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Q.1 What are the causes of income inequality?

INTRODUCTION: Income inequality means unequal distribution of countrys income and wealth. In India household consumption expenditure is use as proxy to understand extent of income inequality. Reduction in inequality has been one of the objectives of government right from first year plan. INCOME INEQUALITY = POVERTY+CONSPICUOUS CONSUMPTION+UNPRODUCTIVEINVESTMENT+ IMPROPER ALLOCATION OF RESOURCES+INEQUAL OPPORTUNITIES +SLOW ECONOMIC GROWTH INEQUALITY EXISTS IN INDIA DUE TO THE FOLLOWING FACTORS: 1) INEQUALITY IN OWNERSHIP OF LAND: i. Ownership of land provides a dedicated source of income land in India are distributed unequally this is despite the fact that soon after independence land reforms were launched in country. ii. The average size of land holding in India for farmers as follows Marginal farmers less than 1 hectare (44%) Small farmers more than 1 hectare Richest farmers-large no of hectare (5.4%) 2) INEQUALITY IN THE DISTRIBUTION OF INDUSTRIAL ASSETS: i. ii. In India a private ownership is allowed therefore a small minority has acquired control over vast assets. On the other hand a large number of people work as industrial laborers. The right to private property has enabled the industrial houses to emerge as monopoly firm therefore income inequality increase in India.

3) INEQUALITIES IN PROFESSIONAL TRAINING: i. Professional education is only available to few privileged people therefore they are in position to get better job that have high income but the poor people not get such facilities therefore problem of income inequality arise in India.

4) LAW OF INHERITANCE AND INSTITUTION OF PRIVATE PROPERTY: The right to private property and right to pass it on next generation exist in India the rich people are able to pass on this prosperity & vice versa 5) INFLATION: Inflation erodes the purchasing power of the working class. However, the industrialists, traders, rich people with large marketable surplus have benefited a great deal from this inflationary process. 6) INADEQUATE CREDIT FACILITIES: The various institutions providing credit always to the big farmer and large industrial houses and they ignore small and marginal farmers. 7) URBAN BIAS IN PRIVATE INVESTMENT: In India most of the investments are made in urban areas while large no of population lives in rural area it creates unbalanced regional development therefore income inequality between urban and rural area are increases. 8) MISUSE OF GOVERNMENT POLICIES: The government has introduced measures to reduce inequality. However many policies of government have limited success due to improper implementation. CONCLUSION: The above analysis indicates that income inequality has increased rapidly due to the poverty, unproductive investment, inequality of opportunities etc. and the government should take the action to reduce income inequality.

Q.2 what measures can be adopted to reduce income inequality?

INTRODUCTION: Income inequality means unequal distribution of countrys income and wealth. Reduction in inequality has been one of the objectives of government right from first five year plan. Therefore it is necessary for the government to formulate and implement certain policy measures mitigate inequality in income distribution. THE VARIOUS MEASURES TAKEN BY THE GOVERNMENT ARE AS FOLLOWS: 1) FISCAL MEASURES:




Progressive direct tax: Direct tax must be imposed in progressive manner, which helps withdraw more money from the rich. The poor will be exempted from these taxes by exempting minimum income. Indirect tax: In India 75% of tax revenue comes from indirect taxation where poor people are not exempt. Consumer durables like A.C, cars etc. and services in five star hotels, when tax heavily helps to mop up excess income of top rich. Income from these can be use to provide employment to low income group.



Subsidies: Cost of essential agriculture inputs like fertilizers, water supply, electric pumps and other equipment can subsidized so that small and marginal farmers can produce more and thereby increase their income.

2) MONETARY MEASURES: i. Monetary policy through discriminatory rate of interest can provide the minimum required money capital at reasonable interest rate to low income group it helps to reduce income inequality.

3) PUBLIC DISTRIBUTION SYSTEM: i. The PDS has played imp role in ensuring economic access to food especially during the time of famine. ii. The real income of bottom group increase if they are supplied essential consumer items through ration & fair price shops.

4) SOCIAL SECURITIES MEASURES: i. Social securitys measures go a long way in providing their meager income. The securities like old age pension, unemployment benefits and social securitys insurance. 5) EMPLOYMENT SCHEMES: i. Generating productive employment is the best way of minimizing income inequality. ii. Special incentives are given by government to self-employed people by implementing various schemes & utilizing allotted funds. for e.g. Swarnajayanti Gram Swarozgar Yojana. 6) INSTITUTIONAL CHANGES: i. A long term solution to the problem of income inequality lies in implementation of land reforms. ii. Such institutional reforms bring a changes in the distribution of income earning assets in favors of poor this means there is urgent need for redistribution of land for small & marginal farmers this would helps to reduce income inequality. 7) RURAL DEVELOPMENT: In rural areas income inequality can be minimized by the following ways: i. To provide necessary infrastructural facilities & rural industrialization to rural communities. ii. Agricultural growth must be accelerated on which 60% of population depends. iii. To provide alternative employment opportunities.

CONCLUSION: If economic growth has to benefit all, income inequality must be minimized. The above mention measures if properly implemented would help in achieving this important objective of Indias economic planning.

Q.3 Inequality is increase in India comment.

OR Extent of income inequality?

INTRODUCTION: Income inequality means unequal distribution of countrys income and wealth. In India household consumption expenditure is use as proxy to understand extent of income inequality. In India, a very small section of the population gets a larger share while the majority gets a fraction of national income therefore income inequalities increase in India day by day. EXTENT OF INCOME INEQUALITY IN INDIA: i. In 1950s: Income inequality estimated by: RBI,NCAER, Lydall, Iyengar. Population in % Top 10 % Top 10% Bottom 20% Bottom 20 % ii. Income in % 35 % 25-28 % 8-9 % 4-5 % Estimated by NCAER, Lydall RBI, Iyengar RBI, Lydall, Iyengar NCAER

In 1960s: Income inequality estimated by: NCAER, Ojha, Bhatt, kanta, Randive. They use different criteria to estimate inequalities like household savings, consumption expenditure, tax evasion by the rich. Population in % Income in % Estimated by Top 20 % 47 % All the institutions Bottom 20% 7.5 % All the institutions In 1970s-1980s: Income inequality estimated by: planning commission. Income inequality > Inequalities in consumption expenditure. Population in % Income in % (1973-74) Top 20% 38% (rural area) Bottom 20% 9.5 % (rural area) Top 20 % 40 % (urban area) Bottom 20 % 9.2 % (urban area) In 1980s-1990s:



Income inequality estimated by: world bank based on household expenditure. Population in % Top 20% (household expenditure) Bottom 20 % (household expenditure) Income in % (1989-1990) 41.3 % (Total consumption expenditure) 8.8 % (Total consumption expenditure) Income in % (1997) 46.1 % 8.1 %

Population in % Top 20 % Bottom 20 % v.

In 2010: According to human development report 2010, Indias Gini index was 36.8 for the period 2009-10. Gini index measures the extent of inequality in term of unequal distribution of income or consumption among individuals & households. Income inequality estimated by: national sample survey organization through Lorenz ratio based on household consumption expenditure for 2004-2005. Lorenz ratio for rural area was 30 and for urban area was 0.37. This indicates inequality in urban area > inequality in rural area. This survey point out disparity in consumption of durable goods is higher than the consumption of cereals.


From the above information we arrived at one unanimous conclusion that urban inequality has always higher than rural inequality.