Income inequalities point to 'uneven' recovery: Subbarao

Former RBI governor D. Subbarao has expressed concerns over "extreme unevenness" in economic recovery and "sharpening inequalities" between upper income segments and lower income households in the country, cautioning that the trend will hit growth prospects, going forward.

He said liquidity in the domestic market and foreign fund inflows are leading to soaring prices of stocks and other assets despite disruptions due to the Covid pandemic.

The earlier expectations of a sharp economic recovery this year have been dashed by the new pandemic wave, he said.

"The economy contracted last year, for the first time in four decades, by as much as 7.3 per cent. That was less deep than we had first feared but still deep enough to have caused distress to millions of families in the informal sector. There was expectation of a sharp recovery this year but those expectations are now tempered by the impact of the second wave," Subbarao told PTI.

The RBI too reduced its growth forecast for the current fiscal by one percentage point, from 10.5 per cent to 9.5 per cent, he said adding that even 9.5 per cent growth might seem impressive but note that this is coming on a very low base of last year.

"Even if we clock this growth rate, the output during this fiscal 2021/22 will still be less than the output two years ago.”

Subbarao said that while the majority of people have lost jobs and saw reduction in their income, the wealth of some rich individuals have increased during the pandemic period. "The positive wealth effect of the upper income segments juxtaposed with the negative income effects of the lower income households tells a story of a very uneven recovery and sharpening inequalities. This is morally wrong and politically corrosive," he said.