Dynamics of Multidimensional Inequality And The Squeeze On The Indian Middle Class

However, a closer scrutiny suggests that the rich are getting richer at a pace much faster than the rate of progress in the economic conditions of the poor. The Indian economy, it would seem, has a per-capita income problem, and not a growth problem.

New World Wealth, a Johannesburg-based company, published a report claiming that India is the second-most unequal country in the world, with millionaires controlling 54 per cent of the wealth. In Japan, the most equal country in the world, millionaires control only 22 per cent of the national wealth.

In India, the number of ultra-high-net-worth individuals (with net assets of US$30 million or more) grew 11 per cent through 2021, the highest percentage growth in the Asia-Pacific. In fact, income inequality becomes even more stark if one considers gender and caste dimension.

According to Oxfam’s India Discrimination Report 2022, gender-based discrimination is found to be extremely high in all categories of employment in both rural and urban areas. The high degree of gender discrimination is explained by the patriarchal nature of the Indian society.

Data from the report suggests, the earning gaps between male and female unskilled casual workers ranged between 50 per cent and 70 per cent. The gap narrows a bit for regular workers with the earnings of men exceeding those of women by 20 per cent and 60 per cent. In case of the self-employed, the disparity is much higher, with men earning 4 to 5 times than the earnings of women.

The nature of employment is also changing with a higher number of jobs emerging from low-skilled type casual work and self-employed work. These are low productive sectors and explain the reason for unequal income distribution.

According to the Periodic Labour Force Survey (PLFS) 2021-22, agriculture still remains the largest source of employment, employing 45.5 per cent of the workforce. Construction is at a distant second, employing 12.4 per cent, closely followed by trade, hotel and restaurant, employing 12.1 per cent of the workforce. Now all these sectors require low or semi-skilled labourers, with low productivity.

India’s labour productivity – economic output per hour of work – is just 12 per cent of average level in the US. In purchasing parity terms, GDP per hour worked is US$70.68 for the US, in comparison to India’s US$8.47, and this cannot be explained by differences in the working population alone.

Types of employment, and access to finance and technology matter. For a long time, output per hectare, a common measure of agriculture productivity, remained low in India. For example, in potato farming, the productivity of an Indian farmer is less than half of that of the US, Germany, and the Netherlands. In the case of rice, it is less than half of that of the US and Egypt, and for wheat, it is less than half of that of the UK and Egypt.

India leapfrogged into services without being able to create enough jobs in the manufacturing sector. Even the companies cited for success stories of the manufacturing sector – Reliance, Godrej, Tata Group, etc – employ a capital-intensive mode of production.

For long, everyone thought labour market reforms such as giving more power to the companies to hire and fire workers would bring in the required change. That did not happen in spite of the Central labour law reforms in 2020.

Instead, over the past five years, there has been an increase in self-employment in low-productive agriculture and the urban informal sector. There are not enough jobs getting created and according to PLFS 2021-22, on the basis of current weekly status, unemployment level remained stagnant at 8.8 per cent, without declining much since 2017.

High skilled-services sectors such as banks, Information Technology, etc., are not able to absorb workers. In India, according to PLFS 2021-22, only 1.3 per cent have technical education and only 0.7 per cent have diploma/certificate or graduate level in vocational education.

Technical knowledge and education are a must for getting a job in any manufacturing or services enterprise. On the other hand, a concomitant rise in income inequality is leading to the creation of low-paid and low-productive jobs such as housekeeping, security services, and other gig-type jobs such as Zomato delivery workers.

A low productive workforce means a lower income, in particular when the informal labour markets are monopsonistic (a higher number of labourers looking for jobs as opposed to employers or aggregators). There has been no significant growth in real wages at the all-India level over the past eight years.

On the contrary, the cost of healthcare and education is rising, most of which has to be borne privately. As per the latest household social consumption data (NSS 75th Round), only 4 per cent of the rural population and 19 per cent of the urban population reported that they had health expenditure coverage.

According to the Economic Survey 2022-23, almost half of all medical expenses are still borne by the patients themselves. Two-thirds of India’s population, who still reside in rural areas, have to borrow more (25 per cent) in comparison to their urban counterparts (18 per cent) to meet their healthcare needs. Such high out-of-pocket medical expenses, some estimate suggest, drive about 6o million Indians into poverty every year.

The government’s insurance coverage programme Ayushman Bharat does not cover primary healthcare such as prenatal care, and other common diseases such as influenza and diarrhoea, which form a major part of household expenses on health.

Even for the tertiary sector, and if one is lucky to get covered under government insurance coverage, new medicines for terminal illness diseases and surgical procedures remain outside the budget of a majority of the Indian households. For example, each round of chemotherapy and radiation costs more than Rs 1 lakh, whereas a vital organ transplant (liver and kidney) can cost anywhere between Rs 20 and 30 lakh.

The same applies to quality education. At a time when public spending (Central and state governments taken together) is only 4.5 per cent of GDP, it is not surprising that for a majority of the population, education is delivered by the private sector.

Because of the failures of government schools to provide a decent education, studies show even the poor income households prefer sending their kids to private schools. The learning outcomes in government schools deteriorated post-pandemic.

The ASER 2022 report flags widening learning gaps. Basic literacy levels of children have taken a big hit, with their reading ability compared with their numerical skills worsening sharply and dropping to pre-2012 level.

However, sending kids to private schools costs money. As per a survey conducted by ET Online research, educating a child between the age of three to 17 years costs around Rs 30 lakh; a 4-year BTech or a 3-year BSc could cost anything between Rs 4 lakh to 20 lakh; and a five-and-half-year MBBS degree could cost up to Rs 1 crore.

No wonder in India, the middle class is getting squeezed.

(The Author is Professor, Mahindra University, Hyderabad. Views expressed are personal).