Saturday, November 18, 2017

India's Inequality

 Lucas Chancel and Piketty (2017), in ‘Indian income inequality, 1922-2014: From British Raj to Billionaire Raj?, offer a rich and unique description of evolution of income inequality in terms of income shares and incomes in the bottom 50%, the middle 40% and top 10% (as well as top 1%, 0.1%, and 0.001%), combining household survey data, tax returns and other specialised surveys.
Some of the principal findings are: 
one, the share of national income accruing to the top 1% income earners is now at its highest level since the launch of the Indian Income Tax Act in 1922. The top 1% of earners captured less than 21% of total income in the late 1930s, before dropping to 6% in the early 1980s and rising to 22% today. 
Two, over the 1951-1980 period, the bottom 50% captured 28% of total growth and incomes of this group grew faster than the average, while the top 0.1% incomes decreased. 
Three, over the 1980-2014 period, the situation was reversed; the top 0.1% of earners captured a higher share of total growth than the bottom 50% (12% v. 11%), while the top 1% received a higher share of total growth than the middle 40% (29% v. 23%).
According to Credit Suisse Global Wealth Report 2017, the number of millionaires in India is expected to reach 3,72,000 while the total household income is likely to grow by 7.5% annually to touch $7.1 trillion by 2022. Since 2000, wealth in India has grown at 9.2% per annum, faster than the global average of 6% even after taking into account population growth of 2.2% annually. However, not everyone has shared the rapid growth of wealth.
 Research, based on the India Human Development Survey 2005-12, points to a rise in income inequality. A high Gini coefficient of per capita income distribution, a widely used measure of income inequality, in 2005 became higher in 2012. The share of the bottom 50% fell while those of the top 5% and top 1% rose. The gap between the share of the top 1% and the bottom 50% narrowed considerably.
More glaring is the disparity in ratios of per capita income of the top 1% and bottom 50%. The ratio shot up from 27 in 2005 to 39 in 2012. Far more glaring is the disparity in the highest incomes in these percentiles. The ratio of highest income in the top 1% to that of the bottom 50% nearly doubled, from a high of 175 to 346.
 Inequality measured in terms of share of income of the top 10% increased poverty sharply but only in the more affluent States. Somewhat surprisingly, higher cereal prices did not have a significant positive effect on poverty. Similar results are obtained if the share of the top 10% is replaced with the Gini coefficient as a measure of inequality.

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