A general misconception around inequality in India is that the level of inequality is low by international standards. However, such a comparison is largely misplaced as inequality in India is usually measured by the consumption expenditure data, which is not comparable to inequality in most countries which is measured by income dimension. While there is no one-to-one correspondence between income and consumption inequality, evidence across countries suggests that consumption inequality is generally lower than income inequality.
This happens largely due to the fact that consumption, as measured by the National Sample Survey Office (NSSO) in India, tends to underestimate the consumption of rich. It is also because consumption is a smoothed measure, unlike income. Therefore consumption inequality, in general, is found to be lower than income inequality. But even on a comparable measure of consumption inequality, India is not a low-inequality country.
There are few income estimates available for the country as a whole but the limited information available from private surveys suggests that income inequality is not only high compared to countries with similar per capita income, but is also increasing. The fact that inequality in the country is not only at a high level but is increasing in the last three decades is now confirmed from various sources of data and on various independent measures of inequality.
The most credible measure of inequality in the country is based on the consumption surveys of the NSSO. Based on these, the Gini of consumption expenditure as measured by the National Sample Survey (NSS) consumption expenditures surveys report a rise in consumption inequality from 0.32 in 1993-94 to 0.38 in 2011-12 for urban areas. Corresponding estimates of Gini of consumption expenditure in rural areas is 0.26 in 1993-94 to 0.29 in 2011-12.
On income inequality, the latest data on income inequality is available from the India Human Development Survey (IHDS) reports which show income inequality in India in 2011-12 at 0.55, up from 0.53 in 2004-05 which puts India among the high inequality countries. But even on wealth inequality, India is among the most unequal countries in the world.
According to the Credit Suisse Global Wealth Report (2017), top 10% of the households held 52.9% of the total wealth of the country in 2002 which increased to 62.1% by 2012. The corresponding share of wealth held by the top 1% also increased from 15.7% in 2002 to 25.7% in 2012. The share of wealth held by the top 1% in India is only second to the United States among the major countries for which the data is available. The Gini of wealth in India in 2017 is at 0.83, which puts India among the countries with highest inequality countries. The increase in wealth inequality is consistent with the trend of rising inequality in the country in other dimensions.
Similarly, data on income inequality reported by the World Inequality Report 2017 puts India among the countries with the highest levels of inequality, lower only to the Middle-Eastern countries. The income share of the top 10% of the Indian population at 55% in 2016 is only second to the group of countries along with Brazil, second only to middle-eastern countries. However, unlike middle-eastern countries and Brazil which have had historically high levels of inequality but have seen a decline in the share of the top 10% in total income, India has seen a secular rise in the share of income accruing to the top 10% and top 1% of the population. The top 1% of Indian population accounted for 22% of income in 2016, lower only to middle-eastern countries and Brazil.
Here again, the trend in Brazil and the middle-eastern countries has been a secular decline as against a secular rise in the case of India in the last three decades. Some measure of income inequality, although not representative at the national level, is available from village surveys. Village surveys constitute an important source of data, particularly for the rural economy. While a few of them have longitudinal data spanning over decades, the estimates available from village surveys for recent years does confirm that the level of inequality at the village level is also very high.
Most village surveys report estimates of inequality based on a detailed calculation of income and despite the methodological differences, suggest a high level of inequality consistent with other sources of information. Estimates of inequality in more recent village studies by the Foundation of Agrarian Studies in several villages between 2005-2008 show Gini coefficients ranging between 0.5 and 0.7.
These estimates are based on data collected by Foundation for Agrarian Studies (FAS), as part of the Project on Agrarian Relations in India (PARI) and report Gini coefficients for eight villages, three from Andhra Pradesh, two each from Uttar Pradesh and Maharashtra, and one from Rajasthan. These villages together provide a general snapshot of the villages based in different agro-climatic zones of the country.
Their results also show the extreme concentration of wealth in the top decile. The share of the top income decile for per capita income from pooled data of all villages is reported at 48.06 percent of total income. The evidence from these studies clearly shows that income inequality estimates from village surveys are closer to the income inequality estimates reported by the IHDS income inequality measures.
Swaminathan and Rawal report a tendency for inequality to be higher among villages with higher per capita income (with the exception of 2 villages from Maharashtra). They also report the presence of negative income, primarily owing to losses in crop production. In an analysis of income by caste, the authors point to the absence of Dalit households from the top income quintile in all villages but one, and an over-representation in the bottom quintiles. The estimates of inequality reported by village surveys are similar to those reported by large-scale surveys, although higher than the national surveys.
However, similar to large-scale national surveys, most longitudinal village surveys have reported an increase in inequality in recent decades. Swaminathan (1988) reports a rise in inequality in Gokilapuram (Tamil Nadu) with the Gini coefficient rising from 0.77 in 1977 to 0.81 in 1985. Among the major longitudinal village surveys, Palanpur, a village in the North Indian state of Uttar Pradesh has been surveyed once in each decade starting 1957-58. While inequality declined until 1974-75, similar to the national trend, the village has seen a steady rise in inequality since then, and has reached the highest level since the start of the surveys. However, between 1983- 84 and 2008-09, inequality has increased despite a fall in poverty.
Despite the large variation in income inequality reported by most of the village surveys, there does appear to be some consensus that inequality may have risen over time rather than coming down. The broad picture emerging from secondary, as well as primary surveys, confirms that not only is India among the high-income inequality countries but also that inequality during the last three decades has risen. In subsequent sections, we examine inequality in income and consumption in details from the available sources.
*Associate Professor at the Centre for Economic Studies and Planning, School of Social Sciences, Jawaharlal Nehru University, visiting fellow at Centre de Sciences Humaines, New Delhi
These are excerpts from India Inequality Report 2018: Widening Gaps, published by Oxfam India