Growth & Income Inequality: Evidence & Ideology

Tax should be used as an instrument of distributive justice in place of the present tendency to placate the superrich with benign tax, writes Prof. Satya Narayan Misra.

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FOLLOWING the post-1990s liberalizing reforms, GDP growth has averaged about 6% over the last 30 years, lifting approximately 400 million people out of poverty.

Taking the World Bank (WB) criterion of $2.15 a day (2017 PPP) as the poverty line, poverty has decreased from 40% in 2000 to 13% in 2021. Estimates from the 2022-23 Consumption Expenditure Survey show a poverty count ratio of 10% for urban and 5% for rural India. But the debate has turned to inequality, with the widely quoted World Inequality Lab, associated with Thomas Piketty, research seeing it as rising sharply. While they estimate the top 1% of income earners made 21% of disposable income, while the bottom 50% earned only 13% in 2022-23, the PRICE & NCAER survey estimates get opposite results. As per these surveys, the top 1% had 8.8% of income, and the bottom 50% had 22.8%! C Rangarajan, formerly RBI Governor & Mahendra Dev, presently Chairman PMEAC, based on the Consumption Survey 2023-24, have brought out the Gini coefficient of total consumption expenditure has come down from 0.363 in 2011-12 to 0.284 in 2023-24, showing that overall inequality in consumption expenditure has come down in India. Kaushik Basu, formerly CEA, has pointed out that India’s increasing prosperity is accompanied by increasing inequality. He quotes Joseph Stiglitz, who wrote, “A larger pie does not guarantee that everyone or even most people get a larger slice.”

Contrasting Perspectives on Income Inequality