What caused inequality to rise in India during pandemic?

That the pandemic exacerbated inequality is known. The poorest and most vulnerable were hit the hardest – pushing 70 million people into "extreme poverty" in 2020 alone, as the World Bank report said recently, to which India contributed a whopping 79% – while billionaires' wealth and corporate profits surged to historic highs. The Oxfam-FDI report, released on October 11, analyses government policies and actions of 161 countries to fight inequality during the first two years of the pandemic. Having assessed countries on three key parameters to mitigate inequality – (i) governments' social spending on health, education and social protection (ii) taxation and (iii) labour policies – it pronounced a harsh verdict.

It said "most of the world's governments failed to take major concrete steps to mitigate this dangerous rise in inequality". About India, it is even harsher. India was ranked 123rd among 161 countries and some of the observations are:

• India "reclassified" as having "no minimum wage" in 2020 and is listed among 12 with no minimum wage regime (Bahrain, Oman, Cambodia, Singapore, Ethiopia, South Sudan, St. Lucia, Jordan, Tonga, Lebanon and Tuvalu).

• "India features among the lowest performers on health spending again; it has dropped a further two places in the rankings, to 157th (or 5th lowest in the world) and made small cuts between 2019 and 2021 – at a time of unprecedented health need and crisis."

• India was among five countries which "dismantled" labour rights through "new repressive laws" (others are: Honduras, Indonesia, Slovakia, and Uruguay).

• The only area where India escapes criticism is tax policies where it is ranked 16th but we would soon see why this sounds far too generous.

What is India's national minimum wage?

It may come as a shock to most that India's national minimum wage is still stuck at ₹176 per day since 2017.

The Oxfam-DFI report reclassifies India as not having a national minimum wage by taking into account two factors: (i) Economic Survey of 2018-19 said "one in every three wage workers (33.3%) in India has fallen through the crack and is not protected by the minimum wage law" and (ii) new Code on Wages 2019 recast the wage regime but hasn't taken off yet.

Thus, the gaping holes and low base in the wage regime endures.

Even this national minimum wage of ₹176 is not binding. Every state and union territory has its own set of statutory minimum wages – multiple sets actually. Economic Survey of 2018-19 counted "nearly 429 scheduled employments and 1,915 scheduled job categories for unskilled workers" – notified under the Minimum Wage Act by the Central and state/UT governments. Its graph showed five states/UTs had lower than ₹176 of minimum wage and 32 others higher – going up to ₹538 for Delhi.

The Centre did set up a committee in 2017 to revise national minimum wage, which recommended ₹375 per day in January 2019. Months later, in July, the Union Cabinet revised the minimum wage by ₹2 to take it to ₹178, but didn't notify or implement even that. Instead, a month later, August 2019, the Code on Wages 2019 was passed, promising equity and welfare of workers by expanding the coverage to include informal workers like gig workers. It promised better social security cover. But the provisions don't guarantee minimum wages to all nor provide for equal-pay-for-equal-work; it removes gender discrimination but not discrimination against ethnic minorities and lower castes (big source of wage inequality).

Until now, the Code on Wages remains on paper (rules haven't been notified). Since it didn't provide a formula to fix minimum wage (or floor rate) and the committee it provided for the job hasn't been set up, there is little hope for a forward movement anytime soon.

Even the pandemic didn't move the Centre. The rural job scheme MGNREGS it runs, which provides low-paying menial jobs but helped millions to beat starvation – saw minimal change in wage rates. The average wage in FY20 (pre-pandemic) was ₹182, which went up to ₹200.7 in FY21 and to ₹208.8 in FY22. In FY23, it is ₹215.4. This is when minimum wages (agriculture) of states/UTs ranges from ₹210 (Uttar Pradesh) to ₹441 (Karnataka).

Why minimum wage is important?

Among the countries that have achieved remarkable success in fighting against income inequality, one is Brazil which took to wage route in a big way (in addition to education, skilling and social welfare). Between 1997 and 2009, it hiked minimum wages by 70%. Several studies across the world, including those by the World Bank (2012) and IMF (2015), and even Indian ones (Mahendra Dev, 2018) have found higher minimum wage and wage growth are one of the critical factors to reduce income inequality.

In India, wages have stagnated for a long time. Last month, India Ratings said "nominal" wages (without taking inflation into account) of households declined to 5.7% during FY17-FY21 from 8.2% during FY12-FY16. Given the high inflation, real growth in wages is negligible. The PLFS of 2020-21 had shown "real" growth in wages for regular/salaried jobs fell by -8.9% and that of self-employed by -4.89%; wages for casual work (lowly paid daily wagers), however, saw a rise of 3.6%.

Dismantling workers' rights

All inequality studies list protection of labour rights, strengthening of trade unions and collective bargains as other labour market factors to reduce income inequality. India fares badly here too.

During the pandemic lockdown of 2020, India passed three labour codes (in addition to the Code on Wages 2019): (a) Industrial Relations Code (IR Code) 2020 (b) Code on Social Security (SS) 2020 and (c) Occupational Safety, Health and Working Conditions (OSHW Code) 2020. Together, these codes amalgamated 44 central laws but made them manifestly pro-business and anti-workers. These laws hurt workers by expanding thresholds for protection against arbitrary hire-and-fire, safety norms, promote temporary and contract jobs, ban strikes and dilute trade unions.

As for expanding minimum wages and social security, which these codes do, such provisions are for the future committees to work out and fix – unlike concrete and definitive ones that dilutes workers' rights and interests mentioned above. Given that about 90% of Indian workforce are informal, without job or social security, the new labour laws worsened workers' precarity.

Agriculture has been at the target of pro-corporate/business policies during the pandemic. Three new farm laws were passed in 2020 to govern trade in far produce, (contract) farming and hoarding food grain stocks, which had to be withdrawn after a year of fierce protest from farmers. Like the new labour laws, the new farm laws too were introduced during the pandemic lockdown in 2020 – first as ordinances and then rammed through the Parliament without consultation, scrutiny or due deliberations.

Why are farm laws relevant here?

For one, agriculture provides far more jobs than industry and services and second, more workers fled to agriculture when the pandemic struck as India witnessed an unprecedented reverse migration like no other country in the world. A study by Ashoka University-CMIE showed the first pandemic year of FY21 saw an unprecedented rise of 4.1% in agricultural workforce. The PLFS of 2020-21 showed the employment share of agriculture jumped to 46.5% in FY21, from 45.6% in FY20.

This development has led to the rise in informal workers, mainly self-employed – low productive, low-income and uncertain jobs/incomes. Another cause of rising inequality is massive job loss that the pandemic caused. A study by Azim Premji University says 15 million jobs were lost permanently during April-December 2020. As against this, the OECD countries claimed to have saved 50 million jobs during the time.

India could have done much to protect jobs and wages but it did nothing. Its half-hearted directive to factory owners and other private industrial establishments to provide wages to workers during the lockdown period was not only challenged but the apex court quashed it.

Regressive taxation

India may have escaped lightly from the Oxfam-DFI's ranking in taxation but its tax policies have become more regressive. It cut corporate tax in 2019 – months before the pandemic hit – as a result of which peak base rate for corporate sector is reduced to 22%, much less than 30%, the peak base rate for personal income tax paid by lesser mortals. It had abolished wealth tax earlier in 2016.

A parliamentary panel found the corporate tax cut of 2019 led to a direct loss of ₹1.84 lakh crore in the pandemic fiscals of FY20 and FY21. It also led to an unprecedented development – for the first time in the 2011-12 GDP series, corporate tax collections fell below personal income tax in FY21.

The pandemic didn't stop oil tax from rising, despite fall in international crude prices – which hurts the poor as fuel used by two-wheelers and three-wheelers, in agriculture and transport far outstrip fuel used by cars.

Revenues from central taxes (cess, surcharge, customs, excise, CGST, IGST etc.) on oil went up from ₹3.34 lakh crore in FY20 to ₹4.6 lakh crore in FY21 and ₹4.9 lakh crore in FY22. The average crude price was $60.47 in FY20, $44.82 in FY21 and $79.18 in FY22. States did their bit too, though to lesser extent, and their collection went up from ₹2.2 lakh crore in FY20 to ₹2.17 lakh crore in FY21 and ₹2.8 lakh crore in FY22 (all from PPCA).

Then came another shock. In July 2022, the Centre imposed 5% GST on food items – which were exempted earlier – on pre-packaged unbranded food items like wheat, rice, curd, lassi, puffed rice, mutton and fish. These directly hit the poor.

All such tax policies are regressive and cause inequality to rise – which India should be reversing, rather than piling up.

Inequality ignored

India actually ignores addressing inequality, it said. The Economic Survey of 2020-21 (after the first year of the pandemic) acknowledged growing income inequality but refused to act on it, saying instead, "economic growth has a far greater impact on poverty alleviation than inequality. Therefore, given India's stage of development, it must continue to focus on economic growth to lift the poor out of poverty by expanding the overall pie".

As Finance Minister Nirmala Sitharaman said recently, the focus of her next budget would be growth and inflation (touched 7.4% in September). But it is precisely the growth model India has been following since the economic reforms initiated since mid-1980s that inequality has risen sharply – reversing the earlier growth model in which the bottom 50% and the middle 40% improved their share of national income. The current growth model benefits only the top 10% – as studies by Lucas Chancel and Thomas Piketty have shown.

No wonder, India's response to the pandemic crisis has been characterised more by the "free" ration to those very people who are entitled to "subsidised" ration under the National Food Security Act of 2013 (to 62.5% of households). This was launched immediately after the lockdown was announced in 2020.

It may fetch votes for the ruling establishment – which it did during the elections to five states earlier this year and may do the same in Gujarat and Himachal Pradesh too which are going to elections later this year – but it does nothing to pull them out of poverty. It merely prevents starvation deaths and once withdrawn (runs till December 31, 2022), the situation will be very bleak for those 62.6% households with little prospects to get jobs or good wages.