Economic Inequality in South Asia
Fast economic growth need not necessarily go hand in hand with growing inequality. Implementation of inequality-reducing policies has the potential to redistribute the returns from growth proportionately, allowing for the growth process to be pro-poor. However, since the 1970s, in response to the global stagflation, the institutions that kept inequality at check – minimum wage, union, taxes, and regulation – have been blamed for the sluggish growth and, thus, discredited to celebrate the unabashed accumulation of private wealth by entrepreneurs. Subsequently, since the 1980s, a series of deregulation and liberalization programs have been implemented, which have taken different forms in different countries. Such policies have exacerbated income and wealth inequalities in the world.
Global inequality has increased to the same level as they were at the peak of Western imperialism in the early 20th century. The richest 10% of the global population currently takes 52% of global income, whereas the poorest half of the population earns 8.5% of it.[1] Gender income inequality remains high – women make up only 35% of global labour incomes while men make up the remaining 65%.[2] Moreover, global wealth inequality has become more pronounced than income inequality. The poorest half of the global population barely owns any wealth at all, possessing just 2% of the total. In contrast, the richest 10% of the global population owns 76% of all wealth.[3]
The South Asian region is going through multiple crises, including debt crisis and stagflation, further exacerbated by human-created climate disasters and the supply chain crisis arising from the geopolitical tension from the West. While the pandemic and other overlapping crises have pushed millions into poverty, there has been an enormous concentration of wealth and income in a few hands and more so at the time of the recent COVID-19 pandemic. South Asia is the most unequal sub-region in all of Asia. Every country in South Asia has a level of disposable income inequality high enough for it to be reduced per capita GDP growth by between 1 and 4%.[4] Income inequality produced by the market is the highest in India.[5] While the top 10% and top 1% in India hold respectively 57% and 22% of total national income, the share of the bottom 50% has gone down to 13%.[6] Likewise, the top 10% and 1% in India respectively own 65% and 33% of the total wealth while the bottom 50% own only 6% of the same.[7] Meanwhile, after direct taxes and transfers by governments, the most unequal country in Asia is Sri Lanka, which is currently reeling under severe debt crisis.[8]
Inequality is a choice!
History has, however, shown that inequality need not be an inevitable outcome of economic growth. It is, in fact, a matter of policy choice. Income inequality in India, for instance, was very high under British colonial rule (1858-1947) with the top 10% earning around 50% of income.[9] Later, the socialist-inspired five-year plans, following the independence, contributed to reducing this share to 35-40%.[10] Since the 1980s, income and wealth inequalities have been on the rise nearly everywhere following a series of deregulation and liberalization programs. The rise in inequality has, however, not been uniform with certain countries (the US, Russia, and India) experiencing a spectacular rise in inequality while others (European countries and China) experiencing relatively smaller rises.[11] The Commitment to Reducing Inequality (CRI) Report 2022 finds that OECD Asian countries outperform other Asian countries in reducing inequality followed by North and Central Asia, with South Asia lagging behind.[12] Asia’s bottom 10, as per the CRI index, includes five South Asian countries.[13] The difference in the extent of inequality over different time periods across different regions shows that inequality is not inevitable, but a political choice.
The key inequality-reducing government policies include universal free education, health services, and social protection; equitable taxation; and enhanced labour rights, especially for women.[14] Out of these policy options, a taxation is an important tool that could be used to gather resources for public spending and at the same time correct the economic system that breeds inequality. The current taxation system in the South Asian region is, regrettably, regressive and corrupt in nature. The rules of taxation are rigged in favour of the few and are geared towards consumption and wage taxes, disproportionately impacting poorer households with a higher tax burden. For example, consumption taxes account for about 60% of the total tax revenue in Bangladesh.[15] The rates for consumption taxes are high in the region, for example, 15% in India and Pakistan.[16] Meanwhile, big corporations continue to receive multiple tax breaks while the poor are abused by higher indirect taxes.
The rapidly widening inequality, the disproportionate profiting by a few out of the crises (as observed during the COVID-19 pandemic), the highly regressive tax system, and the huge budget deficit following multiple crises in the region call for the introduction and implementation of highly progressive taxation legislation that would generate resources to invest in public infrastructure, including health, education, and social protection, which in turn would be crucial in reducing inequality. While the revenue that could be potentially raised from consumption and income taxes has declined following the economic slowdown caused by the COVID-19 pandemic, the majority of countries have not gone for the alternative, such as increasing taxes on the rich, to fund a more just post-COVID recovery.[17]
Tax wealth now!
Taxing wealth is an important redistributive policy through which the tax base can be broadened to raise revenues for financing inequality-reducing public services. For instance, according to the South Asia Wealth Tax Report 2022, a progressive net wealth tax in India (taxing net worth USD 5 million to USD 50 million at 3%; USD 50 million to USD 1 billion million at 5%; greater than USD 1 billion at 10%) could raise USD 84.30 billion by taxing 66,860 individuals with a wealth of over USD 5 million.[18] This amount is enough to double the education spending or more than triple the healthcare spending in India. Similar progressive net wealth taxation could raise USD 1.82 billion in Bangladesh and USD 1.34 billion in Pakistan, enough to increase healthcare spending by two-thirds and 50% respectively.[19]
Amidst the inequality-reducing potential of wealth tax policy, civil society can play a crucial role in pressing governments to introduce wealth tax policy, especially at a time when the revenue sources have shrunk due to the economic slowdown caused by the pandemic. Civil society organisations (CSOs) can educate the general public on the progressive nature of wealth tax and its revenue potential to generate broader support. Even in the cases when some forms of wealth taxation policies are in place, CSOs can pressurise the government to publish data on the revenue raised through wealth taxes and launch public information campaigns on wealth taxes, including how they should be implemented, how they should target the wealthy, and what revenues would be used for.
[1] World Inequality Report (2022) World Inequality Report 2022 https://wir2022.wid.world/www-site/uploads/2022/03/0098-21_WIL_RIM_RAPPORT_A4.pdf
[2] Ibid.
[3] Ibid.
[4] Development Finance International and Oxfam International (2022) Asia’s Extreme Inequality Crisis: Building back stronger from COVID-19 https://oi-files-d8-prod.s3.eu-west-2.amazonaws.com/s3fs-public/2022-09/CRI%20Asia%20Briefing%20Paper%20-%20FINAL.pdf
[5] Ibid.
[6] World Inequality Report (2022) World Inequality Report 2022 https://wir2022.wid.world/www-site/uploads/2022/03/0098-21_WIL_RIM_RAPPORT_A4.pdf
[7] Ibid.
[8] Development Finance International and Oxfam International (2022) Asia’s Extreme Inequality Crisis: Building back stronger from COVID-19 https://oi-files-d8-prod.s3.eu-west-2.amazonaws.com/s3fs-public/2022-09/CRI%20Asia%20Briefing%20Paper%20-%20FINAL.pdf
[9] World Inequality Report (2022) World Inequality Report 2022 https://wir2022.wid.world/www-site/uploads/2022/03/0098-21_WIL_RIM_RAPPORT_A4.pdf
[10] Ibid.
[11] Ibid.
[12] Development Finance International and Oxfam International (2022) Asia’s Extreme Inequality Crisis: Building back stronger from COVID-19 https://oi-files-d8-prod.s3.eu-west-2.amazonaws.com/s3fs-public/2022-09/CRI%20Asia%20Briefing%20Paper%20-%20FINAL.pdf
[13] Ibid.
[14] Ibid.
[15] Mahmood, M. (November 7, 2020) Rising income inequality in Bangladesh: the case for a wealth tax https://www.thefinancialexpress.com.bd/views/rising-income-inequality-in-bangladesh-the-case-for-wealth-tax-1604762772
[16] Development Finance International and Oxfam International (2022) The Commitment to Reducing Inequality Index 2022 https://policy-practice.oxfam.org/resources/the-commitment-to-reducing-inequality-index-2022-621419/
[17] Ibid.
[18] South Asia Alliance for Poverty Eradication (SAAPE) 2022 Tax wealth now: How taxing net wealth, inheritances and windfall profits can help South Asia overcome multiple crises https://saape.org/files/Tax%20Wealth%20Now_SAAPE%20Report%202022.pdf
[19] Ibid.
