Why India’s declining consumption inequality deserves recognition !
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Soumya Kanti Ghosh and Falguni Sinha
Contd from previous issue
This means they exclude most non-contributory welfare transfers — like India's Direct Benefit Transfers (DBT), food subsidies, LPG schemes, Ayushman Bharat, rural housing, and more.
India’s social protection system relies much more heavily on non-contributory transfers than contributory insurance. These are not counted in the WID’s income concept, even though they materially raise real income and purchasing power.
This creates a systematic downward bias when WID measures inequality in India by ignoring the redistri-butive effect of these targeted schemes and Inflating the apparent concen- tration of national income at the top. So, under WID’s income inequality framework, we are essentially saying that major upliftment scheme in India—have zero impact on measured inequality.
Secondly, WID relies heavily on tax records to compile its database. Now, even if we look at Tax records, Gini coefficient estimated using ITR data of taxable income of individuals shows that individual income inequality has decreased from AY15 ( FY14) to AY23 (FY22) from 0.472 to 0.402. 43.6% Individual ITR filers belonging to Income group of less than Rs 4 lakhs in AY15 (FY14) have left the lowest income group and shifted upwards.
A comparison of disparity in income during FY14 and FY23 shows that there is a clear rightward shift in the income distribution curve signifying people in lower income brackets are increasing their income to converge towards their share in population. The bell shaped curve for AY24 speaks more!!In FY14, share of top1% in total income was 1.64% which has fallen to 0.77% in FY21. Furthermore, tax buoyancy of 1.1 alongside falling cost of collection actually shows better compliance and hence must not be misread as rising inequality.
If India's official tax data shows improving progre-ssivity, and large-scale consumption surveys indicate a sustained reduction in inequality, then it is worth asking why WID estimates tell such a different story.
To argue that India remains deeply unequal based solely on selectively elevated income estimates is much like claiming the country lacks water because Rajasthan faces water scarcity. Inequality, like deprivation, is not monolithic—it varies across di- mensions, regions, and mea-surement tools but that does not invalidate the broader progress being made. Any evaluation that ignores these dynamics in favour of a narrow, partial view risks obscuring the very progress it seeks to critique.
As we move forward, two takeaways are critical.
First, improved reporting is not the same as increased disparity—and we must resist reacting to shadows cast by better data.
Second, and most importantly, welfare economics must always return to its core question: what improves the lived experience of the bottom half? In that, India’s story over the past decade is less about divergence at the top and more about convergence at the base—quiet, broad, and measurable in the resources people actually use.
(The writers are Members 16th Finance Co- mmission and Group Chief Economic Advisor, State Bank of India and Economist, SBI. Views are personal) PIB
Contd from previous issue
This means they exclude most non-contributory welfare transfers — like India's Direct Benefit Transfers (DBT), food subsidies, LPG schemes, Ayushman Bharat, rural housing, and more.
India’s social protection system relies much more heavily on non-contributory transfers than contributory insurance. These are not counted in the WID’s income concept, even though they materially raise real income and purchasing power.
This creates a systematic downward bias when WID measures inequality in India by ignoring the redistri-butive effect of these targeted schemes and Inflating the apparent concen- tration of national income at the top. So, under WID’s income inequality framework, we are essentially saying that major upliftment scheme in India—have zero impact on measured inequality.
Secondly, WID relies heavily on tax records to compile its database. Now, even if we look at Tax records, Gini coefficient estimated using ITR data of taxable income of individuals shows that individual income inequality has decreased from AY15 ( FY14) to AY23 (FY22) from 0.472 to 0.402. 43.6% Individual ITR filers belonging to Income group of less than Rs 4 lakhs in AY15 (FY14) have left the lowest income group and shifted upwards.
A comparison of disparity in income during FY14 and FY23 shows that there is a clear rightward shift in the income distribution curve signifying people in lower income brackets are increasing their income to converge towards their share in population. The bell shaped curve for AY24 speaks more!!In FY14, share of top1% in total income was 1.64% which has fallen to 0.77% in FY21. Furthermore, tax buoyancy of 1.1 alongside falling cost of collection actually shows better compliance and hence must not be misread as rising inequality.
If India's official tax data shows improving progre-ssivity, and large-scale consumption surveys indicate a sustained reduction in inequality, then it is worth asking why WID estimates tell such a different story.
To argue that India remains deeply unequal based solely on selectively elevated income estimates is much like claiming the country lacks water because Rajasthan faces water scarcity. Inequality, like deprivation, is not monolithic—it varies across di- mensions, regions, and mea-surement tools but that does not invalidate the broader progress being made. Any evaluation that ignores these dynamics in favour of a narrow, partial view risks obscuring the very progress it seeks to critique.
As we move forward, two takeaways are critical.
First, improved reporting is not the same as increased disparity—and we must resist reacting to shadows cast by better data.
Second, and most importantly, welfare economics must always return to its core question: what improves the lived experience of the bottom half? In that, India’s story over the past decade is less about divergence at the top and more about convergence at the base—quiet, broad, and measurable in the resources people actually use.
(The writers are Members 16th Finance Co- mmission and Group Chief Economic Advisor, State Bank of India and Economist, SBI. Views are personal) PIB