This article makes a strong case that the rich have been getting richer in the US, and the only way to stop the worsening income inequality is to tax the rich even more in the US. Meanwhile, in India, the government has announced heavy reductions in corporate tax rates.

In this write-up, I attempt to understand how per capita income and income inequality have progressed in India over the years, and what impact this rate cut will have in addressing unemployment and poverty.

Let us first look at the growth of the Indian economy, in terms of per capita income, over time.

As we can see, the Indian economy started tanking after 1910, when the effects of the British Raj had fully kicked in. It took a major hit around the time of the great famine of 1943 (the state of the economy in 1947 really makes one wonder what options Britain had other than to grant India independence; it had already taken all it could take). Immediately after Independence, per capita income started reviving. Although the graph appears linear, please note that the Y axis is logarithmic, so the growth is actually exponential.

Here is the same graph without the exponential effect, so the magnitude of the growth is more visible:

As an aside, here is a graph comparing India with China. You can clearly see the damage done to China’s economy by World War II and then by the Great Leap Forward.

So clearly India has grown in terms of per capita income. But what can be said about the fair distribution of this increased wealth among its 1.3 billion citizens?

This is how income distribution and extreme poverty in India looked at the time of Independence:

And this is where we are today:

The well fitting bell curve of Indian income distribution, hides some rather shameful and frightening facts about Indian society. Here are some charts from various news articles, that visualise income inequality for us:

This is how income disparity has progressed over time in India:

Income growth has been particularly bad for the poor…

But it hasn’t been particularly good for the middle class either.

Clearly the largest beneficiaries of India’s per capita income growth have been the rich. This last graph brings out this disparity rather clearly:

This rather dense graph clearly highlights various disparity metrics, clearly showing how the benefits of per capita income growth have left the poor largely untouched:

Here is how we stand with respect to the rest of the world, when it comes to income disparity:

India fares the worst among all nations.

The only nations doing better than us are the Gulf countries.

What India really needs at this point, are higher taxes on the rich and ultra rich. The current government made the right moves, by dialling income tax rates on the ultra rich all the way up to 42.7% this year. The next logical steps would have been higher taxes on wealth and inheritance. Instead, the government gave away ₹1.45 lakh crores in corporate tax cuts.

Most of the wealth of the ultra rich comes from their holdings in large corporations. By taxing corporations lower, we are indirectly benefiting the ultra rich and increasing the wealth they own. The ₹1.45 lakh crore given to corporates and their rich owners, could have better been used in building infrastructure, supporting agriculture, and boosting employment generation in other ways. The rich never did, and never will have any interest in creating more jobs for the poor.