Economics for UPSC
- ऋिषके श बडवे
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Economics for UPSC
Income Inequality (उत्पन्नातील िवषम)
Income inequality is the unequal distribution of household or individual
income across the various participants in an economy.
Income inequality is often presented as the percentage of income to a
percentage of the population.
The simplest way to understand inequality is by analysing the population
by dividing it into quintiles (fifth) from poorest to richest and reporting the
proportions of income held by them.
Example: if the bottom 20% of the population held 20% of the economy’s
income and the top 20% held 20% of the economy’s income, then we
can call the society highly equal. But it is hardly the case, as the bottom
20% of the population hardly owns more than 3% of the total wealth of
the economy.
How to Measure Income Inequality(उत्पन्नातील िवषमतेचमोजमाप कसे करतात?)
Gini is the most popular measure of income inequality. The Gini
coefficient is derived from the Lorenz Curve. 2
Economics for UPSC
The Lorenz curve shows the percentage of total income earned by
cumulative percentage of the population.
In a perfectly equal society, the “poorest” 25% of the population would
earn 25% of the total income, the “poorest” 50% of the population would
earn 50% of the total income and the Lorenz curve would follow the path
of the 45° line of equality.
As inequality increases, the Lorenz curve deviates from the line of
equality;
To construct the Gini coefficient, graph the cumulative percentage of
households (from poor to rich) on the horizontal axis and the cumulative
percentage of expenditure (or income) on the vertical axis.
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The above graph represents the Gini Coefficient of the selected Countries for the
year 2011.
The Gini index of 0 represents the perfect equality, whereas the Gini index of 100
represents perfect inequality.
India has one of the lowest inequality among the BRICS Countries with Gini Index
of 35.15.
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The graph represents the percentage of the income held by the top 10% of the
population in the selected countries.
The percentage of the income held by the top 10% in India is close to 30 percent.
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Economics for UPSC
Income Inequality: Percentage of Income held by the poorest 10% of the
population.
The graph below represents the percentage of the income held by the poorest
10% of the population in the selected countries.
The percentage of the income held by the poorest 10% in India is close to 3
percent. 7
Economics for UPSC
Inclusive Growth (समावेशक वद
ृ ्)
Economic Growth (आिथर्क वृद्) – It refers to the increase in the production
of goods and services
Economic Development (आ�थर् �वकास) – It refers to the structural changes
in the economy which brings qualitative and quantitative changes in the
economy in the wellbeing of people
Approaches to Economic Development (आिथर्किवकास - ��ीकोन)
Trickle Down Approach
Inclusive Growth
Trickle Down Approach (पाझरता ��ीकोन)
This approach argues that rising incomes at the top end of the spectrum
would lead to more jobs, more output, more income and less poverty as
the growth and higher incomes at the top end will move at the lower end
and to the poor.
According to this thesis, as long as an economy is growing, the benefits
will eventually reach the poor and make their way through the system
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The Critique of Trickle Down Economics (पाझरत्या �ि�कोनाचे टीकाका)
The IMF and the World Bank in their various reports debunked the idea
of trickle-down economics.
They found out that the benefits of growth within an economy are rarely
spread evenly, but also that an unequal rise in incomes can actually
slow the rate of economic growth altogether.
According to the report, a 1% rise in income for the wealthiest 20% of a
society alone is likely to shrink annual growth by 0.1% within five years.
By contrast, raising the income of the poorest 20% by a single
percentage point increases annual growth by 0.4% over the same time
frame.
When it comes to eliminating poverty, the degree to which the benefits of
growth are shared can have a significant impact on outcomes.
According to Martin Ravallion, the former head of research at the World
Bank, as cited in The Economist, a 1% increase in incomes in the most
unequal countries produces a mere 0.6% reduction in poverty; however,
in the most equal countries, it yields a 4.3% cut.
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Economics for UPSC
Inclusive growth (सवर्समावेशी वृद)
Inclusive growth is both process and outcome
it is about aligning how growth is achieved (or how people are provided
access to opportunities) with the ultimate outcome of broad, shared
prosperity—that is, decent living standards that increase with economic
growth.
Practitioners engaged in this work say they seek to achieve outcomes
that benefit all segments of society while also supporting those on the
margins and reducing relative inequality
Inclusive Growth is often used interchangeably with
broad-based growth’,
‘shared growth’, and
‘pro-poor growth
The dictionary meaning of the term “inclusive” is “comprehensive”,
“including all extremes” and “not excluding any section of the society”.
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UNDP has defined inclusive growth as “the process and the outcome where
all groups of people have participated in growth and have benefited
equitably from it”.
Basely et el (2007) defined inclusive growth as the “growth that has a high
elasticity of poverty reduction”, i.e. it should have a higher reduction in
poverty per unit of growth.
inclusive growth has three components:
Strong economic growth that is
Inclusive and
Benefit-sharing;
Opportunity;
Participation; and
Empowerment:
Sustainable (शा�त)
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Economics for UPSC
Sustainable (शा�त)
To be inclusive, growth must also be sustainable.
Sustainability means that the current path of consumption and social
welfare can be sustained into the future of both current and future
generations.
This means that the current economic growth should not be generated by
unsustainable boom-bust policies, such as those that could lead to debt
or other financial crises.
It also requires maintaining environmental sustainability, ensuring that
future generations have the same opportunity to benefit from the natural
bounty of the Earth.
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Elements of Inclusive Growth (समावेशी वद
ृ ्धीचे घ) -
Skill Development (कौशल्य िवका) :
Harnessing the demographic dividend will depend upon the
employability of the working age population, their health, education,
vocational training and skills.
India is facing a dual challenge in skill development:
There is a paucity of highly trained workforce
There is non-employment of conventionally trained youths
According to the Economic Survey 2017, over 30% of youth in India
are NEET (Not in education, employment or training).
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Economics for UPSC
Financial Inclusion (�वत्तीय समावेश) :
Financial Inclusion is the process of ensuring access to financial
services to vulnerable groups at affordable costs.
Financial inclusion is necessary for inclusive growth as it leads to the
culture of saving, which initiates a virtuous cycle of economic
development.
Technological Advancement (तां�त्रक प्) :
The world is moving towards an era of Industrial Revolution 4.0.
These technological advancements have capabilities to either decrease
or increase the inequality depending on the way these are being used.
Several initiatives have been taken by the government, e.g. Digital India
Mission, so that a digitally literate population can leverage technology
for endless possibilities.
Technology can help to combat other challenges too.
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Economics for UPSC
Economic Growth (आ�थर्क ृ व द) :
India is among the fastest-growing major economies in the world.
The target of becoming a $ 5 trillion economy by 2024-25 can allow India
to reduce inequality, increase social expenditure and provide
employment to all.
Social Development (सामािजक �वकास) :
It means the empowerment of all marginalized sections of the population
like SC/ST/OBC/Minorities, women and transgender.
Empowerment can be done by improving institutions of the social
structure i.e. hospitals especially primary care in the rural areas, schools,
universities, etc.
Investment in social structures will not only boost growth (by fiscal
stimulus) but will also create a healthy and capable generation to handle
future work.
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Few Other Elements of Inclusive Growth (समावेशी वद
ृ ्धीचे इतर काही घ)
:
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Issues related to IG (समावेशी वद
ृ ्धीसंबंधी समस)
Growth vs. Development (वद
ृ ्धी िव�द्ध ि)
Poverty (दा�रद्र)
Ill-effects of LPG (उदारीकरण, खासगीकरण आिण जागितक�करणाचे वाईट
प्रभा)
Fiscal Deficit (राजकोषीय तूट)
Infrastructure (पायाभूत सिु वधा)
Low Technology and Innovation (अल्प तंत्र�ान आिण नािवन)
Capacity Building (�मतावधर्)
Public Participation (सावर्जिन/लोक सहभाग)
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