Income Inequality in India
-Revati Gujar
MMS
The story of inequality in India is complex, shaped by historical, social, and economic factors that have determined who benefits from growth and who gets left behind. Several papers highlight rising inequality in India, particularly since the 1980s, with the top 1% increasingly capturing national income and wealth. Factors such as financial liberalization, regional disparities, and inflation are found to exacerbate inequality, while government spending, trade openness, and agricultural growth can help reduce it. The COVID-19 pandemic temporarily worsened inequality, but social policies like food subsidies helped mitigate its impact. Additionally, studies emphasize how caste and intergenerational disadvantages contribute to persistent economic disparities. Addressing inequality requires targeted policies, including wealth redistribution, financial inclusion, and regional economic development.
The paper “Income and Wealth Inequality in India, 1922-2023: The Rise of the Billionaire Raj” by Nitin Kumar Bharti, Lucas Chancel, Thomas Piketty, and Anmol Somanchi examines long-term trends in income and wealth inequality in India. Using a combination of tax data, national income accounts, wealth surveys, and rich lists, the study finds that inequality declined after independence but began rising in the 1980s and has surged since the early 2000s. By 2022-23, the top 1% of the population earned 22.6% of national income and owned 40.1% of national wealth—the highest levels in India’s recorded history. The study highlights India’s extreme inequality compared to global standards and suggests that the income tax system may be regressive when viewed in terms of net wealth. The authors call for improved data transparency and policy measures, such as wealth taxes and increased investment in public goods, to address rising disparities.
The paper “The Disturbing Rise of Global Income Inequality” by Xavier Sala-i-Martin examines global income inequality trends from 1970 to 1998 using multiple inequality indices. Contrary to common perceptions, the study finds that while within-country inequality has slightly increased, across-country inequality has significantly declined, primarily due to rapid economic growth in China and, to some extent, India. The research highlights that global poverty rates have fallen dramatically, with the percentage of people living on less than $1 per day dropping from 20% to 5%. However, the study warns that unless Africa experiences substantial economic growth, global inequality may rise again, as the gap between rich and poor nations could widen. The findings suggest that policies prioritizing African economic growth are crucial for addressing future inequality.
The paper “Spatial Income Inequality in India, 1993-2011: A District Level Decomposition” by Mehtabul Azam and Vipul Bhatt analyzes the role of geographical factors in shaping income inequality across Indian districts. Using household survey data, the study finds that income inequality in rural India increased significantly during this period, with about one-third of this increase attributed to growing income differences between districts, mainly due to state-level disparities. In contrast, in urban India, within-state income differences played a larger role in inequality. The findings highlight the rising importance of regional disparities in shaping income inequality and suggest that policies targeting balanced economic growth across states could help mitigate inequality.
The paper by Mehtabul Azam and Abusaleh Shariff examines income inequality in rural India between 1993 and 2005, using the Gini coefficient to analyze contributions from different income sources. The study finds that overall income inequality increased from 0.46 to 0.50 during this period. While agriculture remained the primary source of income, its share in total income and its contribution to inequality declined. Salaried income, on the other hand, grew in both share and impact on inequality. The study highlights that labor wages, both agricultural and non-agricultural, played a crucial role in reducing inequality, suggesting that expanding employment opportunities outside agriculture could help balance income distribution. Notably, self-employment income, which had a reducing effect on inequality in 1993, contributed to increasing inequality in 2005, likely due to higher capital requirements favoring wealthier individuals. The findings suggest that policies promoting non-agricultural labor opportunities, such as public works and rural infrastructure development, could be effective in reducing income disparities in rural India.
The paper “Income Inequality and Caste in Village India” by Vikas Rawal and Madhura Swaminathan examines income inequality among different caste groups in rural India using data from eight villages across four states. The study focuses on Dalit (Scheduled Caste) households and their economic disadvantages compared to other caste groups. It finds that income inequality is high in rural India, with Dalit households being underrepresented in higher income brackets and overrepresented among the poor. The study also decomposes inequality using standard and alternative measures, showing that caste-based income disparities contribute significantly to overall inequality, especially in villages with high agricultural productivity. The findings highlight the persistence of caste-based economic disadvantages and the need for further research on how caste discrimination affects income generation in rural India.
The paper “Income Inequality and Intergenerational Mobility in India” by Anuradha Singh examines the relationship between income inequality and intergenerational income mobility (IGIM) using National Sample Survey (NSS) data. The study finds that India has both high income inequality and low income mobility, meaning that economic advantages or disadvantages are passed down across generations. While Scheduled Tribes (STs) and Scheduled Castes (SCs) have seen some improvement in relative income mobility, they still face the highest risk of remaining in poverty. The study also finds that income inequality and mobility vary significantly by region, challenging the assumption that higher inequality always leads to lower mobility. The findings suggest that policies to promote inclusive growth should consider regional differences in economic mobility and income distribution.
The paper “Financial Liberalization and Income Inequality” by James B. Ang examines the relationship between financial liberalization and income inequality in India from 1951 to 2004. The study finds a strong long-term connection between the two, with financial liberalization generally worsening income inequality. The research suggests that financial reforms, such as reduced credit regulations and interest rate deregulation, have limited access to finance for the poor, increasing inequality. However, the relationship is bidirectional—rising income inequality can also shape financial sector policies. The findings highlight the need for policies that ensure financial sector reforms benefit all sections of society, particularly the poor.
The paper “Income Inequality, Poverty, and Food Security in West Bengal, India” by Snehasish Karmakar and Debashis Sarkar examines income disparities, poverty levels, and food security among different population groups in the state. The study finds that income inequality persists across agricultural and non-agricultural sectors, with non-agricultural incomes playing a larger role in reducing inequality. Despite India’s self-sufficiency in food grain production, food security remains a challenge, particularly among small and marginal farmers. The research also highlights that income inequality is more severe than food insecurity, and food insecurity does not always directly correlate with poverty levels, suggesting other influencing factors. The authors emphasize the need for policies promoting rural employment, agricultural development, and equitable income distribution to improve food security and reduce inequality.
The paper “Inequality and Poverty in India: Impact of COVID-19 Pandemic and Policy Response” by Elif Arbatli-Saxegaard, Mattia Coppo, Nasser Khalil, Shinya Kotera, and D. Filiz Unsal examines how the COVID-19 pandemic affected poverty and income inequality in India. Using national household surveys, the study finds that while India had made progress in poverty reduction before the pandemic, the economic downturn in 2020 led to a temporary rise in both poverty and inequality, particularly affecting low-skilled and informal workers. However, by the end of 2021, poverty and inequality had returned to pre-pandemic levels. The expansion of government food subsidies played a significant role in mitigating the crisis, reducing the number of people falling below the poverty line. The study emphasizes the importance of targeted social policies to improve income distribution and economic resilience.
The paper “Macro-determinants of Income Inequality: An Empirical Analysis in Case of India” by Aadil Ahmad Ganaie, Sajad Ahmad Bhat, and Bandi Kamaiah examines the factors influencing income inequality in India from 1963 to 2007 using the ARDL cointegration approach. The study finds that while real GDP per capita reduces overall inequality, it increases the income share of the top 1%, indicating that economic growth has benefited the elite more than the general population. Government expenditure and trade openness contribute to a more equal income distribution in the long run, whereas rising price levels (inflation) worsen inequality. Additionally, the share of agriculture in GDP is found to have a positive impact on reducing inequality, highlighting the sector’s role in economic equity. The findings suggest that while India’s economic growth has reduced poverty, it has also exacerbated disparities, emphasizing the need for policies that ensure broader wealth distribution.
Conclusion
The studies collectively highlight that while India has experienced significant economic growth, inequality has deepened across multiple dimensions—wealth concentration, caste, geography, financial access, and intergenerational mobility. Economic liberalization and financial reforms, though beneficial for overall growth, have disproportionately favored the wealthy, while marginalized communities continue to struggle for upward mobility. Regional disparities and the urban-rural divide further contribute to rising inequality. However, targeted policies such as government expenditure, trade openness, agricultural development, and social welfare programs have the potential to mitigate these disparities. The COVID-19 pandemic temporarily exacerbated inequality, but effective social policies, like food subsidies, helped cushion the impact. Moving forward, a balanced approach is necessary—one that ensures economic growth is inclusive, strengthens financial accessibility for the poor, reduces caste-based discrimination, and promotes equal opportunities across regions. Addressing income inequality in India requires a multi-pronged strategy that combines policy interventions, wealth redistribution, and structural reforms to create a more equitable and sustainable economic future.
Reference –
Ang, James, 2009. “Financial Liberalization and Income Inequality,” MPRA Paper 14496, University Library of Munich, Germany.
Aadil Ahmad Ganaie & Sajad ahmad Bhat & Bandi Kamaiah, 2018. “Macro-determinants of Income Inequality: An Empirical Analysis in case of India,” Economics Bulletin, AccessEcon, vol. 38(1), pages 309-325.
Anuradha Singh, 2021. “Income Inequality and Intergenerational Mobility in India,” Papers 2107.12702, arXiv.org.
Azam, Mehtabul & Bhatt, Vipul, 2016. “Spatial Income Inequality in India, 1993-2011: A District Level Decomposition,” IZA Discussion Papers 9892, Institute of Labor Economics (IZA).
Mehtabul Azam & Abusaleh Shariff, 2011. “Income Inequality in Rural India: Decomposing the Gini by Income Sources,” Economics Bulletin, AccessEcon, vol. 31(1), pages 739-748.
Ms. Elif C Arbatli Saxegaard & Mattia Coppo & Nasser Khalil & Shinya Kotera & Ms. Filiz D Unsal, 2023. “Inequality and Poverty in India: Impact of COVID-19 Pandemic and Policy Response,” IMF Working Papers 2023/147, International Monetary Fund.
Nitin Kumar Bharti & Lucas Chancel & Thomas Piketty & Anmol Somanchi, 2024. “Income and Wealth Inequality in India, 1922-2023: The Rise of the Billionaire Raj,” World Inequality Lab Working Papers halshs-04563836, HAL.
Snehasish Karmakar & Debashis Sarkar, 2014. “Income Inequality, Poverty and Food Security in West Bengal, India,” Journal of Social Science Studies, Macrothink Institute, vol. 1(1), pages 31-43, January.
Vikas Rawal & Madhura Swaminathan, 2011. “Income Inequality and Caste in Village India,” Journal, Review of Agrarian Studies, vol. 1(2), pages 108-133, July-Dece.
Xavier Sala-i-Martin, 2001. “The disturbing ‘rise’ of global income inequality,” Economics Working Papers 616, Department of Economics and Business, Universitat Pompeu Fabra, revised Apr 2002.