Why India’s declining consumption inequality deserves recognition !
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Soumya Kanti Ghosh and Falguni Sinha
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. Reconciling this apparent dissonance necessi- tates a closer interrogation of the underlying metrics, data sources, and conceptual frameworks. What follows is a reasoned engagement with the criti- cism—one that distinguishes methodological in- compatibilities from substantive economic realities, and highlights the perils of conflating fundamentally distinct measures of inequality.
At the core of this divergence is a critical con- ceptual distinction : the difference between consump- tion 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, under reported, or difficult to capture comprehensively. Con- sumption, 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.
Firstly, it is worth pointing out that the World Bank in its 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, even under income-equivalent assumptions. This simple approximation gives a way of comparing welfare types within PIP database. This raises a pertinent question: 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 mea- sured in income terms is significantly lower than United States and UK. Among the 48 Nations where welfare approach is consumption based, India ranks 3rd. India's consumption-based Gini coefficient of 25.5 in PIP database is also internationally striking. China’s consumption Gini, forinstance, stands at 35.7, according to the same database and using the same welfare concept. This 10-point difference is signi- ficant.
Secondly, Why is the impact of large-scale social welfare schemes conspicuously absent from the criticism?"In a country like India, where large-scale social welfare programmes— such as subsidized food, LPG, housing, rural employment, health insurance, and direct cash transfers—have significantly boosted the living standards of the poor, consumption will inevitably be higher and more equitably distributed than income. These forms of public provisioning raise welfare especially in rural and informal segments. In BE 2025, the Union Government’s spending on be- neficiary schemes amounts to Rs 7.1 lakh crore, and states together add another Rs 7.4 lakh crore. This totals nearly Rs 14.5 lakh crore. According to PLFS data, the average monthly earning by regular salaried worker is approx. Rs 21000 and approx. Rs 14000 for self-employed. The average earning per day by casual labourer is Rs 433. Using these approximations and accounting for dependency assuming a family of four, this translates to an income of Rs 65000 per capita. Assuming 80% of the total beneficiary schemes reaches bottom 50%,this translates into Rs 15000 per year/per person accounting for leakages and overlaps through direct and indirect benefits. This uplift of approx. 20% in effective resources translates into consumption. Thus, even under these conservative assumptions, this significantly compresses effective inequality.These interventions have also led to a dramatic fall in poverty, with the extreme poverty rate dropping from 16.2% in 2011–12 to 2.3% in 2022–23. At the lower-middle- income line of $3.65/day, poverty fell from 61.8% to 28.1%.
Before accepting WID's estimates at face value, shouldn’t we ask what exactly they are measuring? Coming onto the WID database, their benchmark income concept is:"Pre-tax, post-replacement national income"—that is, before taxes and transfers, except for social insurance components like pensions and unemployment benefits.
(To be contd)
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. Reconciling this apparent dissonance necessi- tates a closer interrogation of the underlying metrics, data sources, and conceptual frameworks. What follows is a reasoned engagement with the criti- cism—one that distinguishes methodological in- compatibilities from substantive economic realities, and highlights the perils of conflating fundamentally distinct measures of inequality.
At the core of this divergence is a critical con- ceptual distinction : the difference between consump- tion 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, under reported, or difficult to capture comprehensively. Con- sumption, 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.
Firstly, it is worth pointing out that the World Bank in its 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, even under income-equivalent assumptions. This simple approximation gives a way of comparing welfare types within PIP database. This raises a pertinent question: 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 mea- sured in income terms is significantly lower than United States and UK. Among the 48 Nations where welfare approach is consumption based, India ranks 3rd. India's consumption-based Gini coefficient of 25.5 in PIP database is also internationally striking. China’s consumption Gini, forinstance, stands at 35.7, according to the same database and using the same welfare concept. This 10-point difference is signi- ficant.
Secondly, Why is the impact of large-scale social welfare schemes conspicuously absent from the criticism?"In a country like India, where large-scale social welfare programmes— such as subsidized food, LPG, housing, rural employment, health insurance, and direct cash transfers—have significantly boosted the living standards of the poor, consumption will inevitably be higher and more equitably distributed than income. These forms of public provisioning raise welfare especially in rural and informal segments. In BE 2025, the Union Government’s spending on be- neficiary schemes amounts to Rs 7.1 lakh crore, and states together add another Rs 7.4 lakh crore. This totals nearly Rs 14.5 lakh crore. According to PLFS data, the average monthly earning by regular salaried worker is approx. Rs 21000 and approx. Rs 14000 for self-employed. The average earning per day by casual labourer is Rs 433. Using these approximations and accounting for dependency assuming a family of four, this translates to an income of Rs 65000 per capita. Assuming 80% of the total beneficiary schemes reaches bottom 50%,this translates into Rs 15000 per year/per person accounting for leakages and overlaps through direct and indirect benefits. This uplift of approx. 20% in effective resources translates into consumption. Thus, even under these conservative assumptions, this significantly compresses effective inequality.These interventions have also led to a dramatic fall in poverty, with the extreme poverty rate dropping from 16.2% in 2011–12 to 2.3% in 2022–23. At the lower-middle- income line of $3.65/day, poverty fell from 61.8% to 28.1%.
Before accepting WID's estimates at face value, shouldn’t we ask what exactly they are measuring? Coming onto the WID database, their benchmark income concept is:"Pre-tax, post-replacement national income"—that is, before taxes and transfers, except for social insurance components like pensions and unemployment benefits.
(To be contd)