LAHORE: Income inequality has doubled in Pakistan during the last decade and the Gini index has risen from 0.30 in 2002 to 0.68 in 2012.
While the income of the underprivileged sections did not increase in line with market realities, the richer segments of society have continued to accumulate wealth.
The state’s dependence on indirect taxation has further marginalised the low income groups. According to the last seven economic surveys of Pakistan, the lowest income groups experienced the highest level of inflation, whereas its impact declined as the income level increased.
Civil society activist Naseer Ahmad said that the focus of economic planners in the past three decades has been on poverty alleviation, instead of improving the distribution of income. He said that income distribution is determined by the employment structure, distribution of labour force within various industrial and occupational groups and relative incomes in various industries and occupations. “If the employment rate does not grow rapidly, income inequality rises,” he said. “The country’s tax structure, being largely indirect, is regressive and affects the poor more than the rich.”
Social worker Dr Kishwar Dhingra said that inequality hampers economic growth and poverty alleviation efforts. “Extreme inequality pushes large segments of the population into low-wage jobs, which constricts domestic market demand, hinders structural change and erodes the social fabric,” she said. “High levels of inequality create polarised societies in which fragmented systems of social provision deliver good quality education and health services only to those who can afford them.”
She added that the underprivileged have to rely on underfunded and overstretched public services. This limits the potential of social policies to create equal opportunities and hence dampens social mobility. Moreover, high levels of inequality are detrimental to social cohesion and may undermine efforts to build more democratic societies.
Senior economist Naveed Anwar Khan said that high levels of inequality can act as a catalyst for financial crises through under consumption and the creation of various ‘bubbles’, which can destabilise the real economy. He said that high levels of inequality make it difficult to construct broad-based, redistributive and fiscally sustainable social welfare systems.
“When income inequality is high, it becomes easier for those with economic power to use it politically to preserve their interests,” he said. “Countries with high inequalities find it hard to retain their skilled human resources due to brain drain.” He added that the government is creating income disparities among its employees by announcing the same percentage of pay raise for all. “When the government announces a 10 percent increase in the salaries of all government employees, the low grade employee getting Rs9,000 per month would get an increment of Rs900, while a senior bureaucrat with a salary of Rs80,000 would get an increase of Rs8,000,” he said.