India’s Inequality Debate

The World Bank’s “India Poverty and Equity Brief: April 2025” has sparked debate by claiming a significant reduction in consumption inequality and near-eradication of extreme poverty in India based on recent Household Consumption Expenditure Survey (HCES) data.

Evidence from HCES and World Bank Findings

• Major Findings – Consumption Inequality: According to the World Bank, India’s Gini coefficient for consumption declined from 28.8 in 2011-12 to 25.5 in 2022-23, placing India among the top four least unequal countries in terms of consumption distribution.
• Basis of Measurement – HCES and MMRP: The findings are grounded in the Household Consumption Expenditure Survey (2022-23), using the Modified Mixed Reference Period (MMRP) methodology—aligned with global best practices—and adjusted partially for in-kind government support.
• Limitations and Validity: Critics argue that elite consumption is underrepresented; however, this is a universal limitation in household survey methodologies and does not negate the observed trend among 95% of the population.

Broader Economic Trends and Welfare Impact

• Dietary and Welfare Improvements: Between 2012 and 2023, per capita milk and egg availability rose by 45% and 63% respectively, with increased consumption of fruits, vegetables, and proteins, especially among the bottom 20% of rural and urban households.
• Poverty Reduction – Multidimensional Indicators: Based on Rangarajan, Tendulkar, and MPI frameworks, approximately 270 million people have moved out of extreme poverty between 2011 and 2023, indicating substantial welfare gains.
• Infrastructure and Mobility Gains: Schemes like PMAY-G and PMGSY contributed to a sharp increase in pucca housing and rural road connectivity, enabling over 40% of the poorest 20% to own a vehicle in 2023, up from just 6% in 2011.

Revisiting Income Inequality and Data Sources

• World Inequality Lab’s (WIL) Methodological Issues: WIL estimates rely heavily on income tax records and outdated consumption data, assuming that 70%-80% of households spend more than they earn, leading to underestimation of bottom income shares.
• Income Distribution Trends (2017–2022): Even with WIL data, the bottom 50%’s share in national income increased from 9% to 15%, while the top 10%’s share declined from 58.8% to 57.7%, suggesting stable or declining income inequality.
• Role of Post-Tax and Subsidy Adjustments: Most inequality narratives overlook post-tax, post-transfer incomes. With welfare spending exceeding 8% of GDP, real inequality is likely overstated, especially given that top 1% of individuals pay 42% of income tax.

Practice Question:

Critically examine the assertion that India’s inequality narrative is often misrepresented due to methodological flaws in data estimation. In this context, discuss the significance of distinguishing between consumption and income inequality. (250 words)