Income inequalities

According to the Poverty Reduction Strategy Paper (PRSP) submitted by the Planning Commission, the gap between the rich and the poor as measured by Gini Coefficient has increased during the last four years.
This conclusion was drawn from a survey of inequalities in consumption expenditures of various households during 2000-01 and 2004-05, which showed that the highest 40 percent gained in their consumption share, while the lowest 60 percent - witnessed a few basis points decline in their consumption share during this period.
The ratio of the highest to the lowest quintile (one of five equal populations), which usually measures the gap between the rich and the poor widened from 3.76 in 2001 to 4.15 in 2005 on overall basis. The survey also indicates that while the gap between the rich and the poor in rural areas is low and almost remained unchanged, the gap in urban areas is higher and increased over time.
The ratio of the highest to the lowest quintile in the rural and urban areas at 2.22 and 10.40 in 2001 was recorded at 2.19 and 12.02 respectively in 2005. The empirical evidence in Pakistan also indicates that generally the consumption increased faster for top 20 percent of the population as compared to the rise of bottom 20 percent irrespective of the level of poverty in the country. For instance, decline in absolute poverty was also accompanied by rising inequality in the country between 1970 and 1979.
It may be mentioned that Gini Coefficient is a broad and single aggregate measure of the inequalities in income or consumption and takes on a value between 0 and 1. The higher the value of Gini Coefficient, the greater will be the inequality. Based on this measure, even the condition in the rural areas of Pakistan also seems to be deteriorating. While on all-Pakistan basis, the Gini Coefficient rose from 0.2752 in 2000-01 to 0.2976 in 2004-05, it went up from 0.3227 to 0.3388 in urban areas and from 0.2367 to 0.2519 in rural areas during this period. The high urban inequality, according to the latest Economic Survey, may be attributed to the fact that urban workforce is more diversified in terms of skills and education. Income from self-employment is also more concentrated in urban areas than in rural areas and this self-employment ranges from wealthy businessmen to petty traders whereas bulk of the rural self-employed are homogeneous in informal sectors.
Whatever the reasons of such a large disparity between the rich and the poor of the country, the phenomenon should be a matter of great concern to the policy makers of the country. The fact that it is growing despite the rise in per capita incomes due mainly to a higher GDP growth is doubly painful and worrying and calls for urgent measures to reverse this trend.
It also shows that incremental GDP is being pre-empted by the higher strata of society while the poor people of the country are not gaining much from higher level of development frequently propagated by the government. In our view, this is a highly risky situation and could cause social unrest leading to large-scale upheaval in the society which would obviously derail the whole process and momentum of growth. In extreme cases, the ensuing chaos could even threaten the very survival of the country. It is a known fact that islands of prosperity cannot survive alongwith oceans of poverty for long. Therefore, there is an urgent need to lay more emphasis on the reduction in income inequalities in the country.
Aggregates like overall growth are important but the issues impacting on political stability and social harmony cannot also be ignored in building a thriving economy. In fact, these two goals are not always mutually exclusive as demonstrated in many other countries. The government in Pakistan only needs to recognise the problem, gather the will and employ its true writ and resolve to close the gap between the rich and the poor gradually.
Some of the means tried successfully in various countries include targeted social programmes, fair and broad based fiscal regime, promotion of job creation, high quality education, subsidisation of basic commodities on a selective basis for the neediest, and vast spending on social sectors. The Government of Pakistan could also think about other strategies to reduce income inequalities to tackle mounting frustration but the point to ponder is that time is running out and further complacency on this account could lead to very undesirable consequences.