India has somehow nurtured a widely shared impression that it has a well established statistical system with reliable databases compiled through effective methods of data collection through its network of central agencies and periodic nation-wide surveys. However, India is one of the very few countries which does not collect information on income through household surveys. Hence, it has rightly earned the snide remark that India has entered the digital age without any surveys for collecting income data from households.

For quite some time, consumer expenditure data based on all-India consumer household expenditure surveys (AIHS) by the NSSO served as the proxy for income inequality estimates. However, it is well known that consumption expenditure as a proxy for income would be a gross underestimation of income, especially of the higher income groups.

The only other source of household income data is the India Human Development Survey (IHDS) available since 2005. Though IHDS data does not cover the entire country, the sample size is considered large enough to provide indicative measures of distribution of income.

For the estimation of household wealth, the only source available as of now is the NSSO decennial All India Debt and Investment Survey (AIDIS). However, there are some measurement issues, comparability problems, under-reporting of wealth, under-sampling of the super rich, and so on, which point to the limitation of the data. Yet the data do help in capturing the broad trends, and the data sets are put to extensive analysis of inequalities not only of wealth but also of income over a period across different social groups and urban–rural areas.

Notwithstanding the limitations of these sources, inequalities in all dimensions, namely, consumption expenditure, income, and wealth have been on the rise since the launch of economic reforms in India. Though there is no data on inequality of income and wealth for the period preceding the economic reforms, the consumption expenditure data show clearly that the tendency towards decline in inequality has become a thing of the past.

Regarding income inequality, the IHDS data acts as a shock to the comfort with which the consumption expenditure-based Gini was used as a proxy to show that inequality in India was very low.

Now it is clear that India is in the highest income inequality zone, and the current estimates show that income inequality is the second highest in the world, next only to South Africa and some Middle Eastern countries.

Though the AIDIS data has limitations, yet the levels of inequality which were already at a very high level (Gini 0.65) by the mid-1990s, has steeply increased since the middle of the first decade of 2000s to reach the extreme level of 0.74.

Up it goes

A detailed analysis of the AIDIS data does show that the wealth shifts are increasingly towards upper deciles. ‘Considering wealth inequality by deciles revealed that only the topmost decile increased its share in asset ownership after 2002 ... this trend of wealth consolidation has worsened since then, and narrowed to the top 10 per cent and perhaps even lower; by 2012, the top 5 per cent alone owned half of the wealth’.

This is corroborated by other sources, such as the Forbes’ Indian Rich list, according to which the wealth of the richest Indians that it reported amounted to ‘less than 2 per cent of national income in the 1990s, but increased substantially throughout the 2000s, reaching 10 per cent in 2015, and with a peak of 27 per cent before the 2008–09 crisis’.

 

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A more interesting and revealing aspect is the demystification of the notion of talent and risks that are widely propagated as the sources of high income and wealth. ‘Out of India’s 46 billionaires in 2012, 20 had drawn their primary wealth (at least originally) from sectors that can be classified as ‘rent-thick’ (real estate, construction, infrastructure or ports sectors, media, cement, and mining). The remaining 26 billionaires had drawn their primary wealth from ‘other’ sectors (IT/software, pharmaceuticals and biotech, finance, liquor and automotives, and so on). Overall, 43 per cent of the total number of billionaires, accounting for 60 per cent billionaire wealth in India, had their primary sources of wealth from rent-thick sectors’.

The major breakthrough in the analysis of inequality, as pointed out earlier, comes from Piketty’s pioneering efforts along the path set by Kuznets in utilising innovative sources of data and simplified methods of presentation of the results. In the case of India, income tax data since 1922, the NSSO consumption expenditure survey data, the National Accounts data, the IHDS income and consumption data, and the UN statistics population data are utilised to estimate the levels and trends in income inequality.

The data enables long-term analysis right from 1922 to 2013–14 and brings out the difference that a regulatory regime of growth with distributive justice in the pre-reform period could make compared to the neoliberal regime with market forces and private profit-seeking as the main driving forces of growth.

Table 1 shows that there was actually an increase in the share of the bottom 50 per cent of the adult population in the national income from 19 per cent to 24 per cent in the first three decades between the mid-1950s to the mid-1980s. In addition, the middle-income group too experienced an increase in the share while the share of the top ten per cent declined from 40 per cent to 30 per cent. But the trend was completely reversed since the mid-1980s with all the increase in income moving up to the rich top 10 per cent, while the rest of the population experienced sharp decline in the share, especially since the early 2000s.

Table 2 captures the growing inequality of incomes in over three decades under the neoliberal regime compared to the three decades of the pre-reform period. What is striking is not only all the rising income share shifting to the top 10 per cent or the steep decline in the share of the middle class from about one-half of the national income in the first thirty years to less than one-fourth in the later period. This is a clear phenomenon of ‘hollowing out’ of the middle class.

From the introduction to the report released recently. With permission from OUP India