State of Inequality in India
India, having recently become the 4th largest economy by nominal GDP (Market Exchange Rates), has achieved significant economic milestones. However, a key question arises: who is benefitting from this growth? The issue of inequality—how income, wealth, and opportunities are distributed—has come under renewed scrutiny.
1. World Bank’s Claim: Falling Consumption Inequality
In its latest assessment, the World Bank reported a decline in consumption inequality in India:
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Gini coefficient (a measure of inequality) for consumption fell from 0.288 (2011-12) to 0.255 (2022-23).
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This puts India among the lowest in global consumption inequality.
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The Indian government has cited this to showcase inclusive economic progress and validate the impact of welfare schemes like PMGKY, Jan Dhan, free food grains, and DBT transfers.
2. Critics’ Response: The Income and Wealth Gap is Rising
While consumption inequality may be falling, critics argue that this is not an accurate reflection of the true economic inequality in the country:
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The Gini cited by the World Bank is for consumption, not income or wealth.
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Consumption inequality is inherently lower because:
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Poor households spend almost all their income, while the rich save more as incomes rise.
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Therefore, spending doesn’t rise as fast as income, especially for the upper classes.
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Data issues:
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The Household Consumption Expenditure Survey (HCES) datasets of 2011–12 and 2022–23 are not directly comparable due to:
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Different survey methodologies and sampling frameworks.
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Underrepresentation of wealthy households → inequality likely underreported.
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3. Evidence from the World Inequality Database (WID)
The WID, which captures income and wealth inequality more comprehensively, paints a stark picture:
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Gini coefficient for pre-tax income (2022-23): 0.61
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Only 48 countries have worse income inequality.
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Gini for wealth inequality (2023): 0.75
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India is among the top five most unequal countries in the world in terms of wealth.
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The top 1% of India’s population owns ~40% of net personal wealth.
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Countries with worse inequality: Uruguay, Eswatini, Russia, South Africa.
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4. Why This Discrepancy? Understanding the Paradox
Consumption inequality can fall even if income/wealth inequality rises because:
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Richer households tend to save a higher share of additional income.
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Poorer households increase consumption, but not proportionately to income growth.
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Top-end wealth concentration remains invisible in most surveys.
5. Conclusion: A Mixed Reality
India’s headline economic growth hides a deep structural divide:
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Successes in reducing consumption poverty and inequality are real, thanks to welfare delivery improvements and social schemes.
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However, income and wealth inequality have widened significantly, threatening long-term goals of social justice, inclusive growth, and sustainable development.
Way Forward
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Better data: Improve surveys to capture income, savings, and wealth, especially at the top end.
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Progressive taxation: Consider wealth/inheritance taxes or more progressive income taxation.
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Social investments: Focus on health, education, skilling, and employment generation to reduce long-term inequality.
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Inclusive policymaking: Ensure that the benefits of GDP growth are equitably shared.
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