3.2.2 National Income
National income may be defined provisionally as:
(1) The net total of commodities and services produced by the people comprising a nation.
(2) The total of such commodities and services received by the nation's individual members in return for their assistance in producing commodities and services.
(3) The total of goods and services consumed by these individuals out of the receipts thus earned or
(4) The net total of desirable events enjoyed by these individuals in their
.
'Defined in any of the above mentioned manners, national income is the end product of a country's economic activity. As a result, national income reflects the combined play of economic forces and serves to appraise the prevailing economic organisation of a country. Figures for per capita income, especially when adjusted for differences in purchasing power of money, measure the economic welfare of a country. A continuous series of annual estimates of either the total or per capita national income suggest whether the nation tends in the course of time to grow richer or poorer arid how rapidly this change takes place.
3.2.3 Distribution
3.2.3.1 Problem of Income Distribution
It is not enough for a country to attempt to increase its national income by development programmes. The national income must be increased; but it is also necessary to ensure that it is equitably distributed among various sections of the society. Inequality of income is an important feature of capitalist economies. Even socialist and communist countries, who have established systems for the purpose of reducing inequalities of personal income, have failed to attain this equality, in pro-historic times, there was no need for a policy on income distribution since man led a nomadic ( a member of a wandering pastoral community life), always in search of food. Income distribution came into force during the feudal ( a right to the use of land, houses, etc in perpetuity) system and attamed great importance with the advent of the Industrial Revolution. Government policies to ensure a fair distribution of personal income are among the most controversial and difficult issues of public policy.
3.2.3.2 Causes of Inequality
The major components of personal income are labour earnings (salary or wages), property earnings (rents, interests and dividends) and government transfer payments. Disposable personal income consists of the personal income minus any taxes paid on it. Wealth (or "net worth") consists of the total value of financial and tangible ( capable of being possessed) assets minus the amount of money owed to bankers or other creditors. The major causes of inequality of incomes in an economy are:
(1) Inheritance : Some persons are born with a silver spoon. Rich inheritance gives them a good start in life, Some persons are born landless; others inherit thousands of acres. Some parents die under debt leaving the burden of debt on their children while others leave huge cash and properties to their heirs. So long as the system of inheritance continues, inequalities are bound to continue.
(2) System of Private Property : Under the system of private property, a person is free to earn, free to save and free to own property. Once a person earns and acquires property, his property starts earning for him by way of rent, interest, etc.). That's why some earn more and others earn less and differences in property lead to difference in income. Property is one of the major causes of the inequality of income.
(3) Differences in Natural Qualities : No two persons have the same natural qualities. Some are more gifted than others. Persons who are endowed by nature with superior intelligence, better physique and greater capacity for hard work can easily surpass others in the race of life. Some inherit a feeble mind in a feeble body and they are left behind.
(4) Difference in Acquired Talents : To some extent, environment makes the man since natural (or inborn) qualities are considerably modified by environment. A child may be highly intelligent, but if he or she is not lucky enough to receive proper education or training, the latent abilities remain mostly undeveloped. On the other hand, a child of even mediocre ( average in quality, performance) nature abilities can do better if he or she is properly brought up and educated. Professional education, for example, improves a person's earning capacity.
(5) Lack of Opportunities : Some persons are lucky enough to get a good chance, and they may make the most of it. It is well known that underdeveloped regions (like Uttaranchal, Jharkhand, Chhattisgarh and Nagaland) do not offer good opportunities for employment, where as developed regions (like Punjab, Maharashtra and Gujarat) have ample opportunities.
3.2.3.3 Consequences of Inequality
Inequality of income leads to serious economic and social consequences. Some of the major consequences of uneven income distribution are as follows:
(1) Class Conflict : Inequitable distribution of income and wealth has divided the society into two classes, the "have's" and the "have-nots", which are forever on the war path. This class conflict leads to social and political discontent
(2) Political Domination : The rich dominates the political machinery and uses it to promote his own interests. This results in corruption and social injustice.
(3) Exploitation of the Poor : The rich exploits the poor economically, socially and politically. The awareness of this exploitation may lead to political awakening, agitation and even political revolution. Inequality of income is an important cause for social and political instability.
(4) Creation of Monopolies : Unequal distribution of income promotes monopolies. The monopolies can crush small enterprises and change unfair prices.
(5 ) Suppression of Talent : It is not easy for a poor person to make his way in life, no matter how talented he or she may be. It is a great social loss that highly brilliant but poor people are not able to make their full contribution to the society and the nation.
(6) No Real Democracy : Democracy is a farce when there is a wide gulf between the rich and the poor. There can be no real democracy and political equality without economic equality.
(7) Moral Degradation : Unequal distribution of income leads to moral degradation of the society as the rich are corrupted by vice and the poor are demoralized by lack of economic resources. The economic inequality
corrupts the rich and degrades the poor. It becomes almost impossible for the poor to retain their honesty and integrity when they see the corrupt and rich people rising in life.
3*2.3.4 Measures to Reduce inequalities
In the present era of social and political awakening, it has become a major plank of political policy to reduce the inequality of income distribution, if not eliminate it. After the independence, India decided to set up a socialistic pattern of society. With this end in view, the Government of India strives to prevent the concentration of wealth and income in a few hands. Some of the measures to reduce inequality in the distribution of income and wealth are:
(1) Fixing Minimum Wage : The first step in the direction of a more egalitarian ( believing in and upholding the principle of equality among people.) society is to guarantee each citizen a minimum wage, consistent with a minimum standard of living. The Minimum Wage Act was passed in India in 1948. In pursuance of this Act, minimum wages are fixed from time to time for agricultural labour and other workers.
(2) Social Security : An important measure for a more equitable distribution of income is the introduction of a comprehensive social security scheme assuring each citizen a minimum standard of economic welfare. Such a social security scheme must include provision for free education up to certain level, free medical and maternity aid, old-age pension, unemployment benefits, compensation for sickness and accidents, provident fund and group insurance schemes. In this way, substantial benefits can be assured even to persons whose incomes are low. Social services like public parks, libraries, museums, community halls and community TV sets may be provided on a liberal scale so that poor are able to enjoy many of the amenities available to the rich.
(3) Equality of Opportunity : The government may devise suitable means to provide equal opportunities to both the rich and the poor in getting employment or getting a start in trade or industry. For example, the government may institute a system of liberal scholarship, stipends and low interest loan so that the poor can acquire higher education and technical skills. In India, many concessions are offered to the scheduled castes, scheduled tribes, other backward classes and persons living in backward areas to reduce inequality in the society.
(4) Steeply-Graded Income Taxes: As possible fiscal devices may be adopted to bridge the gap between the rich and the poor. One such device is the steeply-graded (i.e., progressively higher) income taxes. This can prevent to some extent the rich getting richer. Other direct taxes like the super tax, the excess profits tax, the capital gains tax and limits on dividends may also be used for this purpose.
(5) Steep Estate Duty : In order to prevent the perpetuation ( continuation or preservation for ever) of inequality from generation to generation, steeply-graded estate duty, death duty and succession taxes may be imposed. In 1964-65, and again in 1966~7, the rates of estate duty were made steeper in India, rising up to 40%.
(6) Ceiling on Property : With a view to reducing inequalities between the big and small farmers, ceilings on agricultural holdings may be imposed, as has already been done in India. The main purpose of land ceilings is to bring about a wider ownership and use of land. Similarly, a ceiling ( an upper limit) on urban property may be imposed so that the inequalities in urban areas can be reduced.
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