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Toward Understanding the Nature of Inequality in India in Terms of Changing Perceptions on Its Sources and Solutions

In: Development Challenges of India After Twenty Five Years of Economic Reforms

Author

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  • D. Narasimha Reddy

    (University of Hyderabad)

Abstract

This paper enquires about changing perceptions of inequality in terms of its sources, consequences, and the solutions that have been thrown up by the emerging research findings on the issue. The conception of inequality is a dynamic one and has seen many transitions. This paper surveys this transition starting from Aristotle to Piketty and shows that the shift to multidimensionality of inequality, besides locating the issue in historical context in terms of social, political, and economic dimensions also calls for differentiation of types of inequality. The conventional wisdom that inequality is the result of the differences in skills and talents is questioned and other sources of inequality, mainly policies and politics, are brought into debate. The relationship of inequality with growth, poverty, and labor market outcomes is analyzed and it is shown that inequality is a constraint on growth and poverty reduction. If one were to simplify the problem of inequality into two dimensions, viz., inequality of opportunities and inequality of outcomes, perhaps there is no other country in the world other than India which faces the inequality of opportunities as deep, because of its centuries of history, and as wide because of its universal nature across all regions of the country. India is one of the very few countries which do not collect information on income through household surveys. This paper uses many alternative data sources for India and shows that there is a clear phenomenon of ‘hollowing out’ of the middle class. Fiscal policy, especially taxation, has an important role in reducing inequality. But, reliance on fiscal policy only may not be sufficient and there is a need for radical policy and political mobilization.

Suggested Citation

  • D. Narasimha Reddy, 2020. "Toward Understanding the Nature of Inequality in India in Terms of Changing Perceptions on Its Sources and Solutions," India Studies in Business and Economics, in: Nripendra Kishore Mishra (ed.), Development Challenges of India After Twenty Five Years of Economic Reforms, pages 79-99, Springer.
    • Handle: RePEc:spr:isbchp:978-981-15-8265-3_5
    DOI: 10.1007/978-981-15-8265-3_5
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