Introduction
Since the economic liberalisation of 1991, India has emerged as one of the fastest-growing major economies in the world. Market-oriented reforms, integration with the global economy, expansion of the services sector, and technological advancements have enabled India to sustain high GDP growth for extended periods. However, this impressive macroeconomic performance has not been accompanied by a commensurate reduction in economic disparities. Income, wealth, regional, sectoral, and social inequalities have widened, raising serious concerns about the inclusiveness and quality of growth.
The Indian experience highlights a critical development paradox: growth without adequate equity. This essay critically examines why post-liberalisation economic growth has failed to proportionally reduce economic disparities in India, while also acknowledging areas of progress and outlining the way forward.
Economic Growth in Post-Liberalisation India: An Overview
Economic liberalisation marked a decisive shift from a state-controlled economy to a more market-driven system. Key features included:
- Deregulation of industries
- Reduction in trade barriers
- Encouragement of private and foreign investment
- Financial sector reforms
- Expansion of service-led growth
As a result:
- India’s GDP growth accelerated significantly.
- The services sector became the main engine of growth.
- India integrated into global value chains.
- Poverty levels declined in absolute terms.
However, growth alone did not ensure equitable distribution of benefits.
Understanding Economic Disparities
Economic disparities refer to unequal distribution of income, wealth, opportunities, and access to resources across individuals, groups, and regions. In India, disparities manifest along multiple dimensions:
- Income and wealth inequality
- Regional and spatial inequality
- Sectoral inequality
- Social and gender inequality
- Opportunity inequality
Post-liberalisation growth has impacted these dimensions unevenly.
Evidence of Rising Economic Disparities in Post-Liberalisation India
1. Income Inequality
While overall incomes have risen, the gains have been highly skewed.
- High-skilled professionals, corporate executives, and investors witnessed rapid income growth.
- Wages of informal and low-skilled workers grew slowly or stagnated.
- The share of wages in national income declined relative to profits.
This indicates that growth disproportionately favoured capital and skills over labour.
2. Wealth Concentration
Wealth inequality increased more sharply than income inequality.
- Asset ownership (land, real estate, shares, businesses) became increasingly concentrated.
- Financialisation of the economy benefitted those with surplus capital.
- Intergenerational transfer of wealth reinforced inequality.
Wealth concentration deepens inequality because wealth generates income and political influence.
3. Regional Disparities
Post-liberalisation growth has been regionally uneven.
- Coastal and urbanised states attracted more investment.
- Southern and western states surged ahead, while eastern and central regions lagged.
- Urban centres became growth hubs, leaving backward regions behind.
This spatial inequality led to migration pressures and uneven development outcomes.
4. Urban–Rural Divide
Economic reforms disproportionately benefited urban areas.
- Cities enjoyed better infrastructure, education, healthcare, and employment opportunities.
- Rural areas remained dependent on low-productivity agriculture.
- Rural underemployment persisted despite overall growth.
As a result, income and opportunity gaps between rural and urban India widened.
5. Sectoral Imbalance
Growth was driven largely by capital-intensive sectors.
- Services such as IT, finance, and telecommunications expanded rapidly.
- Manufacturing failed to absorb surplus labour.
- Agriculture’s share in employment remained high despite declining GDP contribution.
This mismatch resulted in jobless or low-employment growth.
6. Social and Gender Disparities
Economic growth did not adequately address social inequalities.
- Marginalised communities faced continued barriers in education and employment.
- Female labour force participation declined despite economic expansion.
- Informal employment disproportionately affected women and disadvantaged groups.
Social identity continued to shape economic outcomes.
Why Growth Did Not Reduce Disparities Proportionally: Key Reasons
1. Capital-Intensive Growth Model
Post-liberalisation growth relied heavily on:
- Technology
- Automation
- Capital-intensive industries
Such growth:
- Increased productivity
- Generated fewer jobs
- Benefited capital owners more than workers
The employment elasticity of growth declined significantly.
2. Informalisation of Employment
Despite growth:
- A majority of workers remained in informal employment.
- Informal jobs lacked stability, social security, and bargaining power.
- Formal sector expansion did not absorb surplus labour.
This limited income mobility for large sections of the population.
3. Unequal Access to Quality Education and Skills
Growth increasingly rewarded skills and education.
- Quality education remained accessible mainly to the affluent.
- Skill mismatch affected employability.
- Private education widened inequality.
Human capital inequality translated into income inequality.
4. Weak Manufacturing Base
India failed to replicate the labour-intensive manufacturing model seen in East Asia.
- Manufacturing growth remained modest.
- Small enterprises struggled due to competition and compliance burdens.
- Import dependence increased in certain sectors.
This reduced job creation for semi-skilled workers.
5. Regional Investment Bias
Market-led growth naturally flowed to already developed regions.
- Better infrastructure attracted more investment.
- Backward regions lacked capacity to compete.
- Policy interventions were insufficient to offset market biases.
This entrenched regional disparities.
6. Policy Focus on Growth over Distribution
Post-liberalisation policy priorities emphasised:
- Efficiency
- Competitiveness
- Investment climate
Redistribution and equity were often secondary considerations.
Counter-Arguments: Has Growth Helped Reduce Disparities at All?
A critical examination must acknowledge positive outcomes.
1. Reduction in Absolute Poverty
- Millions were lifted above the poverty line.
- Consumption levels improved.
- Basic amenities expanded.
Growth created resources for welfare expansion.
2. Expansion of the Middle Class
- A new aspirational middle class emerged.
- Consumption demand increased.
- Economic opportunities expanded for some sections.
This indicates partial inclusiveness.
3. Increased Fiscal Capacity of the State
Higher growth:
- Increased government revenues.
- Enabled welfare schemes and infrastructure investment.
- Supported financial inclusion initiatives.
However, redistribution remained limited relative to inequality growth.
4. Improved Access to Services
- Digital infrastructure expanded.
- Banking and payments systems became more inclusive.
- Connectivity improved across regions.
Yet access quality remained uneven.
Why Inequality Matters for Development
Economic disparities are not merely ethical concerns; they have economic consequences.
- High inequality suppresses aggregate demand.
- It limits human capital development.
- It increases social tensions and political instability.
- It undermines long-term growth sustainability.
Thus, inequality can become a constraint on development itself.
Way Forward: Making Growth More Inclusive
1. Shift Towards Labour-Intensive Growth
- Promote manufacturing and MSMEs.
- Encourage labour-absorbing sectors.
- Strengthen local value chains.
2. Invest in Quality Public Education and Health
- Reduce dependence on private services.
- Ensure equal opportunity from early childhood.
- Focus on skill relevance and employability.
3. Strengthen Social Security
- Universal social protection
- Coverage for informal and gig workers
- Portable benefits
4. Regional Development Strategy
- Targeted investment in backward regions
- Infrastructure-led development
- Decentralised planning
5. Progressive Fiscal Policies
- Broaden tax base
- Improve tax compliance
- Channel revenues into social investment
6. Gender-Responsive Economic Policies
- Enable women’s workforce participation
- Provide childcare and safety infrastructure
- Promote asset ownership among women
Broader Aspects
- Technological change must be managed to avoid exclusion.
- Climate change may worsen inequality if adaptation is unequal.
- Aspirational inequality can fuel social dissatisfaction even amid growth.
Conclusion
India’s post-liberalisation experience clearly demonstrates that high economic growth alone does not automatically translate into proportional reduction in economic disparities. While growth has expanded the economic pie, its distribution has remained uneven due to structural, sectoral, and policy-related factors. Economic reforms prioritised efficiency and competitiveness but insufficiently addressed employment generation, regional balance, and social equity.
For India to sustain long-term development and social stability, growth must be inclusive, employment-rich, and opportunity-expanding. Reducing inequality is not antithetical to growth; rather, it is essential for making growth durable, democratic, and development-oriented.
