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Glaring Income Inequality and India’s Misplaced Priorities

What is more important? To keep splurging tax payer’s money on sinking PSUs or to spend on education and health so that the poor have a chance to lead a dignified life?

Income inequality in India has worsened with top 1% bagging 73% of the wealth created in the previous year, according to the latest survey by Oxfam. The gap is widening every year. Last year, Oxfam had reported that the top 1% owned 58% of the country’s wealth. In 2018, the top 1% increased their wealth by a whopping 15% while 67 crore citizens comprising the poorest of the country saw their wealth increase by just 1%.

Oxfam India CEO Nisha Agrawal warns, “The billionaire boom in India is not a sign of a thriving economy but that of a failing economy. Those working hard, growing food for the country, building infrastructure and working in factories are finding it difficult to fund their child’s education, meet the medical expenses of their family and eat two square meals a day. This is a dangerous state of affairs and not conducive for a democratic society.”

So what needs to be done? Let us not make the same mistake which we made for many years -of trying to curb wealth generation and entrepreneurship. It simply does not work. What needs to be ensured is that the wealth of the poorer section rises faster by a larger proportion as well as a larger share of the cake.

We need to look at countries that have reduced poverty very fast and have managed to build a stable society. They have achieved this by allocating large budgets on education and health followed by infrastructure and skill development. Let us look at where India stands on this.

India proposes to spend Rs 52,800 crores on health and family welfare which is 2.1 % of the share of the total Central budget. Education spending will be Rs 85,010 crores which is be 3.48% of the Central budget. This is for the year 2018-19. The spending on health works out to be about 1.6% of our GDP while our National Health Plan of 2015 calls for minimum of 2.5% of GDP to be spent on health. From this, it might appear that India does not have the resources for enhancing this spending. But is it really so?

Let us now go to another area. Let us look at our Public Sector Undertakings. The losses of Air India were about Rs 10,000 crores in the last financial year. The carried forward losses stands at Rs 60,000 crores. This is more than the health budget of India. When it comes to public sector banks, most have large Non Performing Assets(NPAs) running into lakhs of crores. The government is refinancing them gradually so that they do not go bust.

The question is simple. What is more important? To keep on splurging tax payer’s money on these sinking public sector units or to spend more on education and health so that the poor have a chance to lead a dignified life? It is clear as daylight that in the present times the presence of government in business is not required except for some strategic areas like defence. It makes sense for the government to exit from public sector units so that the money locked up is released, public funds stop bleeding into these loss making units and the pension liability of the state is reduced.

Udayan Mukherjee in his aptly named article, ‘Sell The Family Silver’, warns that time is running out for these PSUs. Technologicalchanges will render most of them obsolete. He warns that everything in this world comes with a “sell by” date, a lesson that nofinanceminister in India has learnt. India has already wasted billions of dollars over the years, which no country can afford. Mukherjee gives several examples. MTNL had a market cap of Rs 13,000 crores in 2008 which has now shrunk to Rs 1000 crores. BHEL had a market cap of Rs 82,000 crores in 2011 which isRs 28,000 crorestoday. NTPC lost 40% market cap in last 10 years while SCI I is down 70%. Wealth destruction is continuing on a massive scale and when the government is forced to divest due to fiscal considerations, it resorts to cross ownership of these PSUs. Look at the current example of LIC taking over a sick IDBI bank which has 27% NPAs.

We are a poverty ridden nation but seem to behave as if money does not matter. I am baffled as to why we continue to run these bleeding businesses which serve no purpose. If we are worried about the employees, the government can either sell to a private company or give a generous termination package. We cannot play with the lives of our poor people and our future generations, when we have the resources to reduce their suffering. It is heartless for us to continue on this callous path.

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