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Inequality Alleviation
Context:
Over the past seven decades, income inequality in India has undergone significant shifts, with distinct disparities between rural and urban regions.
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- These patterns reflect varied socio-economic trajectories and underscore the mixed success of policy interventions in addressing these challenges.
- Drawing insights from a recent PRICE working paper based on household income surveys from 1953–2023, the story of India’s uneven growth highlights the complexities of fostering inclusive development.
Rural Income Inequality: A Shifting Landscape
In rural India, income inequality has evolved under the influence of agricultural advancements, economic reforms, and targeted policies. The Gini ratio, a standard measure of inequality, captures these shifts:
- 1955–1975: The rural Gini ratio rose modestly from 0.341 to 0.388, driven by unequal land ownership and the limited reach of government programs.
- While the Green Revolution modernised agriculture, its benefits were largely confined to wealthier farmers with access to irrigation and advanced inputs, marginalising smaller landholders.
- 1975–1995: A slight decline in the Gini ratio to 0.376 reflected the impact of poverty alleviation schemes like the Integrated Rural Development Programme (IRDP) and land reforms.
- Initiatives such as the Minimum Support Price (MSP) mechanism provided stability to small farmers, though implementation challenges limited their effectiveness.
- 1995–2005: Economic liberalisation reversed this trend, with the Gini ratio climbing sharply to 0.438.
- While market reforms created new opportunities, they disproportionately favored wealthier households with better access to credit, technology, and infrastructure.
- Small and marginal farmers struggled with reduced subsidies and institutional support, widening the inequality gap.
- 2005–2020: Inequality deepened, peaking at a Gini ratio of 0.498. Rural-to-urban migration and a shift toward non-farm activities created stark divides.
- Wealthier households diversified into higher-paying sectors, while the rural poor were largely confined to low-wage agricultural labor.
- The COVID-19 pandemic further exacerbated this divide, hitting informal workers the hardest.
- 2020–2023: Recent government interventions, such as expanded MGNREGA support and direct cash transfers, have helped mitigate disparities.
- By 2023, the rural Gini ratio declined to 0.405, indicating partial recovery.
- However, sustained equity will require deeper structural reforms and better policy coordination.
Urban Income Inequality: Persistent Challenges
Urban India has consistently experienced higher levels of income inequality, shaped by industrialisation, urbanisation, and market-driven growth.
- 1955–1975: Urban inequality rose steadily, with the Gini ratio increasing from 0.392 to 0.416.
- State-led industrialisation created formal job opportunities for skilled labor, while unskilled workers remained in low-paying informal sectors.
- Rapid rural migration to cities strained urban infrastructure, worsening disparities.
- 1975–1995: A slight decline in the urban Gini ratio to 0.390 was observed, driven by welfare policies like labor laws and small-scale industry promotion.
- Urban poverty alleviation initiatives provided some stability, though their impact varied across cities.
- 1995–2005: Economic liberalisation marked a turning point, with the Gini ratio rising to 0.455.
- Growth in high-skill industries such as IT and finance benefited middle- and upper-income groups, while informal workers faced displacement and rising living costs.
- 2005–2020: Urban inequality peaked at a Gini ratio of 0.532.
- Urbanisation and digitalisation created opportunities for the educated elite but sidelined low-income groups.
- The pandemic widened disparities further, as informal workers faced job losses while affluent groups adapted to remote work and digital-sector growth.
- 2020–2023: Targeted measures, including the PM Svanidhi scheme for street vendors and affordable housing under the Pradhan Mantri Awas Yojana, helped stabilise low-income earnings.
- Pandemic relief programs, such as cash transfers and food rations, also reduced disparities, bringing the Gini ratio down to 0.382.
- However, bridging the urban divide remains a pressing challenge.
Rural-Urban Interdependence: A Shared Recovery Path
- Urban India has consistently shown higher income inequality compared to rural areas.
- However, rural inequality has risen steadily due to structural challenges and slower policy impact, while urban inequality has fluctuated sharply in response to economic reforms and external shocks.
- The pandemic highlighted vulnerabilities in both regions, with urban areas experiencing sharper spikes in disparity.
- By 2023, the Gini ratios of rural and urban areas converged, reflecting shared recovery challenges and the critical role of targeted government interventions.
Policy Imperatives for Balanced Growth
- Addressing rural and urban inequality requires a unified and holistic approach.
- Strengthening rural-urban linkages can foster synergies between the two regions.
- For example, investments in agro-industries and transportation can help rural producers access urban markets, while urban demand for goods and services can stimulate rural economies.
- Similarly, expanding digital connectivity can bridge the information divide, enabling rural communities to participate in the digital economy and urban workers to access decentralised opportunities.
Inclusive growth demands long-term structural reforms that go beyond reactive measures. Policies must focus on equitable access to education, healthcare, and economic opportunities for all. By recognising the interdependence of rural and urban economies, India can build a resilient, equitable economy that uplifts all its citizens.
