WHAT IS THE STATE OF INEQUALITY IN INDIA?

Why is calculating the actual level of income and wealth inequality in India extremely difficult? What are the methods? Does the picture of low and falling inequality as outlined by the World Bank characterise the current reality of India? Where is wealth concentrated in India?

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The story so far: A recent report by the World Bank has generated significant debate with regard to the true picture of inequality in the Indian economy. The report outlined a number of salutary outcomes; not only had extreme poverty reduced drastically, inequality had reduced too. The Gini coefficient — a measure of inequality that ranges from 0 to 1, with 1 indicating extreme inequality — had fallen from 0.288 in 2011-12 to 0.255 in 2022-23, making India an economy with one of the lowest levels of inequality in the world.

What followed?

This finding was highlighted by the government as a vindication of its growth policies and economic management. However, as plenty of commentators have pointed out, the facts highlighted by the World Bank do not provide a true picture of inequality in the country. While inequality in consumption may be low — which is in itself a contested fact — income and wealth inequality in India are extremely high and have increased over time, making India one of the most unequal economies in the world.

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What is consumption inequality?

The inequality figures detailed by the World Bank are not of income or wealth, but of consumption. This is problematic for several reasons. First, inequality in consumption will always be lower than inequality in wealth or income. A poorer household will spend a majority of its income on the necessities of life, and will have very little savings. If its income doubles, consumption spending will not double, since the household will now be able to save some amount of its income; its consumption levels will not rise in the same proportion as their incomes. Thus, consumption inequality will always be less than income or wealth inequality.