Income inequality refers to the unevenness in the distribution of income throughout the population. In India, income inequality has emerged as one of the major economic problem and is increasing. According to World Inequality Report 2018, inequality in India has increased substantially from the 1980s onwards. The top 0.1 per cent earners have captured more growth than bottom 50 per cent all combined.
There are several reasons for this inequality. Firstly there is an extreme concentration of wealth and economic power in the hands of large industrialists. They have acquired massive assets over time. This can be due to easy availability of money in form of loans from banks. Secondly, inequalities have existed for a very long time, since the time of colonialization. The zamindari system was responsible for inequalities in land ownership which resulted in concentration of tangible wealth. Even though zamindari system was abolished, the damage had been done. The concentration of land ownership could not be broken. Even today, the main reason for income inequalities in rural areas is the concentration of ownership of lands.
Another reason for income inequality is the rising capital intensity of technology. Over the years, due to digital tsunami and consecutive rise of IT sectors, the demand for labour have significantly reduced over the demand for capital. Reduction in wages and unemployment has increased. More skilled workers have a higher demand and wage in comparison to low skilled workers. This has contributed towards increasing gap in income levels. Furthermore, there exists urban bias in private investments. Mostly rural people are the ones who are not very advanced with the technology. Majority of population in India belongs to rural sector and therefore a pattern of urban bias is observed in private investments. It can be seen as the use of highly mechanised projects. Here the share of wages added is relatively low. This naturally leads to inequality in income distribution and wealth accumulations.
Inflation has also greatly contributed in rising income inequality. It has affected the real incomes of working class while benefited traders, farmers, industrialists. Not much has been done to prevent this effect of inflation and hence the result is income inequality. Even the credit facilities are responsible for income inequalities. Large business frims or individuals have an easy access to loans and financial supply on favourable and supporting terms. They have an access to formal capital market but the vast majority of small marginal farmers, labours etc. do not have this. They depend largely on moneylenders who exploit them by charging high interest rates.
The government has desperately tried to curb these inequalities by taking various measures. Various land reforms and redistribution of agricultural land has taken place and the government has even tried to control monopolies and restrictive trade practices. Several employment and wage policies and social security measures have been undertaken and special programmes for the upliftment of rural population have been taken up. Even then, income inequality exists. All of these measures have little impact on poverty and thus inequality continues to grow.