Political Economy of Work, Wealth, Debt and Power in India since 1991

Executive Summary

This report synthesises academic research and official data on unemployment, wages, inflation, asset ownership, debt, taxation and political behaviour in India from liberalisation (1991) to the present, with selective comparisons to major developed and developing economies.

Key findings:

• Unemployment and worker bargaining power: Across advanced economies, higher unemployment is generally associated with weaker wage growth and lower worker bargaining power, consistent with standard Phillips-curve style models, though the relationship has flattened since the 1990s. In India, evidence for a strong, stable Phillips curve is mixed; some periods show a trade-off, but over the long run the inflation–unemployment slope is small, suggesting only a marginal role for labour-market slack in driving inflation.[^1][^2][^3][^4][^5]
• Inflation and distribution: India has experienced moderate-to-high but variable inflation since 1991, and central banks globally tend to target positive (2–6%) rather than zero inflation to avoid deflationary traps and to ease relative-price and wage adjustments. Empirically, inflation erodes the purchasing power of cash holders and fixed nominal claims; its impact on workers depends critically on whether wages keep pace with prices, which has only partially occurred in India, especially for informal and rural workers.[^6][7][^8][9]
• Savings vs investing: Indian households overwhelmingly hold wealth in non-financial assets (land, housing, and gold), with financial assets forming a small share even among the affluent. Over multi-decade horizons, equities and some categories of real estate have beaten inflation, while traditional bank deposits have often delivered only modest real returns, especially after tax, though they provide safety and liquidity. Mutual fund penetration and direct equity ownership remain low relative to population.[^10][^11][^12]
• Taxation and effective burden: India’s tax system combines progressive direct taxes with regressive indirect taxes such as GST and fuel excise; incidence studies find that consumption taxes fall more heavily on poorer households relative to income, while high-income groups contribute disproportionately via direct taxes. When viewed against net wealth, there is suggestive evidence that the overall system can become regressive at the very top because very wealthy individuals pay modest taxes relative to their asset base.[^13][14][^15][6]
• Debt economy: Household debt in India has risen sharply in the last decade, reaching over 40% of GDP, with a rising share of unsecured, consumption-oriented credit (personal loans, credit cards, BNPL), and a significant portion sourced from non-institutional lenders. Surveys report growing EMI burdens, with many distressed borrowers using fresh loans to service existing debt.[^16][^17][^18]
• Asset ownership and inequality: Income and wealth inequality in India declined after independence up to the early 1980s but has risen steeply since liberalisation; by 2022–23 the top 1% captured about 22.6% of national income and 40% of wealth, among the highest top-end shares in the world. Wealth is heavily concentrated in land, real estate, and increasingly financial assets and business equity for the rich.[^19][^20][^6]
• Government incentives and macro policy: Central banks raise interest rates to control inflation and anchor expectations, trading off short-run employment against price stability; governments favour low and stable inflation partly to protect real tax revenue, maintain political legitimacy, and avoid destabilising distributive conflicts. Full employment is rarely defined as 0% unemployment because frictional and structural unemployment are considered inevitable, and some models posit a NAIRU.[^9][^2][^21]
• Regulation, corruption and ease of doing business: India has reduced some regulatory burdens and cut thousands of compliances in recent years, but business surveys and corruption indices show persistent red tape, judicial delays and perceived corruption, with CPI scores hovering around the high-30s to low-40s on a 0–100 scale. Small firms still face high compliance costs relative to size.[^22][^23][^24]
• Political economy and insecurity: Comparative political-science evidence suggests that severe economic distress (foreclosures, job loss, heavy debt) often reduces political participation (e.g. turnout), but can under certain conditions fuel populist voting and protest movements. India has seen large-scale farmer and worker protests despite high precarity, indicating that insecurity does not uniformly suppress mobilisation.[^25][^26][^27]

Overall, the evidence supports some conventional views—such as higher unemployment tending to weaken wage growth and moderate inflation being a policy target to avoid deflation—but challenges simplistic claims that unemployment is deliberately engineered to subjugate workers, or that inflation always benefits the rich and hurts the poor. Many mechanisms operate through institutional structures (labour laws, financial inclusion, fiscal capacity) rather than pure macro aggregates.

---

1. Unemployment, Wages and Worker Bargaining Power

1.1 Conceptual frameworks: Phillips Curve, NAIRU and labour-market slack

The Phillips Curve originally described an inverse relationship between wage inflation and unemployment—lower unemployment associated with faster wage growth—based on UK data from the late 19th to mid-20th century. Modern formulations incorporate expected inflation and supply shocks, yielding an expectations-augmented Phillips curve in which inflation depends on the unemployment gap (actual unemployment minus a “natural” or NAIRU level), expected inflation and shocks.[^3]

IMF and OECD work on advanced economies finds that a statistically significant relationship between the unemployment gap and inflation still exists in most OECD countries, but the slope of the Phillips curve is much flatter than in earlier decades; labour-market slack often plays a modest role compared to expectations and global factors. This flattening implies that large changes in unemployment are now associated with relatively small changes in inflation and wage growth in many high-income economies.[^2][1]

The NAIRU (Non-Accelerating Inflation Rate of Unemployment) is an estimated unemployment rate at which inflation is stable; when actual unemployment falls below NAIRU, inflation tends to accelerate, and vice versa. Empirical estimates of NAIRU are highly uncertain and time-varying, and recent work shows that alternative NAIRU assumptions do not fundamentally alter the finding of anchored expectations and a flatter Phillips curve. NAIRU is thus best seen as a modelling tool, not a precise policy target.[^1]

1.2 India: Phillips-curve evidence and unemployment trends

Several empirical studies have tested the Phillips curve in India using different periods, specifications and data sources. Deepa Soni (2020s) estimates conventional and extended Phillips curves for 1955–2015 and finds trade-offs between unemployment and inflation in subperiods (1955–70, 1980–92, 2006–07 to 2014–15), but little or no trade-off in other periods (1970–80, 1992–2005), with the long-run slope over 1955–2015 being small (coefficient about 0.004 and statistically insignificant). This suggests only a marginal long-run relationship between unemployment and inflation in India.[^3]

A panel study using state-level CPI inflation and output gaps (as proxy for unemployment) finds a conventional Phillips curve for India, with excess demand conditions (positive output gaps) associated with higher inflation, especially for core inflation, and exchange-rate movements also mattering. Other studies similarly confirm short-run trade-offs in particular periods but stress the importance of supply shocks (monsoon, oil prices, liberalisation episodes) in driving inflation.[^4][^5][^28]

World Bank and Macrotrends data show India’s modelled unemployment rate fluctuating in a relatively narrow band (roughly 3–8%) between 1991 and 2025, with values around 4–5% in the 2020s. Youth unemployment and underemployment, however, have increased in recent years according to survey-based evidence, highlighting that headline unemployment underestimates labour-market slack.[^29][^30][^31]

1.3 India vs advanced economies: unemployment and wage growth

In advanced economies, micro evidence confirms that higher unemployment tends to restrain wage growth and weaken worker bargaining power. For example, US state-level data show that higher unemployment is associated with slower wage growth across states. OECD analyses find that unemployment gaps influence inflation and wages, but the magnitude is typically small; global output gaps and imported inflation can dominate domestic slack.[^2][4]

In India, research on wage dynamics emphasises several points:

• Wage growth has been uneven across sectors and regions, with real wages for many informal and rural workers stagnating or declining in some periods, even when aggregate unemployment was moderate.[^6]
• Rural wage–inflation dynamics reflect both supply shocks and social programmes (e.g. employment guarantees) rather than simple slack.[^4]
• The vast informal sector weakens the Phillips-curve link because many workers lack formal contracts, unions, or minimum-wage enforcement, limiting their bargaining leverage even at low unemployment.

Taken together, the evidence indicates that higher unemployment generally weakens workers’ bargaining power and wage growth, but the strength of this relationship varies by country and over time. In India, structural features (informality, underemployment, weak unionisation) mean that labour-market slack is only one of several determinants of wages.[^3][4]

1.4 Unionisation, collective bargaining and labour shortages

India’s union density is relatively low and has declined over time, with trade unions concentrated in formal sectors (public enterprises, large factories) while the majority of workers are in informal employment without collective bargaining structures. Legal frameworks for collective bargaining exist, but fragmentation across unions and limited bargaining coverage reduce their impact on economy-wide wages.[^32][33]

International evidence shows that unionisation and collective bargaining increase wage floors and compress wage distributions, especially for low- and middle-wage workers, and can weaken the direct link between unemployment and individual bargaining outcomes. In tight labour markets with shortages—such as post-war US or some European episodes—low unemployment has historically been associated with strong wage growth, sometimes contributing to wage–price spirals.[^2]

Like other economies, India has experienced episodes where labour shortages in specific sectors (IT services, construction booms in certain states) produced rapid wage increases, particularly for skilled workers. However, these gains have been uneven and sector-specific, and there is limited evidence that low aggregate unemployment has consistently translated into broad-based wage surges for ordinary workers.

1.5 Historical examples: low vs high unemployment and wages

Studies of advanced economies highlight contrasting episodes:

• In the post-war decades (1950s–1960s) in the US and Western Europe, low unemployment, strong unions and robust demand produced real wage growth for broad segments of the workforce and a relatively strong Phillips-curve trade-off.[^9]
• In the 1970s, supply shocks (oil crises) generated stagflation—high unemployment and high inflation—undermining simple Phillips-curve interpretations.
• Since the 1990s, globalisation, technological change and central-bank credibility flattened the Phillips curve; low unemployment sometimes coincided with only modest wage growth, especially for middle and lower segments.

In India, as noted above, the long-run Phillips curve slope is small, and periods of high inflation have not always coincided with low unemployment or strong wage growth, because supply shocks and structural factors dominate. This undercuts any deterministic claim that governments can finely tune unemployment to control wages.[^3]

1.6 Do governments intentionally maintain unemployment to control inflation?

Macroeconomic models often depict policymakers choosing unemployment (via aggregate-demand policies) to hit inflation targets, but this does not imply a conspiratorial intent to keep workers weak. Central banks targeting inflation often face policy trade-offs: tightening monetary policy to reduce inflation can raise unemployment in the short run.[^9][2]

Evidence from India, the US, Europe and Japan shows that central banks have primarily focused on maintaining price stability and anchoring inflation expectations, not on keeping unemployment deliberately high. For example, inflation-targeting regimes emphasise output-gap and inflation projections rather than explicit unemployment targets. NAIRU estimates are used as inputs into these models, but are revised frequently and are treated as uncertain.[^21][^9][^2]

Thus, while policy choices can and do affect unemployment, there is limited empirical support for the strong thesis that governments intentionally keep substantial unemployment purely to suppress worker bargaining power. The incentives are more nuanced: avoiding high inflation, preserving financial stability, maintaining tax revenue, and balancing social and political pressures.[^21][9]

Evidence strength: Moderate to High (robust macro and micro studies in advanced economies; more limited, but growing, evidence for India).

---

2. Inflation, Wealth Creation and Distribution

2.1 Why target positive inflation (2–6%) instead of zero?

Central banks in advanced economies typically target about 2% inflation, while emerging-market central banks often target slightly higher bands (e.g. 4–6%) to accommodate structural changes and measurement issues. Several reasons underlie the choice of positive inflation rather than zero:[^9]

• Avoiding deflation: Persistent deflation (falling prices) can increase real debt burdens, discourage consumption and investment (as people wait for lower prices), and trap economies in low-growth equilibria.
• Nominal rigidities: Many wages and prices are sticky downward; small positive inflation facilitates relative-price and real-wage adjustments without nominal cuts, easing labour-market reallocation.
• Measurement bias: Price indices may overstate inflation (due to quality changes), so a 0% target could result in slight deflation in true prices.

India’s monetary policy framework moved toward flexible inflation targeting in the 2010s, with a medium-term CPI inflation target of 4% ±2%, reflecting similar logic. This range balances the desire to avoid high inflation with the practical challenges of achieving zero inflation amid supply shocks and structural change.[^21]

Evidence strength: High (well-established in monetary economics and policy practice).

2.2 India’s inflation trajectory since 1991

World Bank CPI data show that India’s consumer-price inflation has varied substantially from year to year since 1991, with episodes of high inflation (double digits) and stretches of moderate (4–6%) inflation. Academic and central-bank analyses highlight:[^7]

• Supply shocks: Monsoon variability, global commodity prices (oil, food), and administered prices strongly influence Indian inflation.
• Demand factors: Output gaps and monetary conditions matter, but their role can be overshadowed by supply-side and imported inflation.[^4][21]
• Structural changes: Liberalisation, changes in rural wages and subsidies, and globalisation have altered price dynamics.

The Reserve Bank of India’s move to CPI-based inflation targeting was partly motivated by the need to focus policy on consumer-facing inflation and to improve transparency and accountability.[^21]

2.3 How inflation affects different groups

The distributional effects of inflation depend on asset and income composition:

• Salaried workers: If nominal wages adjust in line with inflation, real wages can be preserved. However, in practice, adjustment is partial and uneven; workers without strong bargaining power or in informal sectors may see real incomes erode when prices rise faster than wages.
• Businesses: Firms with pricing power and flexible contracts can pass higher costs to customers; those with fixed-price contracts or intense competition may see margins squeezed. Inflation also affects input costs and investment decisions.
• Investors: Holders of nominal fixed-income assets (e.g. fixed-rate bonds, deposits) lose in real terms when inflation exceeds nominal returns; holders of real assets (equity, property, inflation-linked bonds, commodities) may be protected or even benefit if asset prices adjust.
• Retirees: Those relying on fixed pensions or annuities suffer real erosion unless benefits are indexed; retirees with diversified portfolios of real assets fare better.

In India, household-finance research shows that most households hold wealth in non-financial assets (especially land and gold) and negligible retirement assets, relying heavily on non-institutional debt. This structure means inflation affects households through complex channels: land values may rise, gold may be perceived as an inflation hedge, but consumption baskets and debt-service burdens can become more difficult to manage.[^10]

2.4 Does inflation disproportionately hurt cash holders and encourage investing?

Inflation does erode the real value of cash and low-yield nominal deposits, making cash-holding costly over time. This can, in principle, encourage households to seek higher-yield investments. However, whether inflation actually stimulates productive investing depends on financial inclusion, trust and literacy.

In India, high allocations to gold and real estate suggest that many households respond to inflation risk by holding physical stores of value rather than diversifying into financial instruments. The Indian Household Finance Landscape study finds that households allocate around 95–96% of their wealth to physical assets (real estate, gold, durable goods), with only about 4–5% in financial assets on average. State-level inflation volatility is positively associated with gold holdings, suggesting households treat gold as an inflation hedge.[^10]

Thus, inflation does push households away from cash, but not necessarily toward diversified financial portfolios; instead, it reinforces gold-hoarding and land investment among those with means. Poorer households, facing credit constraints, may have limited ability to shift out of cash and are more exposed to price spikes.

Evidence strength: Moderate (strong on erosion of cash; more mixed on behaviour changes; Indian data show gold/land responses).

2.5 Wage growth, inflation and productivity in India

Long-run data on real wages, inflation and productivity for India are fragmented and often of poor quality, especially for the informal sector. The World Inequality Lab working paper on India emphasises that data gaps and under-representation of the poor and the very rich make precise estimates difficult.[^6]

Available evidence suggests:

• Real wage growth has been stronger for skilled, urban and formal-sector workers than for rural and informal workers.[^6]
• Productivity growth (output per worker) accelerated after the 1990s, but wage shares have not increased proportionally; a rising share of output accrues to capital and top income groups.[^8][6]

In this context, wage growth has only partially kept pace with inflation, especially outside the formal sector. Productivity gains have disproportionately benefited higher-income groups and owners of capital.

Evidence strength: Moderate (good inequality series; limited, noisy wage-productivity series).

---

3. Savings vs Investing: Long-Horizon Returns and Asset Ownership

3.1 Household portfolios: savings accounts, FDs, gold, real estate, equity, mutual funds and bonds

The All India Debt and Investment Survey (AIDIS) and related research show that Indian households hold a very high share of their wealth in non-financial assets:

• Around 77% of average household assets are in real estate, 11% in gold, 7% in durable goods, and only about 5% in financial assets.[^10]
• On a value-weighted basis, non-financial assets account for over 96% of household wealth.
• Gold holdings are exceptionally high compared to China and advanced economies; in China, households hold similar overall non-financial shares but much less gold and more durables.[^10]

Within financial assets, bank deposits dominate; participation in equities, mutual funds and pension products is low. Mutual fund factbooks note that mutual funds account for a small and recently growing slice of household financial savings, rising from about 7.6% of household savings in FY21 to 8.4% in FY23. NSE’s India Ownership Tracker reports that individual investors, directly and through mutual funds, own about 18.5% of the equity market’s free-float, indicating relatively low but rising household equity participation.[^11][12]

Government bonds are generally held indirectly via bank deposits, insurance and provident funds, rather than directly by households.

3.2 Inflation-adjusted returns over 20–30 years

Quantitative comparisons of inflation-adjusted returns across asset classes in India over 20–30 years require detailed time-series, which are beyond the scope of this report. However, broadly, empirical and practitioner analyses converge on the following patterns:

• Bank savings accounts and fixed deposits (FDs): Nominal returns often only modestly exceed inflation; after tax, real returns can be low or negative over long periods, especially when inflation spikes.
• Gold: Over multi-decade horizons, gold has delivered variable real returns; in some periods it has beaten inflation, but it is volatile and does not yield income. High gold holdings also reflect cultural factors and perceived inflation-hedging properties.[^10]
• Real estate: Urban land and housing in major cities have often delivered substantial real gains, though with wide dispersion and regulatory risks; rural land values have also risen, but liquidity and legal issues matter.[^10]
• Equity and mutual funds: Long-run equity returns in India have generally beaten inflation, with extended bull phases; mutual funds offer diversification and professional management, but reach mainly urban, higher-education households.[^12][11]
• Government bonds: Provide lower but more stable real returns; direct participation is limited; pension and provident schemes channel household funds into these instruments.

FDs have thus protected nominal balances but often destroyed purchasing power after tax and inflation for long-horizon savers. Equities and selected real estate have more reliably beaten inflation, but access and risk tolerance are uneven.

Evidence strength: Moderate (consistent general patterns; detailed quantitative comparisons not fully assembled here).

3.3 What percentage of Indians own productive financial assets?

Precise estimates vary by definition of “productive assets” and data source. Indicators include:

• Mutual fund participation: Only about 2–3% of Indians invest in mutual funds according to analyses of consumer-transaction data; AMFI reports growth but from a low base.[^34][10]
• Equity participation: NSE reports that individuals directly and via mutual funds own around 18.5% of the equity market; however, this reflects wealth concentration, not broad participation.[^11]
• Household-survey evidence: The AIDIS dataset shows very low direct holdings of shares and debentures across the wealth distribution; financial assets are concentrated among upper-decile households.[^10]

Thus, a small minority of households—largely urban, educated and wealthier—own significant productive financial assets, while most households rely on land, housing, gold and bank deposits.

Evidence strength: Moderate (strong on qualitative structure; precise percentages depend on survey and definition).

3.4 Why is financial asset ownership low?

The Indian Household Finance Landscape study identifies several factors:[^10]

• Missing markets and products: Limited availability or accessibility of appropriate financial instruments for low-income households.
• Trust and fraud concerns: Past malfeasance and mis-selling create trust gaps between households and financial providers.
• High transaction costs: Documentation, travel, time, and account-maintenance costs deter participation, especially in rural areas.
• Cognitive limits and literacy: Complexity of optimisation and limited financial literacy can lead to suboptimal choices.
• Cultural factors: Gold and land carry social and cultural significance; they serve as stores of value, dowry assets and security.

State-level differences in bank-branch density and public-sector employment explain part of the variation in financial-asset holdings and retirement savings across states, indicating the importance of institutional and policy environments.[^10]

Evidence strength: Moderate to High (strong survey- and regression-based evidence for correlates; causal inference more limited).

---

4. Taxation: Statutory vs Effective Burdens

4.1 Structure of India’s tax system

India’s tax system comprises:

• Direct taxes: Progressive personal income tax, corporate income tax, capital-gains tax, dividend tax, property tax and stamp duty.[^35][13]
• Indirect taxes: Goods and Services Tax (GST) on goods and services at multiple rates (now mainly 5% and 18% after rationalisation), excise duties on fuels and tobacco, and customs duties.[^36][13]

Income-tax schedules provide multiple slabs under “old” and “new” regimes, with the new regime offering lower rates with fewer exemptions. Corporate tax has been reduced for some firms via concessional regimes.[^13][35]

GST, introduced in 2017, replaced multiple pre-existing indirect taxes and was designed as a destination-based value-added tax, but significant goods (petroleum, alcohol, electricity) remain outside GST and are taxed separately.[^36]

4.2 Statutory rates vs effective tax burdens

Statutory rates often differ from effective burdens due to exemptions, deductions, evasion and incidence. Studies of indirect-tax incidence in India find that consumption taxes (including GST and excise) are regressive relative to income: poorer households spend a larger share of income on taxed goods, leading to higher effective rates when measured against income.[^14][15]

At the same time, high-income groups contribute a disproportionate share of direct-tax revenue. Income-tax reports and inequality studies note that a small fraction of adults file tax returns and pay most direct taxes.[^37][6]

World Inequality Lab work suggests that when taxes are assessed against net wealth, India’s tax system may be regressive at the top: very wealthy individuals pay relatively low taxes as a fraction of their asset holdings, due to low capital and wealth taxation and generous exemptions for certain assets.[^6]

Evidence strength: Moderate (good incidence studies for indirect taxes; limited direct data on wealth-relative tax burdens).

4.3 Components of household tax burdens

For households, relevant taxes include:

• Income tax: Applied to wages, business profits and some forms of capital income.
• GST: Applied to consumption of goods and services at differing rates (5%, 12%, 18%, higher for sin goods).[^36]
• Fuel taxes: Excise duties, GST components and cesses on petrol and diesel; these can be substantial, affecting transport costs and indirectly other prices.[^38][13]
• Property tax and stamp duty: Levied by municipal and state authorities on property ownership and transactions.[^13]
• Capital-gains tax and dividend tax: Applied to profits from asset sales and distributed corporate profits.

Empirical incidence studies show that indirect taxes (including GST and fuel excise) tend to fall more heavily on low- and middle-income households relative to income, while direct taxes concentrate at the top. However, mitigation measures (exemptions for essential goods, lower GST bands for basics) partially reduce regressivity.[^15][14]

4.4 Taxation and public goods

Mainstream public-finance theory emphasises that taxes fund public goods and services (infrastructure, health, education, defence) and enable redistribution and social insurance. India’s tax-to-GDP ratio remains modest relative to advanced economies, constraining state capacity to invest and redistribute.[^6]

Debates over whether taxes “fund” spending are influenced by monetary frameworks: conventional views emphasise tax revenue as necessary for financing; Modern Monetary Theory (MMT) argues that sovereign currency issuers face inflation constraints rather than simple revenue constraints, and taxes help manage inflation and distribution rather than directly funding spending. In practice, India’s fiscal and monetary institutions operate closer to conventional models, where deficits and debt levels matter for financing and stability.[^9]

Evidence strength: High (well-established public-finance theory; India-specific numbers from inequality and budget analyses).

---

5. Debt Economy: Household Leverage and EMIs

5.1 Household debt trends

Recent RBI Financial Stability Reports and media analyses show that household debt in India has risen to around 41–42% of GDP by 2024–25, up from roughly 38% five years earlier. Key points include:[^39][^17][^16]

• Household borrowing has grown faster than GDP in recent years.
• A rising share of loans are for consumption (personal loans, credit cards, consumer durables); less is for asset creation and productive investment.
• Unsecured loans (personal loans, credit cards) account for a large portion of retail slippages (loan-quality problems).[^39]

Other reports note that the number of household borrowers doubled from about 12.8 crore in 2017–18 to 28.3 crore in 2024–25, and household financial liabilities rose from ₹3.8 lakh crore in FY2015 to ₹18.8 lakh crore in FY2024, before moderating slightly.[^18]

Surveys of distressed borrowers find that EMI burdens consume most or all household income for about 60% of respondents, and many borrowers rely on new loans or credit cards to service existing EMIs. This indicates rising debt stress and potential debt traps.[^40]

Evidence strength: High (consistent across RBI reports, media summaries and survey data).

5.2 Composition: home loans, credit cards, BNPL, auto and education loans

Household-debt composition reveals:

• Non-housing retail loans (personal, credit cards, auto, consumer durables) make up more than half of household borrowings.[^17][16]
• Home loans constitute a smaller share (about 29–36% of household debt), indicating low mortgage penetration relative to advanced economies.[^17]
• Credit-card and BNPL (Buy Now, Pay Later) usage has grown rapidly, particularly among urban middle-class households, contributing to short-term consumption spikes and potential over-borrowing.
• Auto and education loans are significant in some segments but remain a smaller portion of total debt.

AIDIS-based analyses also show that many households rely on non-institutional debt (moneylenders, relatives, landlords), which can carry high interest rates and harsh collection practices.[^10]

5.3 Are Indians becoming more leveraged?

Compared with earlier decades, Indian households are clearly more indebted today:

• Debt-to-GDP ratios have climbed.
• The number of borrowers and average debt per borrower have risen.[^16][18]
• Net household financial savings dipped in the early 2020s and recovered somewhat, but remain below pre-pandemic levels.[^41][39]

However, India’s household-debt-to-GDP ratio remains lower than in many peer emerging economies and far below typical advanced-economy levels (where household debt often exceeds 60–80% of GDP). The key concern is less the level of debt than its quality and purpose—the shift toward unsecured, consumption-led borrowing and the concentration of debt stress among vulnerable borrowers.[^39][17]

Evidence strength: High (robust macro indicators; some uncertainty about informal debt levels).

5.4 Debt, labour mobility and job quitting

Theoretical arguments suggest that high debt can reduce labour mobility and make workers less willing to quit precarious jobs, as they fear losing income needed to service EMIs. Survey evidence in India shows that job loss or salary reduction is a major reason for repayment difficulties. Heavy EMI burdens reduce households’ buffer capacity and can make them risk-averse in job decisions.[^40]

Comparative evidence from the US subprime crisis indicates that severe economic distress (e.g. foreclosures) reduced individual voter turnout and could weaken political engagement. However, it also contributed to later populist surges.[^27]

For India, direct causal evidence linking debt to labour mobility and quitting decisions is limited, but the combination of rising EMIs, reliance on unsecured credit and harsh collection practices is likely to deter workers from taking employment risks.

Evidence strength: Weak to Moderate (strong theoretical plausibility; limited direct micro-causal evidence for India).

5.5 India vs US, China and Europe

Compared with the US, Europe and China:

• India’s household leverage is lower in aggregate but rising quickly.[^17]
• Mortgage penetration is low; many households own or aspire to own property without formal mortgages (via family, informal finance).
• Non-institutional and unsecured debt play a larger role in India.
• Financial inclusion and credit scoring are less developed, though improving.

China has higher household debt and a larger share of mortgages; European and US households hold more retirement assets and financial wealth. India’s profile combines low aggregate debt with high localised stress and a strong informal-credit component.

---

6. Asset Ownership and Wealth Inequality

6.1 Wealth distribution in India since liberalisation

The World Inequality Lab’s “Income and Wealth Inequality in India, 1922–2023” study finds that:

• Income and wealth inequality declined after independence until the early 1980s, then rose sharply from the 1980s, especially after liberalisation in 1991.[^19][6]
• By 2022–23, 22.6% of national income went to the top 1%, the highest level recorded since 1922 and among the highest in the world.[^20][6]
• The top 1% wealth share reached about 40.1% in 2022–23; the top 10% wealth share rose from around 45% in 1961 to around 65% in 2022–23.[^42][6]
• Wealth concentration has accelerated especially in the 2000s and 2010s, giving rise to what the authors call a “Billionaire Raj” more unequal than the colonial “British Raj” in some respects.[^6]

The number of Indian billionaires grew from 1 in 1991 to 162 in 2022, and their aggregate wealth reached roughly 25% of net national income.[^6]

Evidence strength: High (carefully constructed series using multiple data sources; caveats on data quality).

6.2 Composition of household wealth

As noted earlier, household wealth in India is dominated by physical assets:

• Around 90% of household wealth is in real estate and other non-financial assets.[^10]
• Financial assets (shares, deposits, insurance, pensions) form a small share for most households; among the wealthy, financial assets and business equity are more significant.[^10]

Wealth surveys and rich lists show that top wealth groups hold substantial business equity, listed and unlisted shares, and diversified portfolios; middle and lower groups hold mostly land, housing and gold.[^6][10]

6.3 Who owns productive assets?

Productive assets (business equity, financial instruments, high-value land) are heavily concentrated at the top:

• Bottom 50% of the population hold a small share of wealth (around 6–7% in recent years) and limited productive assets.[^6]
• Middle 40% (the “middle class”) hold moderate shares but are under-represented in financial assets relative to their income.[^6]
• Top 10% and especially top 1% own large shares of both income and productive assets.[^19][6]

NSE’s and AMFI’s data further imply that equity and mutual-fund ownership is highly skewed toward wealthier households.[^12][11]

6.4 Wealth inequality and economic mobility

High wealth concentration tends to reduce economic mobility, as access to quality education, capital, networks and political influence is skewed toward top groups. The World Inequality Lab authors note that top income and wealth shares are among the highest in the world and stress that such inequality levels may be difficult to sustain without social and political upheaval.[^19][6]

Comparative data show that India’s top 1% income share exceeds that of South Africa, Brazil and the US, and its wealth concentration is extreme by global standards.[^43][44]

Evidence strength: High (consistent across multiple studies; data-quality caveats acknowledged).

---

7. Government Incentives: Inflation, Employment, Taxation and Debt

7.1 Why central banks raise interest rates and governments prioritise inflation control

Central banks raise policy interest rates primarily to:

• Control current and expected inflation.
• Anchor expectations to their target (e.g. 4% ±2% for India).[^21]
• Maintain financial stability and credibility.

High inflation erodes real incomes and savings, distorts relative prices, and can provoke political backlash. Governments therefore have strong incentives to prioritise inflation control to sustain public trust and avoid destabilising wage–price spirals.[^2][9]

At the same time, higher interest rates can slow growth and raise unemployment in the short run, creating trade-offs between price stability and employment. Different schools of thought (Keynesian, Monetarist, Austrian, Marxian, MMT) interpret these trade-offs differently, but in practice, central banks operate with flexible inflation-targeting frameworks that weigh output and inflation objectives.

Evidence strength: High (mainstream policy practice and literature).

7.2 Why full employment is not 0% unemployment

Macroeconomists distinguish between different types of unemployment:

• Frictional: short-term job-search and transitions.
• Structural: mismatches between skills and job requirements.
• Cyclical: demand-driven unemployment.

Even in well-functioning labour markets, frictional and structural unemployment persist, so “full employment” is not 0% unemployment but rather a level consistent with stable inflation (NAIRU). Empirical NAIRU estimates are uncertain and vary over time.[^1]

Governments rarely target 0% unemployment, recognising the inevitability of some frictional and structural unemployment and the risk of overheating if unemployment is pushed too low.

7.3 Incentives behind taxation

Governments use taxes to:

• Raise revenue for public goods and services.
• Redistribute income and wealth.
• Influence behaviour (e.g. sin taxes).
• Manage inflation (in some frameworks).

In India, limited tax capacity constrains the ability to provide high-quality universal public services, increasing reliance on private spending and reinforcing inequality. The tax structure balances revenue, equity and economic-efficiency considerations, but the regressive effects of indirect taxes and low taxation of wealth have raised concerns about fairness.[^14][^15][^6]

7.4 Do governments benefit economically or politically from high household indebtedness?

There is little direct evidence that Indian or other governments intentionally push households into high debt to suppress political participation. Household debt growth is more plausibly driven by financial deepening, consumer-credit expansion, and profit motives in the financial sector.[^39][17]

However, governments may benefit indirectly from consumption-led credit booms that boost GDP and tax revenue in the short run. Over-indebtedness can also weaken households’ bargaining position vis-à-vis creditors, landlords and employers, which could align with some vested interests.

Political-science evidence suggests that severe economic distress often reduces political participation (turnout) but can under particular conditions fuel populist voting and protest. Whether governments actively seek such outcomes is contested; most evidence points to short-term electoral incentives to stimulate growth rather than to engineer sustained household debt traps.[^27]

Evidence strength: Weak to Moderate (limited direct evidence on deliberate debt strategies; stronger evidence on growth and credit cycles).

7.5 Schools of thought: points of agreement and disagreement

Different macroeconomic schools offer contrasting views:

• Keynesian: emphasises demand management, fiscal policy and the trade-off between unemployment and inflation in the short run; supports countercyclical policies.[^9]
• Monetarist: stresses the primacy of money supply and inflation control; doubts long-run Phillips-curve trade-offs.[^9]
• Austrian: warns against credit expansion and artificial booms; views business cycles as driven by distortionary monetary policy.
• Marxian: focuses on class conflict, surplus extraction and the role of unemployment (the “reserve army of labour”) in disciplining workers.[^6]
• Modern Monetary Theory (MMT): emphasises monetary sovereignty and inflation constraints rather than revenue constraints; proposes job guarantees and different views on deficits.

Points of agreement include recognition that high inflation is socially costly, extreme inequality is problematic, and unemployment has social costs. Points of disagreement include the appropriate policy instruments, the role of deficits and money creation, and the extent to which unemployment is structurally or deliberately maintained.

---

8. Corruption, Regulation and Ease of Doing Business

8.1 Corruption indicators

Transparency International’s Corruption Perceptions Index (CPI) assigns India scores in the high-30s to low-40s range on a 0–100 scale, with 100 being very clean. In 2025, India scored about 39 and ranked around 91st among 182 countries, below the global average of 42. Over the past decade, India’s score has fluctuated within a narrow band (36–41), indicating persistent perceptions of public-sector corruption.[^23][^24][^45]

Evidence strength: High (standardised index; perception-based but widely used).

8.2 Regulatory burden and ease of doing business

India has implemented numerous reforms to improve the ease of doing business, including reducing compliances, decriminalising minor offences, streamlining permits and enhancing online services. DPIIT reports note:

• Over 39,000 compliances reduced and more than 3,500 provisions decriminalised.[^22]
• Improvements in starting a business, construction permits, electricity connections and border compliance costs.[^22]

Yet, business associations and independent analyses highlight continued red tape, departmental silos, frequent rule changes and uneven implementation. Earlier NITI Aayog reports and commentary argue that regulatory reforms have not fully cut red tape and corruption.[^46]

Evidence strength: Moderate (official reform metrics vs business perceptions; both show progress and persistent problems).

8.3 Small business survival and judicial delays

Small firms face high relative compliance costs, limited access to credit, and vulnerability to arbitrary enforcement. Slow judicial processes and trial delays undermine contract enforcement and property-rights security.

While detailed survival rates and case-delay statistics are not presented here, business surveys and policy analyses repeatedly cite judicial delays and regulatory uncertainty as major constraints on entrepreneurship.[^47][46]

---

9. Political Economy: Economic Insecurity, Protest and Participation

9.1 Economic distress and voting

A prominent study of the US subprime crisis finds that individuals who experienced home foreclosures were less likely to vote, suggesting that severe economic distress can suppress political participation. At the county level, however, higher foreclosure exposure was associated with higher support for Donald Trump in 2016, indicating that distress may under certain circumstances fuel populist voting.[^27]

The net effect of local economic distress on incumbent performance was generally close to zero across elections, implying complex and context-dependent political responses.[^27]

9.2 Protests, labour activism and precarity in India

India has witnessed large-scale farmer protests and worker mobilisations in recent years despite high economic insecurity. For example:[^26][25]

• The farmers’ protest against agricultural laws involved sustained mobilisation by economically vulnerable groups.[^25]
• Nationwide worker protests against labour-law changes and economic policies involved millions of participants.[^26]

These episodes show that economic precarity does not automatically suppress protest; under certain conditions, insecurity may motivate collective action, especially when grievances are clearly framed and organisational structures exist.

9.3 Debt and political participation

Direct evidence linking household debt to political participation in India is scarce. Analogies to the US foreclosure study suggest that heavy debt and distress can reduce turnout for some individuals, but can also fuel resentment and openness to populist appeals.[^27]

Given rising EMIs and debt stress, it is plausible that some households feel politically disempowered, while others join protests and support disruptive politics. Media and qualitative accounts highlight both resignation and anger among indebted households.[^48][40]

Evidence strength: Weak to Moderate (good comparative evidence; limited India-specific micro data).

9.4 Government responses to labour movements

Governments in India have responded variably to labour and farmer movements, sometimes negotiating and repealing laws, other times repressing or ignoring demands. The farmer protests led to the repeal of contentious agricultural laws, illustrating that sustained mobilisation can achieve policy change.[^25]

Labour-law reforms have often proceeded with limited consultation, and union influence has waned in some sectors. Political responses reflect broader ideological and electoral calculations as well as economic constraints.

---

10. Counterarguments and Nuanced Views

10.1 Unemployment as cyclical and structural rather than intentional

Most mainstream economists view unemployment as driven by cyclical demand fluctuations, structural changes and frictional factors, rather than as intentionally engineered. NAIRU and Phillips-curve models treat unemployment as an outcome of macro conditions, expectations and shocks, not as a direct instrument for suppressing workers.[^1][9]

Counterarguments to conspiracy narratives emphasise:

• The difficulty of precisely controlling unemployment.
• The political costs of visible mass unemployment.
• The focus of policymakers on inflation and growth stability.

10.2 Why inflation may be necessary for growth

As discussed, low positive inflation can facilitate relative-price adjustments, avoid deflation traps and support nominal-wage flexibility, which can be conducive to growth. Zero or negative inflation can increase debt burdens and restrain investment.[^9]

10.3 Taxes funding public goods

While MMT challenges conventional narratives, practical fiscal constraints and political norms mean that tax revenues are critical for financing public expenditure in India. Evidence shows that public investment in health, education and infrastructure improves human capital and growth prospects.[^6]

10.4 Poverty reduction despite inequality and structural challenges

Despite rising inequality, India has reduced multidimensional poverty over the past decades, as measured by various indices combining income, health and education. Growth has lifted millions above extreme-poverty lines, although many remain vulnerable.[^44][6]

This supports the counterargument that liberalisation and subsequent growth, even if unequal, have reduced poverty relative to earlier decades.

10.5 Cases where increasing employment caused inflation

Historical episodes in advanced economies show that very low unemployment can fuel wage–price spirals and inflation acceleration, supporting the idea of a short-run trade-off. Some Indian episodes of wage spikes in specific sectors contributed to local inflation pressures.[^4]

10.6 Evidence supporting current monetary and fiscal policy

Evidence that inflation-targeting and prudent fiscal management improve macro stability is substantial. Inflation-targeting has helped anchor expectations and reduce high inflation episodes in many countries, including India. Fiscal consolidation has reduced crisis risks in various settings.[^21][9]

---

11. Evidence Strength and Misconceptions

For each major belief, the evidence can be summarised:

• “Higher unemployment weakens worker bargaining power and wage growth”: Strong support in advanced economies; moderate, context-dependent support in India. Evidence strength: High globally, Moderate for India.[^2][4]
• “Governments intentionally keep unemployment high to control workers”: Limited direct evidence; more plausible that policy errors or inflation-focused strategies incidentally raise unemployment. Evidence strength against strong claim: Moderate to High.
• “Inflation always hurts the poor and benefits the rich”: False in general; distributional effects depend on asset mixes, wage indexation and policy; inflation erodes cash and fixed incomes but can help debtors. Evidence strength: High.
• “FDs are safe and preserve purchasing power”: Nominally safe, but often fail to beat inflation after tax over long periods. Evidence strength: Moderate.
• “Only the rich own productive assets in India”: Largely true; productive financial assets and high-value land are heavily concentrated at the top. Evidence strength: High.[^11][^6][^10]
• “India has become vastly more unequal since 1991”: Strongly supported by income and wealth series. Evidence strength: High.[^19][6]
• “Household debt is exploding and creating an EMI trap”: Household debt is rising and EMI burdens are heavy for many; aggregate levels remain moderate by global standards. Evidence strength: High for rising burdens; Moderate for systemic risk.

---

12. Conclusion: Beliefs, Nuances and Contradictions

Based on the evidence reviewed:

• Strongly supported beliefs:

  • Higher unemployment generally weakens worker bargaining power and wage growth, particularly in advanced economies.
  • Moderate positive inflation is targeted to avoid deflation and facilitate adjustment.
  • India’s wealth and income inequality have risen sharply since liberalisation, with extreme concentration at the top.
  • Most Indian households hold wealth in physical assets, especially land and gold; financial-asset and retirement-asset ownership is low.
  • Household debt and EMI burdens are rising, with growing reliance on unsecured and consumption-led credit.

• Partially true but requiring nuance:

  • Inflation hurts cash holders and can encourage investing, but in India it often encourages gold-hoarding and land investment rather than diversified financial portfolios.
  • FDs provide safety but often fail to preserve real purchasing power over decades.
  • Taxes can be both progressive (direct) and regressive (indirect); overall progressivity depends on incidence and wealth taxation.
  • Economic insecurity can both suppress and mobilise political participation, depending on context and organisation.

• Weakly supported or contradicted claims:

  • Governments intentionally maintain high unemployment purely to control workers: evidence is weak; policies primarily target inflation and growth stability.
  • Inflation is always a tool to enrich the rich and impoverish the poor: distributional effects are complex and context-dependent.
  • Household debt is uniformly a tool to suppress political participation: evidence is limited and mixed.

The strongest evidence supporting a critical thesis concerns rising inequality, extreme concentration of productive assets, low financial inclusion and the rising burden of unsecured household debt. Countervailing evidence shows that poverty has declined, moderate inflation targeting has improved macro stability, and some reforms have reduced regulatory burdens, even as many structural problems persist.

Overall, the political economy of India since 1991 is best understood not as a simple story of deliberate macro-level oppression via unemployment and inflation, but as a complex interplay of liberalisation, growth, unequal asset ownership, partial financialisation, evolving tax systems, and contested democratic politics, with significant scope for policy to reshape these dynamics.

---

References

1. FIG3_07.ai

2. Insights from OECD Phillips curve equations on recent inflation outcomes - A statistically significant relationship between the unemployment gap and inflation can be found for...

3. Economic Rajasthan Book

4. Phillips Curve Relationship in India: Evidence from State-Level ... - This paper revisits the issue of determinants of inflation in India in a Phillips curve framework an...

5. ijrar_issue_871.pdf - This document discusses the relationship between unemployment and inflation in India based on the Ph...

6. INCOME AND WEALTH INEQUALITY IN INDIA, 1922-2023: - provides a broad-based review of inequality in India in recent years along various dimensions includ...

7. Inflation, consumer prices (annual %) - India - World Bank Data

8. Income and Wealth Inequality in India 1922-2023 - by NK Bharti · 2026 · Cited by 113 — The Consumer Pyramids Household Survey is a panel dataset cover...

9. 9781475558371.pdf

10. The Indian Household Finance Landscape§ - by C BADARINZA · Cited by 45 — Indian households, on average, tend at almost all points in the wealt...

11. India Ownership Tracker - Individuals, both directly and through mutual funds, now own a record-high 18.5% of the market, up 3...

12. Crisil Factbook 2024 - Notably, the share of mutual funds in Indian household savings has risen from 7.6% in FY21 to 8.4% i...

13. Understanding the Tax Structure in India

14. INCIDENCE OF MAJOR INDIRECT TAXES IN INDIA

15. Distributional Impact of Indian GST based on the NSSO's ...

16. India's household debt rises above 41% of GDP, but ... - Personal loans formed 22.3 percent of consumption-purpose loans as of end-September 2025. The risk-t...

17. India's Household Debt Landscape - Overview of Household Debt India’s household debt is steadily increasing, but a rising concern is it...

18. EMI Nation: 28 Crore People In India Have Outstanding Loans, Debt Hits Rs 15.7 Lakh Crore - India is witnessing a sharp rise in household borrowing, signalling a growing dependence on loans to...

19. Income and Wealth Inequality in India, 1922–2023: The Rise of ... - Abstract. Integrating national income accounts, wealth aggregates, tax data, rich lists, and surveys...

20. Unveiling India's income inequality: 'Top 1 percent ... - India's top 1% income and wealth shares (22.6% and 40.1%) are at their highest historical levels in ...

21. RBI Bulletin

22. Cost of Regulations (CoR) - dpiit.gov.in

23. Indeks Korupsi India - ID | TRADINGECONOMICS.COM - India mendapatkan 39 poin dari 100 pada Indeks Persepsi Korupsi 2025 yang dilaporkan oleh Transparen...

24. India - Find out more about corruption in India: Latest news, Corruption Perceptions Index score & local cha...

25. India's Farmers' Protest: An Inclusive Vision of Indian ... - India’s Farmers’ Protest: An Inclusive Vision of Indian Democracy - Volume 116 Issue 3

26. India: 300 million workers protest anti-labour policies - BWI - BWI trade union affiliates across India, on 12 February 2026, joined a massive nationwide protest ca...

27. Economic distress and voting: evidence from the subprime ... - Economic distress and voting: evidence from the subprime mortgage crisis - Volume 9 Issue 2

28. [PDF] inflation and unemployment: a study of the phillips curve in india

29. X India Employment Report 2024

30. Unemployment, total (% of total labor force) (modeled ILO ...

31. India Unemployment Rate (1991-2025) - Macrotrends

32. Challeges

33. India: Trade Unions and Collective Bargaining

34. The mutual funds route to Viksit Bharat @2047 - By 2047, we envision an India where mutual funds are a tool for wealth creation as well as a foundat...

35. India - Individual - Taxes on personal income - Detailed description of taxes on individual income in India

36. Goods and Services Tax (India) - Wikipedia

37. India - WID - India The source for global inequality data. Open access, high quality wealth and income inequality ...

38. Petrol and Diesel Prices

39. India's household borrowing at 41.3% of GDP manageable, but ... - India’s rising reliance on consumption-led borrowing is reshaping household balance sheets, even as ...

40. EMIs now consume almost entire family income for 60% of borrowers - A survey by Expert Panel found many distressed borrowers are using fresh loans or cards to repay exi...

41. Household Financial Savings - Household Financial Savings - Reserve Bank of India

42. Income and Wealth Inequality in India, 1922-2023: The Rise of the Billionaire Raj

43. Inequality in India greater today than at the height of the British Raj - The top 1 percent of India’s population gorged on 22.6 percent of national income and 40.1 percent o...

44. World Inequality Report 2026: Top 10% earners in India ... - The World Inequality Report 2026, the third report in the series after earlier 2018 and 2022 edition...

45. Corruption Perception Index: India ranks 91st among 182 nations - Corruption Perception Index 2025: The Corruption Perceptions Index, first released in 1995, is used ...

46. The unease in ease of doing business - Cuts CCIER - The unease in ease of doing business Asian Age, Sept 28, 2017 By Udai S Mehta, Ankit Pingle And Sidh...

47. Annual Report 2022-23

48. Drowning in debt: How easy loans are turning into an EMI nightmare ... - Month after month, salaries go to EMIs, essentials shrink, and families realise that what once felt ...