Gaps in data gathering understate actual levels of inequality in India

A recent report showing India as among the most equal countries in the world, based on a Gini index of 25.5, has sparked a debate. The Gini coefficient measures inequality within a population, with a higher value indicating higher inequality. The figure in question, cited from the recent World Bank “Poverty and Equity Brief” for India, measures consumption inequality, not income or wealth inequality. This distinction is crucial because consumption-based measures often tend to underreport the true extent of inequality, especially in a country like India, where high-income groups often mask their incomes or altogether evade household surveys. While it is true and commendable that extreme poverty has declined significantly from 16.2 per cent in 2011-12 to only 2.3 per cent in 2022-23, it may not be possible to say the same about inequality. 

According to the Household Consumption Expenditure Survey (HCES) 2022-23, inequality in consumption did decline. The Gini index improved from 28.8 in 2011-12 to 25.5 in 2022-23. But these numbers should be read with caution. Several economists have flagged significant data limitations, especially underreporting by the affluent and a high non-response rate among high-income urban households. These gaps distort the true picture, understating the actual levels of inequality. The World Bank brief itself warns that consumption inequality in the country may be underestimated due to data limitations. More importantly, the wage gap remains very high. In 2023-24, the median earnings of the top 10 per cent of earners were 13 times greater than the bottom 10 per cent. Such disparities are not surprising when a large majority of India’s workforce is engaged in self-employment or casual labour, with limited access to stable incomes or benefits, according to the Periodic Labour Force Surveys. 

Growing spatial inequality is also troubling. Even as average consumption levels rise nationally, the gap between rural and urban areas remains wide. At the national level, the difference in average monthly per capita consumption expenditure (MPCE) between rural and urban areas remained around 70 per cent in 2023-24. The interstate gaps are equally stark: Rural MPCE in Tamil Nadu is nearly double that in Jharkhand, and urban consumption in Telangana is over 70 per cent higher than in Bihar. These disparities reflect deeper structural imbalances in development. 

If unaddressed, such inequalities can undermine long-term economic growth. Political challenges are also inevitable, especially as relatively rich states voice concerns about subsidising poorer ones. Thus, reading too much into the present inequality number risks diluting the need for remedial action. The government is planning to conduct an income survey, which might provide more information about inequality, though it may also face the same limitation as the consumption survey, where the rich may not give the actual details. Besides income, wealth, particularly intergenerational wealth, also skews the picture. Thus, there are many layers of inequality and policymakers should not get carried away by one dimension with limited data. From the policy perspective, thankfully, there is very little dispute that India needs to grow rapidly and create gainful employment for its rising workforce. This will help improve the quality of life and make India a more equitable society.