Bridging the gap: The need for urgent reforms to deal with income inequality
Written by Aditya Raj student at Chanakya National Law University, Patna. Introduction “Big achievement! India to become 4th largest economy in 2025 overtaking Japan; will be 3rd largest by 2028.” This was reported by the popular news outlet Times of India on May 5, 2025. They weren’t the only ones. As India’s nominal GDP is expected to grow by leaps and bounds, several Indian media outlets and a significant part of its population are jubilant about it. The credit for it, to an extent, goes to the huge workforce of the country, which itself is a result of the humongous population of the country. For those in the country who belong to somewhat financially empowered and socially influential classes of the country, which may also include the middle-class segment, such headlines are a pleasant sight, and rightfully so. They cannot be reprimanded for celebrating an achievement of the country. However, the underlying problem that has persisted for decades in our country is that beneath the façade of such picturesque headlines lies the grotesque reality to which many in the country remain oblivious, despite the issue being absolutely ubiquitous. The menace of income inequality is something that has haunted the country for decades and might continue to do so unless and until we take concrete steps to mitigate this massively unequal condition. The absence of those steps is only going to exacerbate the condition. One of the biggest problems when tackling income inequality is how the issue ends up being suppressed under the sensational headlines of rapid economic growth and an increase in “average” statistics of the country. The core problem with such “average” statistics is that they consider the owner of a multiplex in Mumbai and a ragpicker on the streets beside the building as one monolithic unit, which is deeply disturbing. The state of inequality in India The first question that may arise in our minds is: what exactly do we mean when we are referring to “income inequality”? Income inequality, also called economic inequality, can be defined as the significant disparity in income between groups of individuals, countries, and even social classes. To assess this income inequality among nations, the Gini Coefficient has come into existence, in which different countries, classes, or groups are ranked in an index. A perfect score of 0 describes a utopian society where “perfect equality” is present. A score of 1 translates to a society where there is a state of perfect inequality. In short, the lower the number, the better it is for the downtrodden section of that country. As far as India’s case is concerned, the condition is anything but pleasant. “India stands out as a poor and very unequal country, with an affluent elite.” That’s what the World Inequality Report 2022 states about India. For a country with such a large population, the aggressive pursuit of economic growth without catering to the needs of the poor majority will surely exacerbate the inequalities already present. But how did we come to this? What circumstances over time ultimately led to the creation of such an unequal structure in our country? The problem, at least in recorded history, dates back to the British colonial period, since 1922 at least, which saw the enactment of the Income Tax Act, allowing the study of how the share of income evolved over an entire century. Unsurprisingly, economic inequality was rampant during colonial rule, as the colonial elite amassed wealth at the expense of poor Indians. The wealthiest 1 percent segment of India’s population held approximately 13 percent share of the country’s total income in 1922, and this share increased at a rapid pace to 20 percent during the inter-war period, only to fall back again to 13 percent by the time India gained independence. The post-independence period has witnessed certain fluctuations vis-à-vis economic inequality, though there was still a general trend of income inequality being mitigated and the share of the ultra-rich declining. India, after independence, ended up being a country having a centrally directed economy, which was also statist and highly regulated in nature. Key revenue-generating sectors, such as transport, construction, agriculture, railways, banking, oil, and sundries, were entirely controlled by the Government of India. The prices were highly regulated, and several trade barriers were in place. Until the opening of the economy, this era was referred to as the “License Raj.” The policies enacted, mostly socialist in nature, did their part to reduce inequality, as state control over crucial sectors ensured a reduced role for private players in such fields, thus ensuring that billionaires had little scope for benefiting in an unjust manner. All of this did show results with regard to economic inequality. After experiencing a brief uptick during the 1950s, the share of income of India’s wealthiest 1 percent declined significantly, and by 1982, reached just 6.1 percent. However, while it can be said that the socialist haven India had reduced income inequalities, it certainly wasn’t a la-la land. The nominal GDP of India was growing at a glacial pace, with the real growth rate having an average of 1.6 percent per year from 1960 to 1990. Poverty was also rampant in the country during those times. Then India hit the road to a heightened state of economic inequality in 1991, when the Indian economy was liberalized and the Indian market was opened to foreign investors. It was followed by the Indian economy growing at a decent pace. While it certainly benefited the Indian economy, and the end of the “License Raj” did bring relief to the Indian masses, the moves had unforeseen repercussions. It ended up ensuring an increase in the share of income of the wealthy lot. In 2022, the share of income of the wealthiest 1 percent augmented to an unprecedented 22.6 percent, surpassing the inequality that existed during the British colonial era. The wealth held by the top 1 percent saw a similar pattern, with them now holding a share of 40.1 percent of the total wealth