Inequality in India: Factors Responsible & Impacts

The Global Inequality Report 2025, led by Nobel laureate Joseph Stiglitz under South Africa’s G20 Presidency, exposes the rapid rise of global and national disparities. It shows how concentrated wealth & unequal access to opportunities are widening social & economic divides worldwide, including in India.

Key Findings of the Report

The Scale of Inequality

Wealth Gap: The wealthiest 1% gained 41% of all new global wealth since 2000, while the bottom half received only 1%.
Income Divide: Around 83% of countries, covering 90% of the world’s population, face high income inequality with Gini scores above 0.4.
Food Crisis: One in four people (2.3 billion) experience moderate or severe food insecurity, an increase of 335 million since 2019.
Inherited Wealth: About $70 trillion will be transferred via inheritance in the next decade, continuing intergenerational inequality.

India-Specific Findings

Wealth Concentration: India’s richest 1% increased their wealth share by 62% between 2000 & 2023.
Capital Divide: Nearly 97% of Indians earn negligible income from capital, highlighting a sharp labour–capital divide
Rising Ultra-Wealthy: India’s millionaire population grew by 6% in 2024, with 191 billionaires recorded nationwide.
Global Role: Rising per capita incomes in India and China have slightly narrowed income inequality between countries.

Key Drivers of the Inequality

Capital Concentration: Since 1990, 56% of countries saw a rise in capital income share, while global labour share declined, reflecting widening wealth gaps.
Wage Inequality: Between 2019–2024, CEO pay jumped 50%, but worker wages grew by less than 1%, deepening income disparity.
Wealth Imbalance: The top 1% owns nearly 41% of global wealth, leaving 85% of people without any capital income. (Oxfam, 2025)
Fiscal Inequity: High indirect taxes on goods and services disproportionately burden low-income groups, reducing disposable income.
Rural Divide: In India, rural incomes are 40% lower than urban ones due to limited diversification, land inequality, and low agricultural returns.

Government Initiatives to Address Inequality in India

MGNREGA: Provides 100 days guaranteed wage employment to rural poor, stabilising incomes and reducing poverty.
PM-KISAN: Offers ₹6,000 annual income support to 11 crore small farmers, strengthening rural income security.
Ayushman Bharat–PM-JAY: Gives ₹5 lakh health cover to 50 crore Indians, reducing catastrophic health expenditure for vulnerable groups.
PMGKAY: Ensures free food grains to 81 crore beneficiaries, preventing hunger & inequality.
Jan Dhan Yojana: Brings 51 crore citizens into formal banking, boosting financial inclusion and reducing systemic exclusion.

Consequences of High Inequality in India

Growth Slowdown: High inequality depresses consumption, bottom 50% hold only 13% of income reducing domestic demand and slowing GDP growth. (WID 2024)
Democratic Strain: Inequality widens political distrust. India’s top 1% owns 40% of wealth, fuelling elite capture, social resentment, and weakened democratic participation. (Oxfam)
Health Inequities: Health gaps widen as poorer states underperform. IMR ranges from Kerala (6) to UP (38) per 1,000 births), showing inequality-driven health disparity. (SRS 2023)
Educational Divide: Learning inequality persists, only 25% of rural grade-3 children can read grade-2 texts, locking low-income households into intergenerational poverty. (ASER 2023)
Social Instability: Regional and caste inequalities fuel unrest, SC/ST poverty rates remain two times higher than national average leading to social tension and conflict risks. (NITI 2023)

Key Measures to Reduce Inequality

Wealth Taxation: A 2% wealth tax and 33% inheritance tax on the top 1% can generate ~₹11 lakh crore annually, enabling large-scale redistribution.
Tax Credits: Earned-income tax credits for poor households can offset GST burden and improve disposable income, following global models like the 22% poverty reduction seen in the US.
Human Capital: Raising India’s low public spending on health (2.1% GDP) and education (2.9% GDP) can reduce inequality of opportunity and boost long-term productivity.
Worker Power: Strengthening collective bargaining can reverse India’s falling labour-income share, which declined from 32% in the 1990s to ~22% in 2024 (ILO).
Social Security: Expanding MGNREGA, raising minimum wages, and piloting UBI-style support can protect vulnerable households and reduce inequality.

“Inequality is not just an economic gap; it is a governance fault line.” India must pair high growth with fair redistribution, stronger public services, and labour empowerment to ensure that prosperity is shared and democracy remains resilient.

Reference: The Hindu | PMFIAS: Inequality in India

PMF IAS Pathfinder for Mains – Question 418

Q. The Global Inequality Report 2025 highlights India’s widening wealth and income gaps despite rapid economic growth. Discuss the major causes and suggest policy measures to promote equitable and inclusive development. (250 Words) (15 Marks)

Approach

Introduction: Write a contextual introduction by mentioning the Global Inequality Report 2025.
Body: Discuss the major causes of inequality in India and suggest policy measures for equitable and inclusive development.
Conclusion: Emphasis on structural reform to promote equitable and inclusive development.