PM IAS MAY 24 EDITORIAL

A new billionaire every 30 hours during the pandemic

GS Paper- 2, Income Inequality, Fundamental Rights.
Context:

• The brief, titled “Profiting from Pain,” has been prepared in preparation for the World Economic Forum 2022. According to the short, 573 new billionaires were created during the pandemic, at a pace of one every 30 hours.
• According to Oxfam, 263 million more people will fall into severe poverty this year, at a rate of one million every 33 hours.
• The wealth of the world’s billionaires has also increased faster in the first 24 months of COVID-19 than in the previous 23 years combined.
• The combined wealth of the world’s billionaires currently equals 13.9 percent of global GDP.
• This is a threefold rise over the previous year’s figure of 4.4 percent. “Billionaires’ riches have not grown because they are smarter or work harder now.”
• Workers are working longer hours, for less money, and in worse circumstances. For decades, the super-rich have manipulated the system with impunity, and they are now reaping the results.
• They have taken a stunning proportion of the world’s wealth as a result of privatisation and monopolies, undermining regulation and workers’ rights while stashing their riches in tax havens – all with official participation.
• The pandemic has resulted in the creation of 40 new pharmaceutical millionaires. Pharmaceutical companies such as Moderna and Pfizer make $1,000 every second from their sole hold of the COVID-19 vaccine.

What is inequality?

• Inequality may be observed from a variety of angles, all of which are interconnected. The most frequent indicator is income inequality, which refers to how equally income is distributed throughout a population. Lifetime Disparity (income inequality for an individual during his or her lifetime), Inequality of Wealth (distribution of wealth among households or people at a point in time), and Inequality of Opportunity are all related topics (impact on income of circumstances over which individuals have no control, such as family socioeconomic status, gender, or ethnic background). All of these inequality ideas are connected and provide various but complementary insights into the origins and effects of inequality, offering greater direction to governments when crafting particular policies to combat inequality.

What Drives Inequality?

In the conceptual and empirical research, a variety of global and local causes have been proposed to account for the trends in income inequality. Among the important forces are the following:

• Technological advancement.
• Globalisation, and commodity price cycles are all key global drivers.

Country-specific factors such as-

• Economic Developments.
• Economic Stability.
• Domestic policies such as Financial Integration, Redistributive Fiscal Policies, and
• Labour and Product Market Liberalisation and Deregulation.

All play an important role in explaining inequality trends within countries.
 

Gender Parity:

• It has never been more necessary to begin righting the wrongs of this heinous inequality by taxing extreme wealth and reinvesting that money in the real economy to save lives.
• Gender inequality have also widened as women have been disproportionately driven out of the labour force. Women’s employment fell by 13 million in 2021 compared to 2019, while men’s employment increased to 2019 levels.
• The gender wage gap is expected to narrow in 136 years, up from 100 years before the pandemic.

Indirect Tax Dependence:

• Historically, India has relied heavily on indirect taxes. The ratio of indirect tax income in overall tax revenue was 63.69 percent in 2000.
• Unfortunately, this tendency persisted even during the pandemic, since government income remained heavily reliant on indirect taxes, particularly those charged on the sale and production of commodities and services that ordinary Indians rely on.
• According to the Oxfam India briefing, the proportion of indirect tax as a fraction of Union government income has been growing while the proportion of corporate tax has been decreasing during the previous four years.
• The extra fuel tax has increased by 33% in the first six months of 2020-21 compared to last year, and is now 79% higher than pre-Covid levels.
• At the same time, the super-rich wealth tax was repealed in 2016. Corporate taxes were reduced from 30% to 22% in order to encourage investment last year, resulting in a loss of INR 1.5 lakh crore and contributing to a rise in India’s budget deficit.
• These patterns illustrate that despite the running pandemic, the poor, marginalised, and middle class paid high taxes, while the wealthiest made more money without paying their due amount.

Decades of Public Service Underfunding:

• Apart from the inability to generate fair revenue, Oxfam India’s briefing demonstrates that education and health were de-prioritized in the Union government budget at a time when these two sectors were most required.
• The allocation to health in the Union government’s budget for 2021-22 decreased by 10% from the previous year, while the allocation to education increased by 10% from the last year.
• Over the last 22 years, health spending as a proportion of GDP has stayed abysmally low at 1.2 to 1.6 percent and risen by only 0.09 percent.
• Similarly, education spending as a proportion of GDP has stayed stable at 3% for the previous 18 years, increasing by barely 0.07 percent.
• Expenditure on social security plans for employees (under the Ministry of Labour and Employment) and the centrally funded programme of the National Social Assistance Programme is low at 0.6 percent of total expenditure in 2021-22, down from 1.5 percent the previous year.
• With informal employment accounting for 93 percent of the nation’s workforce, there has been little success in bringing them into the scope of official employment, which would provide them with different benefits such as paid leaves, health insurance, paid maternity leaves, and pension.

Privatization of Basic Services Detrimental to Equality:

• The policy drive for privatisation of healthcare and education in India is further enabling inequality. According to Oxfam India’s 2021 study, 52 percent of parents who send their children to private schools reported having to pay increased tuition for the AY 2021-22, and 35 percent of children were denied access to education owing to non-payment of fees. At the time of admission, 38 percent of parents were required to pay unlawful charges as capitation fees, and 57 percent of parents were required to pay extra costs that were not part of the disclosed official price breakdown.
• Furthermore, the poll found that parents spend a significant portion of their family income (15 percent or more) on private school tuition.
• The expanding commercialisation of school education disproportionately impacts the impoverished and underprivileged citizens of the country, notably women and girls.
• According to Oxfam India’s briefing, the high cost of private healthcare continues to hurt marginalised people, particularly because of its high expenses, and increases inequities.
• Out-of-Pocket Expenditure (OOPE) in private hospitals is over six times that in public hospitals for inpatient care, and two or three times more for outpatient care, according to data from the National Sample Survey (NSS) (2017-18).
• In India, the average OOPE is 62.67 percent, whereas the world average is 18.12 percent.

India’s Way for The Fight Against Inequality:

• Politicians, governments, civic society, academics, and bureaucrats across the country have frequently emphasised the importance of addressing extreme income disparity and its negative consequences in recent years.
• It’s evident from voices across the political spectrum that India has to confront excessive inequality right now,” said Amitabh Behar, CEO of Oxfam India. But we must go beyond words and take tangible efforts to break the cycle of injustice and poverty. And this is doable if the Indian government taxes the wealthiest, which will produce much-needed cash to finance the pandemic’s recovery.

Recommendations from Oxfam:

According to Oxfam India, the following actions should be taken:

• Recognize the existence of inequality and agree to quantify it. India must improve policy effect measuring systems in order to better track policy impact.
• There is an essential need to begin disaggregating more public information by income and to institute regular data collecting on income and wealth disparity, while guaranteeing that this data is freely available in the public domain.
• Over a ten-year period, at least two surveys should be done using a sufficiently comparable technique to capture income and wealth inequality.
• Redistribute India’s wealth away from the super-rich in order to produce resources for the majority: It is time for India to restore a wealth tax in order to raise much-needed resources to support the pandemic’s recovery.
• Instead of imposing indirect taxes on India’s low and middle classes, affluent persons’ tax compliance must be greatly enhanced.
• The fear of an audit has the most pronounced influence on compliance, which may be supplemented by humiliating tax evaders or imposing fines, and should take precedence over lowering direct tax rates, which has equivocal effects on compliance and negative consequences on revenue.
• Expand income to invest in future generations’ education and health: A temporary 1% levy on the richest 10% of the population might help produce an extra cost, which could be used to increase the education and health budget.
• There is also an urgent need to improve medical infrastructure by implementing India’s patent rights charter (PRC), standardising diagnostic procedures, constructing rural clinics, and developing streamlined health IT systems in tandem with a family-health approach, increasing healthcare investments, and adequately training and compensating frontline healthcare workers.
• Enact and enforce statutory social security provisions for workers in the informal sector: While the government recognises gig economy employees, it must simultaneously focus on establishing the legal foundation for fundamental social sector safeguards for 93 percent of India’s workforce.
• Change the laws and transfer power in the economy and society: It is time to change social and economic policies that have led to India’s marginalised populations’ dismal development results. It is past time to reverse the privatisation and commercialization of public services, address joblessness, and restore greater social protection provisions for India’s informal sector employees.
• Oxfam suggests a one-time solidarity tax on billionaires’ pandemic windfalls, as well as permanent wealth taxes, to prevent income gaps from widening.

The ‘Inequality Kills’ briefing reveals how fundamentally unequal our economic system is and how it fosters not only inequality but poverty.
 

The Effects of Income Inequality:

• It contradicts constitutional principles of equality of position and opportunity, as well as the equitable distribution of income.
• Regional disparities will represent a significant threat to cooperative federalism.
• According to Oxfam, important drivers of income inequality include the erosion of workers’ rights, the overwhelming influence of big business over government legislation, and the constant corporate push to cut costs in order to maximise returns to shareholders.

Way Forward:

• The government must guarantee that its policies address these reasons and that a free and fair market is created. It should also consider imposing an inheritance tax on the super-rich.
• The government must encourage inclusive growth through initiatives like as land reform, social security pensions, scholarships, and skill training for vulnerable groups.
• Private sector investment is also required, which must be fostered through strengthening the business climate, combating tax evasion, and supporting pro-business laws.
• The quality of public services such as health and education are also a major leveller, and the government must prioritise this.
• The Central Government and NITI Aayog should develop measures to address imbalances across states and bring forth the genuine spirit of cooperative federalism.
• The best way to overcome India’s income disparity problem is to develop a comprehensive plan to encourage inclusive growth.
• The millionaires who generated record profits in India during the pandemic must assist India’s battle against inequality and poverty.
• India can demonstrate to the rest of the world that democratic institutions can achieve wealth redistribution and inclusive growth in which no one is left behind.