ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Income and Inequality across Rural–Urban, Occupational, and Caste Divides

The evolution of income in India from 2014–19 is analysed, and it is found that the lower end of the income distribution has experienced significant losses—the bottom ventile shows not only a decline in income share of ~41% but also a negative real average income growth of -5.5% per annum. Further investigating the composition of this part of the distribution using rural and urban splits, it is found that even as income shares at the bottom of the urban distribution have increased over time, those at the bottom of the rural distribution have decreased—income share of the bottom decile of the rural income distribution declined by ~43%, and the real average income growth of this decile was -5% per annum. The bottom ventile of the consolidated Indian income distribution is composed primarily of rural incomes and therefore the decline in real incomes is essentially a rural phenomenon.

The past 30 years have seen the inexorable rise of income inequality in India (Chancel and Piketty 2019). This has been caused through a combination of global technological and economic changes as well as structural conditions in the Indian economy since the 1980s (Banerjee and Piketty 2005; Chancel and Piketty 2019; Deaton and Dréze 2002; Kohli 2012; Dev and Ravi 2007; Milanovic 2016).

Immediately after independence in 1947, the state took ownership of the “commanding heights” of the economy and ensured a progressive taxation structure with high marginal rates for top incomes, with the explicit goal of curbing elite economic power and driving income convergence; indeed by the early 1970s, the top effective marginal tax rate had risen to 97.5% (Banerjee and Piketty 2005; Chancel and Piketty 2019; Acharya 2005). This period, until 1980, saw a sustained decline in income inequality, with the share of the top 10% of income earners reducing from 37% in 1951 to 31% in 1981 and that of the bottom 50% rising from 21% to 24% in the same period (Chancel and Piketty 2019). This decline in inequality should, however, be contextualised by the fact that the poverty rate in India remained practically unchanged in this time—from 56% in 1954 to 53% in 1978 (Dutt and Ravallion 2009). Essentially, low economic growth (3.4% per annum between 1951 and 1980) and high population growth (98% between 1951 and 1981) meant that even with the reallocation of income from the rich to the poor within the distribution, the poverty rate remained persistent at over 50% and the poverty head count doubled (Nagaraj 1990; Census of India 2011; Dutt and Ravallion 2009).

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Updated On : 11th Jul, 2022
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