Oxfam Report: A Story of Inequality that We Always Knew

Oxfam: Story of Inequality

Oxfam Report:

A Story of Inequality that We Always Knew

Maitreyi Krishnan

Oxfam India’s “Survival of the Richest: The India Supplement" reveals a truth that we knew all along – that neo-liberal economic policy, being rabidly followed by the BJP Government at the Centre, has drastically increased inequality and widened the gap between the rich and the economically deprived classes. It reveals the way in which the taxation policy has resulted in the economically deprived classes effectively subsidizing the rich and also the impact of the inequality.

Below are some of the key findings of the Report.

The Inequality that has grown:

  1. The top 30% own more than 90% of the total wealth. The wealthiest 10% own more than 72% of the total wealth, the top 5% own nearly 62% of the total wealth, and the top 1% own nearly 40.6% of the total wealth in India. In contrast, the bottom 50% of the population (700 million) has around 3% of total wealth.
  2. Since the pandemic begun and till Nov 2022, billionaires in India have seen their wealth increase by 121%, or INR 3608 Crore per day in real terms (Around INR 2.5 crore every minute).
  3. In comparison, following the pandemic in 2019, the bottom 50% of the population has continued to see their wealth reduce. By 2020, their income share was estimated to have fallen to only 13% of the national income and they have less than 3% of the total wealth.

Impact of India’s Taxation Policy:

  1. Reduction in Corporate Taxes:
    1. In 2019, the Central Government reduced the corporate tax slabs from 30% to 22%, with newly incorporated companies paying a lower percentage of 15%.
    2. These tax cuts resulted in corporate tax collections declining by approximately 16% in their first year and resulted in a total loss of INR 1.84 lakh crore. Corporate tax collections were 82% of the collections in 2019-20 and 68% of the collections in 2018-19.
    3. In 2020-21, the projected revenue foregone by the government in the form of incentives and tax exemptions to corporates is INR 1,03,285.54 crore.
    4. Consequently, the burden of taxation has shifted away from the corporates towards the individual income taxpayer.

 

  1. Increase in Indirect Taxation:
    1. To increase revenue, the Union Government adopted a policy of hiking the GST and excise duties on diesel and petrol while simultaneously cutting down on exemptions.
    2. Since 2020-21, the share of indirect taxes in the state exchequer has risen by 50%.
    3. Since the implementation of GST, the share of direct taxes out of the total gross tax revenue receipt declined by 5% by 2020-21. Similarly, revenue from corporate taxes as a percentage of gross tax revenue declined by 8%. Under the GST regime, there is a decline in the proportion of corporate taxes in the total revenues of the government.
    4. The bottom 50% of the population at an All-India level pays six times more on indirect taxation as a percentage of income compared to top 10%.
    5. GST: Of the total taxes collected these food and non-food items, 64.3% of the total tax is coming from the bottom 50%. A little less than two-third of the total GST is coming from the bottom 50%, one-third from middle 40% and only 3-4% from the top 10%.
    6. Simultaneously, increase in excise duties on diesel and petrol when the price of oil barrels fell to record lows (INR 1,722 a barrel in April 2020). Between 2014-15 and 2021-22, the excise duties on petrol increased by 194%, while the excise duties on diesel were hiked by 512%.
      1. In October 2021, PRS Legislative Research reported that taxes made up 54% of the price of petrol (of which 31% were central excise duties and 23% were States’ Sales Tax/VAT). For diesel, taxes comprised 49% of the retail price (of which 34% were central excise duties and 15% were States’ Sales Tax/VAT).
    7. While income tax is based on the income they earn, extracting more from individuals with higher income, an indirect tax like GST and excise of diesel and petrol would tax all individuals the same amount, irrespective of their income. In this way, a person with a lower income would end up paying more as a percentage of their income.
    8. Of the Total GST collected,
      1. 64.3% of the total GST is from the Bottom 50%, i.e., almost 2/3 of the total GST is coming from the bottom 50%
      2. 1/3 from middle 40% and
      3. Only three to four % from the top 10%.
    9. The poor pay a larger part of their income towards taxes than the rich.
      1. The bottom 50% spends 6.7% of their income on taxes for food and non-food items.
      1. Middle 40% spends half of that at 3.3% of their income on food and non-food items.
      2. The top 10% wealth group spends a mere 0.4% of their income on food and non-food items.
      3. The bottom 50% of the population at an All-India level pays six times more on indirect taxation as a percentage of income compared to top 10%.

The failure to tax rich people and corporations fairly is not only a missed opportunity to reduce inequality – it actually worsens it, as governments must resort to taxing the rest of the society more, or cut spending on health, education and other public services, and social protection that support the reduction of inequality. Heavy reliance on consumption taxes like VAT increases inequality and is regressive in nature because poor people pay a larger share of their incomes.

Impact of the inequality on basics of food and health

Consumption of Food

  1. Due to the financial pressures exerted by food inflation, the poor will be impelled to reduce their already low expenditure on health, education, clothing, and shelter.
  2. Wealth inequality has stripped 70% of Indians from as basic a necessity as a healthy, consumable diet leading to the yearly deaths of 1.7 million owing to diseases resulting from a poor diet.
  3. The median wage of the country is just enough to provide for the most basic of sustenance and losing a week’s income would push them to the brink of starvation.
  4. This results in increase in child malnutrition. Malnutrition has been found to be the leading risk factor for the death of children under the age of five in India.

Impact on Health

  1. Estimates from 2020-21 shows that the Government Health Expenditure (GHE) as percentage of GDP stands at 2.1%, much below the policy benchmark of 2.5% and global average of 6%. India has just 5 beds for 10,000 Indians.
  2. Indians pay 63% of their medical expenses out of pocket, which is considered to be the highest in the world. Increasing public spending to 3 per cent of the GDP can significantly bring down OOP expenditure to 30 per cent of the overall healthcare spend.
  3. A report by Brookings India based on NSSO surveys claims that nearly 63 million or 7% of India’s population is pushed into poverty every year due to healthcare expenses.
  4. This low budget expenditure manifests itself not only in the low status of overall health in India but also the inequalities in health across various economic and social groups. A recent study showed that the life expectancy at birth was – 
  1. 65.1 years for the poorest fifth of households in India as compared with 72.7 years for the richest fifth of households. This constituted an absolute gap of 7.6 years and a relative gap of 11.7%.
  2. Caste and life expectancy are intricately connected. The average Dalit woman dies 14.6 years earlier than a woman from a dominant caste. The life expectancy of the Adivasi in India is also approximately three years lesser than the non-tribal population.

 

Education

  1. Percentage of the total expenditure has been declining from 3.30% in 2017-18 to 2.35% in the Budget Estimate of 2022-23.
  2. The dropout rate of young children attending classes 1 to 8 has almost doubled in 2021-22.
  3. The rates are higher for children from the marginalized section, especially at the secondary level of education. While the dropout rate at this level is 15.6% for the general category, it is 22.5%, 26.9% and 20.04% for SCs, STs and OBCs (Other Backward Classes), respectively.
  4. Ten million girls are at risk of dropping out.
  5. Unavailability of secondary schools within 5 kilometers of the habitation makes it difficult for girls to attend school.
  6. Despite the high rate of dropout at the secondary level, and massive number of out of school children, government expenditure on secondary education, in the last 10 years has remained stagnant, at 1% of GDP.