India’s economic mobility and its impact on inequality

GS-III: India’s economic mobility and its impact on inequality

Context

There has been a phenomenal rise in economic inequality in India. It is important to measure the extent of economic mobility in India, which reflects the number of people moving up and down the economic ladder over time.

Facts

A 2018 Oxfam study reports a significant increase in the consumption Gini index in both rural and urban areas from 1993-94 to 2011-12.
According to the Global Wealth Report (GWR) 2017 by the Credit Suisse Research Institute, between 2002 and 2012, the share of the bottom 50% of the population in total wealth declined from 8.1% to only 4.2%. In the same period, the share of the top 1% of the total wealth increased from 15.7% to 25.7%.
A recent survey pointed out that the mobility rate for the population is remarkably low. In 7 years, at least 7 in 10 poor households remain poor or remain in an insecure non-poor state.

Economic mobility

In a mobile economy, the households move more freely throughout the income/consumption distribution.

Importance of mobility

Long-term welfare effects of rising inequality depend crucially on the level of economic mobility.
Economic mobility or the lack of it can accentuate the adverse effects of inequality.
An economy with much economic mobility will result in a more equal distribution of incomes and consumption than an economy with low mobility.

Dimensions of mobility

Muslims are more vulnerable to falling below the poverty line over the seven-year period compared to Hindus or other religious groups.
Compared to upper-caste groups and OBCs, SCs and STs are less likely to escape poverty and more likely to move into poverty.
Between upper castes and OBCs, the latter is more likely to move into poverty and less likely to become secure non-poor.
Rural households are more likely to remain in poverty compared to urban households.
Inequality in India can be characterized as chronic since households belonging to the lower rungs of the economic ladder are likely to find themselves caught in a poverty trap.

Way ahead

Poverty reduction efforts should focus on ways to improve the permanent economic status of households through the acquisition of assets and capabilities, rather than dealing with temporary volatility.
There is also doubt on the efficacy of existing affirmative action and social programs to improve the economic status of marginalized groups in the country.

Source: Live Mint

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