Mere economic growth measured in terms of increase in income will not increase welfare of common man unless equitable distribution of increase in national income takes place. In many developed countries, we can find trends where due to development, inequality of income has decreased.

In feudal societies, inequality of income is high because land is a fixed resource and its possession is monopolized by feudal lords. In such a society, land is the only source of earning surplus and thus monopoly of land by feudal boards creates inequality of income.

Similarly, in a capitalistic economy, only those who possess capital earn profit and interest whereas those who do not possesses capital have to work longer hours to earn salary and wages. Due to the fact that capital is not fixed in supply as is the case with land, inequality of income is less in the capitalistic economy as compared to feudal economy.

In case of ‘New Economy’ where capital is in abundance with developed countries and human knowledge is scarce, those who possess human knowledge are earning good income. Any country with good education system can create good manpower.

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These talented people can devote themselves in ‘Research & Development’ activities or entrepreneurial activities to earn good income.

In the ‘New Economy’, earning of income is not related to wealth, which an individual possesses (either land or capital), but to one’s technical and creative powers. Such technical and creative power is not monopolized by any one section of the population, hence there is a tendency for national income to increase and become equitable among people.

In the underdeveloped countries, even though national income increases due to capital formation by government or grants from developed countries, the benefits are concerned by few sections of the population because of corruption and faulty planning mechanism.

Grants provided by foreign government and agencies were not properly used leading to cost escalation. Industrial licenses were issued to businessmen who could pay donations to the political party in power even if their proposals are not economically sound.

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Indian economy was operating in suppliers market where supplier was powerful because in most of the products, supply was less than demand. As the competitive spirit was lacking, suppliers were producing the goods inefficiently and still succeeded in charging high prices.

This led to not only exploitation of consumer but also increase in inequality of income. Corrupt politicians, government and businessmen benefited at the cost of common man.

Due to above defects in the working of Indian economy; government took the course of liberalization in 1991 so that more space is given to market forces. This will reduce the need for physical planning and will help in increasing the competition in the market. It is hoped that liberalization will ultimately lead to equitable distribution of income and improvement in welfare of common man.