Rise in income inequality since the 1991 reforms: survey


The liberalization process that began in the 1990s may have triggered economic growth in the following decades, but it also caused an increase in income inequality by reducing the share of wages in net value added in the sector. organized manufacturer from India.
This period also saw an increase in the share of profits in net value added, shows an analysis of data from the Annual Survey of Industries released last week. The trend has reversed slightly since 2009-2010, but workers have not yet regained their pre-liberalization share in net value added.
The term net value added describes the additional value added to a product during the manufacturing process. It is calculated by deducting the cost of inputs and depreciation from the total value of production.
The ASI report contains data from fiscal year 1981-82 to 2019-20. It shows that in 1981-82, India’s organized sector had a net value added of about Rs 14,500 crore, of which 30.3% went to workers as wages while 23.4% is went to factory owners and shareholders as profits.
In 2019-20 – a year for which provisional data has been released – net value added had risen to Rs 12.1 lakh crore. However, only 18.9% of this amount went in the form of worker wages, while profits accounted for 38.6%.
Between 1981-82 and 1987-88, the share of wages in net value added remained at or above 30%. Profit share decreased from 23.4% to 11.6%, mainly due to higher interest payments.

In the post-liberalization period, the share of profits in net value added increased steadily. From 1988 to 1989, there was a near free fall in the share of workers’ wages in net value added. From 31.5% in 1987-88, it fell to 29.7% in 1988-89, 25.6% in 1990-91 and less than 20% in 1993-94. In 2003-2004, it had fallen to 15% and slipped further to 10.6% in 2007-2008, its lowest value over the entire four-decade period analysed.
The year 2007-08 was almost in the middle of the boom phase of the Indian economy, which from 2003-04 was growing at a steady rate of almost 8% per year. Experts believe the boom years helped correct wages as demand for skilled workers grew. In addition, the industry has become more dependent on technology and therefore has demanded higher skills from workers, which has translated into higher wages. Thus, the share of wages in net value added increased to 18.9% in 2019-20, but still remains below the level of 1981-82.
Profit share had risen to 61.8% in 2007-08, the highest it hit, and has since seen a decline, but even in 2019-20 – a year whose final weeks were impacted by Covid -19 – it stood at 38.6%, well above the 1981-82 level.
This partly explains why in 1987 when the first international list of billionaires was published by a magazine, there was only one dollar billionaire family in India, but in 2022 the same magazine published a list of 166 Indian billionaires – the third in the world. -The highest.
Analysis of data from 20 major states and the national capital shows that the share of wages in net value added is highest in West Bengal, followed by Andhra Pradesh, Tamil Nadu, Kerala, Punjab and from Delhi. Workers’ wages in each of these states have a share of 25% or more in net value added. Among the large states, the share is lowest in Bihar, Rajasthan, MP, Gujarat and Assam, where it is less than 17%.

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