Inequality in India -A review of levels and trends

Introduction

While the majority of the debate on inequality has focused on patterns in inequality
within and across industrialized nations, it has also shifted from inequality as a merely
factual and distributional problem to inequality's evolving nature and its effects on
growth and mobility.
This is especially true in a society where access to health, education, nutrition, and other
public services varies by race, caste, religion, gender, and place of residence rather than
being universal.
Some of these issues, particularly the one of inequality, have gained importance
scholarly and popular debates in India. Even though India has a long history of data
collecting, inequality in consumer expenditure has remained underreported. However,
there is little solid evidence to support the idea that India's inequality has increased
during a period of increasing income growth, particularly since 1991, despite the fact that
it is already very high. Several studies have examined the patterns in inequality despite
the limitations on the data's availability.
This text's goal is to examine the rise in inequality in a nation like India, which has a
higher level of horizontal inequalities based on caste, class., religion, race, gender, and
location, not just in terms of its effects on future economic growth and distribution but
also in terms of social and political stability.
This paper aims to analyze recent trends in India's inequality across a number of areas.
The research is extended to assess trends by social group, residence location, religion,
and gender in addition to trends based on the traditional economic variables of income.
consumption, and wealth.

Monetary inequality: consumption, income, and wealth

The research starts with a reflection of inequality in India using common mneasures of
in
wealth. income, and consumption. Wealth refers to the stock of resources at a point
time, whereas consumption and income reflect the flow of resources over time.
Consumption is seen to be a better indicator of living standards than income since
households tend to balance out their consumption flows over time.
Consumption inequality

India has had a long series of national household surveys suitable for tracking household
consumption since the early 1950s.
A commonly used indicator of inequality is the Gini index which varies from zero that is
perfect equality to one that is when one household accounts for all the consumption in the
country.
By this measure of inequality, the data shows that inequality declined between 1983 and
1993-94 but rose appreciably in the following decade after the onset of reforms in 1991.
(Table l). Post-2005, inequality increased slightly or remained stable, depending on the
indicator being considered.
Table 2, which reports Gini indices after correcting for cost-of living differences using
the deflators implicit in the official poverty lines, shows indeed that inequality levels are
lower. However, trends in inequality are preserved. Estimates based on the variance of
log of consumption expenditure which gives greater weight to inequality at the
extremes produce similar trends.
(Figure 1) Between 1983 and 2011-12, while the urban poorest 40 per cent witnessed an
increase of real MPCE by 51 per cent, MPCE for the urban top 20 per cent nearly
doubled. Trends of MPCE growth also show that inequality grew faster in urban areas
than in rural areas.

Household surveys may not capture well the consumption of richer households. One
indication is the large and growing gap over time between aggregate consumption in
surveys and private consumption in the Government of India's National Accounts
Statistics. It is difficult to know how much of the gap is due to errors in NAS versus NSS
survey methods.

Income inequality

Measuring inequality based on income yields a very different picture. Figure 2 reports
Gini indices of consumption and income inequality from the 2004-05 and 2011-12 India
Human Development Surveys (IHDS).
Estimates based on this survey indicate that income inequality in India was about 0.54 in
both 2004-05 and 2011-12, with a marginal increase during this period. As in the NSS,
consumption inequality increased over time but is significantly lower than income
inequality.
 India's income Gini of 0.54 in 2011-12 places it alongside the most unequal countries in
the world. Across countries, income-based Gini indices tend to be higher than those
based on consumption. The finding at minimum casts doubts on the often-rehearsed
notion that inequality is low in India.

Earnings inequality

The National Social Security Office (NSSO)conducts surveys that provide estimates of
income for some categories of workers. The EUS data do not include information on the
earnings of the self-employed. Thus, wage inequality measures are only a partial
reflection of the level of inequality in incomes.
The Gini coefficient of wage earnings shows a marked increase between 1993-94 and
2004- 05 and 2011-12. However, unlike consumption, between 2004 05 and 2011-12
wage inequality fell back to 1993-94 levels, likely due to the sharp rise in wages for rural
unskilled labour during this period. Between 2008 and 2013, real wages for casual labour
increased by over six per cent per annum, faster than the growth of per-capita incomes
(Himanshu 2018). (Figure 3)
In Table 3. Between 2004-05 and 201 1-12, a growing share of the population relied on
non-agricultural labour for their earnings, and inequality within this group rose markedly.
The share of the population dependent on non-agricultural labour grew significantly,
from 18 per cent to 24 per cent.

Wealth inequality

The distribution of wealth provides a complementary perspective on consumption and

income inequality.
These are a useful source of information with the caveat that values of assets are self
reported and then maybe under reporting particularly by rich households.
The analysis is based on nominal values, due to lack of a suitable deflator.

The Gini coefficient based on AIDIS data for wealth (asset holdings) is 0.75 for 2012,
rising from 0.66 in 1991 to 0.67 in 2002 (Figure 4).
The share of wealth held by different groups of population provides an alternative lens on
wealth inequality. The bottom S0% of the population had 9% total assets in the country in
1991, but saw their share declined by l/3 to only 5.3% by 2012.
Against this, the share of wealth held by the top 1% increased from 17% in 1991 to 28%
by 2012.
The fact that wealth distribution is more concentrated than income or consumption is not
surprising and is seen across countries.
 The GWR estimates that the bottom 50 per cent of the Indian population held 8.1 per cent
of total wealth in 2002, which declined to 4.2 per cent by 2012.
In contrast, the top one percent of the population held 15.7 percent of total wealth in
2002, which increased to 25.7 per cent of total wealth by 2012.

Further evidence on top incomes

Income inequality in India declined sharply between the 1950s and 1980s but increased
thereafter (Figure 5).
The share of income of the top one percent reached a high of 21 percent in the pre
independence period, but declined subsequently until the early 1980s to reach six per
cent.

During this period, the bottom 50 per cent and top 10 per cent received nearly equal
shares of income, at 28 per cent and 24 per cent respectively. Income shares of
individuals in the middle of the distribution (50th-90th percentiles) were also on the rise.
These trends reversed in the l980s. The income shares of the top one percent increased,
reaching 22 per cent.
The share of the top 0.1 per cent in national incomes is now at the highest level of nine
per cent. While the bottom 50 percent of earners experienced a growth of 97 per cent
between 1980 and 2014, the top 10 per cent saw a 376 per cent increase in their incomes.
During the same period, the very richest Indians, in the top 0.01 percent and top 0.001
percent, did extraordinarily well, with incomes rising by 1,834 per cent and 2,776 per
cent respectively.
In 2015-16, one third of total income accrued to taxpayers with annual incomes of INR
50 million or higher. This group together accounted for only 0.04 per cent of all
taxpayers that year.
Figure 6 compares the distribution of the number of taxpayers and share of taxable
income by income class in 2011-12 and 2015-16.
By the latest estimates for 2017, the total wealth of Indian billionaires was 15 per cent of
GDP.

Paradoxically, India is home to the fourth-largest number of billionaires and the largest
number of poor people in the world.
Non-Monetary Inequality: Health and Education

India has made substantial gains in health and education outcomes in the past few
decades. From onel19 91 to 2013, life expectancy at birth increased by more than seven
years, the infant mortality rate fell by half, the share of birds in health city more than
tripled, the maternal maternity ratio fell by about 60%, and the total fertility rate fell to
almost a replacement level.
The education system also expanded rapidly leading to cross-enrolment ratios of 195 in
primary and upper primary classes respectively.
On other dimensions there is mixed progress. While India has outpaced the world in
reductions in consumption poverty, progress on nutrition outcomes has been less
remarkable.

Child stunting which is associated with poor social economic outcomes in later life which
affected nearly half of children under five in 2005-06 has reduced but it still affected
38% of children in 20 15-16.
Under-five child wasting that is weight for height has shown no improvement stagnating
at 1/5 of the population. India ranks poorly in global indices such as the global hunger
index and the human capital index reflecting the challenges that remain and the need for
sustained progress.
National average is Mosque disparities across social groups, states and rural urban areas
deflecting inequalities in opportunities to access basic services. Although there have been
improvements across all potion groups, ST and SC have persistently prayed for worse
outcomes.

In 20 15-16, 44% of ST children under five are stunted, compared with 31% of children
from general caste households. Even large disparities are evident in the rates of
underweight children and these gaps are not closing. (Figure 7)
Gaps between social groups are also evident in education outcomes, although outcomes
are better in education than in health and gaps in enrolment rates among school children
have been closing. Literacy rates have improved for all groups, but in 2011 the literacy
rates among SC and ST were 66% and 59% respectively compared with the national
average of 73%.

The intersection of gender, location and social group exacerbates these gaps.
Opportunities in education are better than in health for sanitation as measured by the
human opportunity index. The HOI for access to key services of health and nutrition is
below 30% for full immunization or institutional births and below 40% for improved
sanitation. Overall, decomposition of the HOl suggests that parents, education, location
and caste are important circumstances behind inequality in access to health education and
infrastructure.
Structure of inequalities

Studies that focus on top incomes suggest large increases; others that rely only on survey
data suggest that inequality changes may only have been marginal.
If establishing the trains is difficult, explaining them is even more complicated. While
causal factors are difficult to establish in this section, we explore the structure of
inequality to hint at the potential or approximate factors in changes in inequality over
time.

Differences across locations

Differences across states are often pointed to as an important source of rising inequality,
given large interstate variations in outcomes.
According to 2016-17 economic survey data from the Department of EconomicAffairs,
eight low-income states (Assam, Bihar, Chhattisgarh, Jharkhand, Madhya Pradesh,
Odisha, Rajasthan, and Uttar Pradesh) account for 50 per cent of India's population but
71 percent of infant deaths, 72 per cent of under-five mortality, and 60 percent of
stunting.
Child stunting on the other hand in Kerala ranges from 2 in 10 children to about five in
10 children in UP and Bihar.

On monetary outcomes the trend is the opposite with growing regional inequality across
Indian states. One way of looking at inequality across states is to estimate the inequality
that arises because a person is born in a state assuming zero inequality within the state.
(Figure 8 presents interstate inequality, using NAS data on state domestic product. The
state domestic product has been divided by the population assuming equal per-capita
income within the state, i.e. zero inequality within the state)
The resulting Guinea coefficient for per capita income weighted by state population
confirms the trend of stable inequality the 1980s followed by rising inequality since
the 1990s.

India's rich tradition of detailed village studies showed that state level estimates mask
considerable heterogeneity. Estimates of inequalities in a set of village studies by the
foundation of agrarian studies in 2005 -08 show Gini coefficient is ranging from 0.5 and
0.7.
Differences across social groups

A natural aspect to consider is differences across social groups distinguishing, for

example, SCs, STs, other backward castes (OBCs), and a residual category of 'others'
This breakdown is far from ideal, as it does not permit any detailed assessments of
differences across subgroups within these broad categories.
One way to understand inequality across social groups and religious groups is to compare
their share of income and consumption with that of the overall population. In an equal
world their share of income and consumption and the share of the population will be the
same. The share of less than one represents disadvantage whereas a share greater than
one would place a group in an advantageous position. (Table 5)
SC and ST have lower share of income and consumption compared with the population
shares. OBC has a relatively higher share of consumption and income but still less than
the population share. Meanwhile the forward castes have higher share of income and
consumption relative to the population shares. The consumption data also reports a
decline in income shares for ST groups with the corresponding increase in the share of
others.

Another dimension where India stands out is gender-based inequality. On the positive
side, gender gaps in education and nutrition outcomes have been closing overtime. While
most economic dimensions are household waste and therefore mask the intra-household
dimension of inequality, the disadvantaged position of women is most evident in the
labor market. India continues to be among the countries with the lowest workforce
participation of women, this has shown a decline in recent years.
(Table 6 presents a similar analysis for groups defined by religion. Table 7 reports the
asset-share-to-population-share ratio for religious groups.)

Differences by occupation and factor ownership

Inequality in the labor market also arises from the skewed distribution of workers across
sectors and the differential returns to capital and labor. A large share of the workforce is
employed in agriculture and the unorganized sector. 50% and 93% respectively. These
are sectors whose share of GDP has been falling as they have grown more slowly than the
national average.
 Employment in the agricultural sector has been falling less rapidly than its share of
income, employment in the unorganized sector has been growing relative to the
organized sector.
On the other hand, the best paying sectors that have grown the fastest are finance,
insurance, real estate, IT related and telecommunication services employing less than
2% of the workforce. This has led to an increasing divergence between per worker
productivity in sectors such as agriculture and construction and poor worker productivity
in the fast-growing sectors.
Another feature of the labor market is the boss's differences in the quality of employment.
While a large majority of the workforce are employed in the informal sector with no
social security, the organized sector has also seen a decline in employment quality over
the years.
The increase in inequality among workers in the organized sector is only a small
component of the overall inequality. But it does emphasize the changing nature of
production in the organized sector, with rising profit shares and declining gains to
workers. (Figure 9 gives the distribution of workers by type of employment. Figure 10,
which reports the distribution of factor incomes by broad categories, shows that the
highest increase has been in the share of private surplus (profits), which more than
doubled from seven per cent in 1993-94 to 15 per cent in 2011-12. Figure 11, which
gives the corresponding employment distributions)

Concluding reflections

The last three decades have seen an acceleration in the growth rate of national income
and a subsequent decline in poverty. However, evidence also shows that growth has
been accompanied by an increase in inequality, possibly in alldimensions.
The inequality has largely been driven by changes in the labor market, with an
increasing share of capital at the cost of labor. The rise in profit rate has accompanied
a decline in the wage share. But it has also been accompanied by rising inequality in
access to public services such as health and education.
While rising inequality may have consequences for political stability in the
sustainability of economic growth it also affects the mobility of individuals.
Outcomes for growth in human development are not only determined by the existing
state of income distribution but are also determined by where an individual is born
and to which caste, community, religion, religion and gender.