India’s Inequality Trap: The Role Played by Taxation Policies and Automation

Abstract Recent increases in automation and unemployment have aggravated income inequality in India. Thus, it is imperative for policy-makers to cut down on inequality and unemployment while promoting planned automation. This paper proposes a joint solution to reform India’s taxation framework to fight income inequality while promoting planned automation. The paper finds that the current tax policies are severely increasing income inequality in India, and this, in turn, has lead to alarming consumption and economic slowdown in key industries. Unable to encourage the demand side, industries have responded by cutting down labour costs. This has created an inequality trap. To bring India out of this trap, it is imperative that India moves ahead with taxing concentrated capital and invests in re-skilling. Further, India also must give effect to Baumol’s cost disease insight and create new job opportunities for the rural youth, which is at the highest risk of unemployment.