Changing Patterns of Income Inequality in India: A Contemporary Analysis

Income inequality has emerged as a key issue in the discussions of growth, structural change, poverty alleviation and economic opportunity distribution in India. This paper reviews the evolution of inequality by combining information from household consumption surveys, national accounts, and distributional national-income studies. The analysis is separated from the measurement of consumption inequality and income and wealth concentration to avoid conflating these as both measure different aspects of economic welfare and may be negative or positive. The distributional shares of the highest income decile (or merely the highest tenth) have increased significantly since the early 1980s, while consumption-based measures, in some survey periods, have actually fallen. It does not necessarily contradict; household consumption surveys measure spending by sampled households, while distributional national accounts seek to measure top incomes which are not necessarily well-represented in the consumption surveys. It applies comparative descriptive analysis, gini analysis, Lorenz-curve interpretation and examines the existing empirical research to provide drivers and policy implications of inequality. The findings indicate that unequal access to high-return education and investments, unequal regional development, and differences in the return to capital are among the reasons for continuing distributional disparities. The analysis also points out the limitations for comparisons between estimates from different data sources and time periods. Growth needs to be more inclusive, which requires more transparent distributional statistics, employment-intensive growth, progressive taxation and stronger public provision.