-21) have shown that 58.6 per cent of women received antenatal check-ups in the first trimester in 2015-16, which increased to 70 per cent by 2019-21. Around 78 per cent of women received postnatal care from a doctor or auxiliary nurse within two days of delivery, and 79.1 per cent of children received postnatal care within two days of delivery. 

• However, nutritional deprivation in terms of overweight, underweight, and prevalence of anaemia (especially in children, adolescent girls and pregnant women) remains areas of huge concern requiring urgent attention, as the report states. Additionally, low health coverage, leading to high out-of-pocket expenditure, directly affects poverty incidences. 

• Education and household conditions have improved enormously due to targeted efforts through several social protection schemes, especially in the area of water availability and sanitation that have increased the standard of living. By 2019-20, 95 per cent of schools had functional toilet facilities on the school premises. Besides, 80.16 per cent of schools have functional electricity connections with states and Union Territories like Goa, Tamil Nadu, Chandigarh, Delhi, Dadra and Nagar Haveli & Daman and Diu, Lakshadweep and Puducherry achieving universal (100 per cent) coverage of functional electricity connections. The Gross Enrolment Ratio has also increased between 2018-19 and 2019-20 at the primary, upper primary, secondary and higher secondary. 

• In terms of improvement in household conditions, emphasis on providing access to sanitation and safe drinking water has meant leading a dignified life for most households. According to NFHS-5 (2019-21), 97 per cent of households have electricity access, 70 per cent have improved access to sanitation, and 96 per cent have access to safe drinking water.

Recommendations in the report: 

1) The most important aspect of measuring poverty in a multidimensional context requires mapping the mobility in and out of poverty. Therefore, it is recommended to establish airtight slabs that make class-based distinctions clear to trace movement within a class and in and out of the class. Additionally, this will help define the middle-class income share and target beneficiaries of social protection schemes that constitute the lower-middle-class, lower-class, and those below the poverty line.

2) Raising minimum income and introducing universal basic income are some of the recommendations that can reduce the income gap and equal distribution of earnings in the labour market. 

3) Looking at the difference between the labour force participation rate in rural and urban areas, it is our understanding that the urban equivalent of schemes like Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS), that are demand-based and offer guaranteed employment should be introduced so that the surplus-labour is rehabilitated.

4) Most importantly, the government must allocate more percentage of the expenditure towards social services and the social sector to make the most vulnerable population resilient to sudden shocks and stop their descent into poverty.

5) Equitable access to education and creation of more jobs with long term growth are vital for triggering an upward mobility among the poor. 

6) The government should also encourage regular exercises like the Foundational Learning and Numeracy Index and Ease of Living Index for the purpose of stock taking of the extent of vulnerability among households and how to promote their overall well-being.

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