Model Answer
0 min readIntroduction
Economic planning in India, initiated post-independence, aimed at achieving rapid economic growth and social justice. The underlying premise was that state-led intervention could correct market failures and redistribute wealth. However, despite decades of planning, income distribution has demonstrably worsened. According to the World Inequality Report 2023, India remains one of the most unequal countries globally, with the top 10% holding nearly 77% of the total wealth. This paradox necessitates an examination of why planned development failed to deliver on its egalitarian promises, and in some instances, exacerbated existing inequalities.
Early Phase of Planning (1950-1980): Limitations & Biases
The initial phase of planning, heavily influenced by socialist ideals, focused on industrialization and land reforms. While some progress was made in reducing poverty, several factors hindered equitable distribution:
- Focus on Heavy Industry: Investment prioritized heavy industries over agriculture and small-scale enterprises, benefiting skilled labor and capital owners disproportionately.
- Land Reform Implementation: Land reforms, though intended to redistribute land ownership, faced resistance from powerful landlords and were often poorly implemented, leading to limited impact.
- Licensing Raj: The complex licensing system (Permit License Raj) created opportunities for rent-seeking and corruption, benefiting those with political connections.
- Public Sector Inefficiencies: Public sector enterprises, while providing employment, often suffered from inefficiencies and lacked accountability, hindering productivity gains.
Liberalization and its Impact (1991 onwards)
The economic liberalization of 1991 marked a significant shift in India’s development strategy. While it spurred economic growth, it also led to increased income inequality:
- Skill-Biased Technological Change: Liberalization facilitated the adoption of new technologies, which favored skilled labor and increased the demand for highly educated workers, widening the wage gap.
- Financial Sector Liberalization: Deregulation of the financial sector led to increased access to credit for the wealthy, enabling them to accumulate more assets.
- Privatization: Privatization of public sector enterprises, while improving efficiency, often resulted in job losses and reduced social safety nets.
- Globalization & Competition: Increased competition from global markets put pressure on wages and employment in certain sectors, particularly those reliant on unskilled labor.
Contemporary Issues & Factors
Several contemporary factors continue to contribute to rising income inequality:
- Caste and Gender Disparities: Historical and social inequalities based on caste and gender persist, limiting access to education, employment, and economic opportunities for marginalized groups.
- Regional Disparities: Economic growth has been unevenly distributed across regions, with some states lagging behind others in terms of development and income levels.
- Taxation System: India’s tax system has been criticized for being regressive, with a relatively low share of revenue coming from progressive taxes on income and wealth.
- Informal Sector Dominance: A large proportion of the workforce remains employed in the informal sector, characterized by low wages, job insecurity, and lack of social protection.
| Phase of Planning | Key Features | Impact on Income Inequality |
|---|---|---|
| 1950-1980 | State-led industrialization, Land Reforms, Licensing Raj | Limited redistribution, biases towards skilled labor and capital owners |
| 1991-2000s | Liberalization, Privatization, Globalization | Increased skill-based wage gap, financialization, regional disparities |
| 2000s-Present | Continued Liberalization, Service Sector Growth | Persistent inequalities, dominance of informal sector, caste/gender disparities |
Conclusion
Despite the initial intentions of economic planning to foster equitable growth, a combination of structural biases within the planning process, the consequences of liberalization, and persistent socio-economic inequalities have led to a widening gap between the rich and the poor in India. Addressing this requires a multi-pronged approach encompassing progressive taxation, investment in human capital (education and healthcare), strengthening social safety nets, promoting inclusive growth, and tackling systemic discrimination based on caste and gender. A renewed focus on equitable development is crucial for realizing the full potential of India’s economic progress.
Answer Length
This is a comprehensive model answer for learning purposes and may exceed the word limit. In the exam, always adhere to the prescribed word count.