‘Low’ inequality conceals more than it reveals
There have been some significant policy changes in the recent past — this includes the implementation of the new Labour Codes and the Viksit Bharat-Guarantee for Rozgar and Ajeevika Mission (Gramin) Bill, 2025 replacing the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) — which have raised serious concerns regarding the welfare of informal workers and those belonging to rural India. These changes are accompanied by the official understanding that inequality is much less of a concern today than it was in the early 2010s, even though data comparability itself is an issue.
Inequality estimates, initial observations
Analysis of inequality warrants clarification on a few issues, among other things.
The first is inequality of what — income, wealth, consumption expenditure? Second, how is it measured? Third, along which axis it is assessed — caste, class, gender, religion?, and fourth, data source and comparability of estimates generated from multiple surveys, if marked with methodological changes.
Our estimate from the Household Consumer Expenditure Survey (HCES 2023-24), conducted by the National Sample Survey Organisation (NSSO), suggests that overall consumption expenditure inequality, measured by the Gini index, is 0.29 — higher than the widely cited World Bank estimate of 0.25. The World Bank’s method too, in this regard, came under scrutiny. With further disaggregation, one finds that urban, as expected, is more unequal than the rural sector. India’s consumption boom during the last couple of decades has been primarily driven by non-food expenditure. We find that inequality is much higher for the same compared to food expenditure. This is true for the rural and urban sectors, the inequality for both being higher in case of the urban sectors, and relatively more for non-food expenditure.
Since most growth-inducing activities are urban-centric and agricultural distress persists, it is imperative to examine the urban-rural gap, which is shown by the mean ratio here. A higher than unity mean ratio would reflect a relatively better position than the respective all-India average. Lesser than unity would imply otherwise. There is a substantial gap between urban and rural sectors in this regard and the disparity is more striking in the case of non-food expenditure. For example, average urban non-food monthly per capita expenditure (MPCE) is about 1.5 times higher than the all-India average, while that for rural is much lower than the same point of reference.
Our disaggregated analysis also reveals a considerable gap between the consumption share and per-capita spending of overall MPCE-based deciles. In the urban sector, the top 10% of the population alone contributes 27% of the total non-food expenditure, implying that the rest of the 90% contributes only 73% of the same. The mean MPCE of the topmost decile is six times that of the bottom most decile for the urban sector, compared to 4.5 times in the rural sector. Strikingly, the mean MPCE of the topmost decile in the urban sector is nine times that of the bottom most decile in the rural sector. Once we proceed a step further and decompose total inequality into within- and between-group components, it appears that: in urban India, within-decile and between-decile inequalities account for about 33% and 67% of food expenditure inequality, respectively, and about 10% and 90% of non-food expenditure inequality. The relative importance of between-decile group inequality for non-food consumption holds true for the rural sector too. Further, the per-capita consumption expenditure of the richest 5% is six times higher than that of the poorest 5% in the rural areas; the same is nine times for urban areas. In short, the urban sector, which is more affluent, is more unequal than its rural counterparts.
Inequality dynamics in India
First, it is almost unanimously agreed upon that the superrich segment of the Indian population is hardly captured by the NSS surveys (consumption or wealth); thus any inequality estimation based on the same is a gross underestimation. Our own calculation based on this data suggests that about one fourth of even the richest 10% in India benefited from the Pradhan Mantri Garib Kalyan Yojana (PMGKY) and about 13% of them have access to Below Poverty Line (BPL) ration cards.
Second, for a nuanced understanding of inequality dynamics in India, one must go beyond inter-personal or solely income/spending groups-based (for example, decile; percentile) inequality calculations and analyses disparity along various socio-economic axes such as caste and class. Deploying an alternative class-based analysis alongside a closer examination of the growth process and policy changes since Independence, Vamsi Vakulabharanam of the University of Massachusetts, Amherst, in his book, Class and Inequality in China and India, 1950-2010, shows that since the 1980s (even before the 1991 reforms), urban owners, managers, and professionals have gained disproportionately, contributing to India’s consumption boom,
In contrast, urban informal workers, rural small farmers, and agricultural laborers have lagged markedly behind. All these added to increasing between-class inequality vis-à-vis within-class inequality in India’s evolving urban landscape. Over the last decade or so, there has not been any systemic change despite various welfare measures, to counter or reverse such trend in class-based inequality. Typical explorations of inequality often overlook this growth-class-inequality nexus. Moreover, a large share of Indians remains engaged in debt-led consumption. The complexities involved in the issue of inequality in India warn us that policies formulated on the presupposition of lower disparity could be misleading and may produce adverse, albeit unintended, welfare implications.
(Saswata Guha Thakurata is Assistant Professor, Department of Economics, FLAME University, Pune. Chaitanya Talreja is Assistant Professor, Department of Economics, Shiv Nadar University Chennai)
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