The true picture on inequality in India

In India, where large-scale social welfare programmes have significantly boosted the living standards of the poor, consumption will inevitably be higher and more equitably distributed than income.

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The recent decline in India's consumption-based Gini coefficient — from 28.8 in 2011-12 to 25.5 in 2022-23, as reported by the World Bank— has prompted considerable scrutiny, particularly when juxtaposed with income-based estimates from the World Inequality Database (WID), which peg India's Gini at an ostensibly alarming 62 in 2023. This necessitates a closer interrogation of the underlying metrics, data sources, and conceptual frameworks.

At the core of this divergence is a critical conceptual distinction: The difference between consumption inequality and income inequality. In a country like India - characterised by a large informal workforce, extensive in-kind transfers, and a rapidly expanding welfare architecture income is often volatile, underreported, or difficult to capture comprehensively. Consumption, by contrast, tends to be smoother over time and more reflective of actual living standards. The World Bank's Poverty and Inequality Platform (PIP) adopts this logic, using either disposable income or consumption expenditure depending on national context.

The World Bank paper titled The World Bank's New Inequality Indicator gives a way of converting consumption Gini to income Gini and vice versa. The Bank estimated that the average ratio of income-to-consumption Gini coefficients across 84 country-years where data was available for both is 1.13. Applying this directly to India's consumption-based Gini of 25.5 yields an approximate income Gini of 28.8. This still places India at 12th position, even under income-equivalent assumptions. This simple approximation gives a way of comparing welfare types within the PIP database.

Why has this not been more widely acknowledged? The answer perhaps lies in the tendency to selectively emphasise outlier estimates. When the simple approximation given is used for comparison across nations, India's inequality, even when measured in income terms, is significantly lower than the US and the UK.