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Analysing the rising gap in incomes

Published: 27th Jan, 2024

Context

There are certain discrepancies in the recent report by the State Bank of India (SBI) which highlights that India has witnessed a significant fall in inequality over the last decade.

Key Concerns with the Report –

  • Challenges in Data Analysis:
    • The analysis is based on taxpayer data, presenting challenges as a significant portion of income-earners falls below the tax threshold.
    • Preliminary nature of the study necessitates further research to account for potential errors, self-reporting issues, and seasonal adjustments.
  • Gini Coefficient Trends (2017-18 to 2022-23)

What is Gini Coefficient?

  • The Gini coefficient is a statistical measure designed to represent the degree of income inequality within a specific population.
  • The Gini coefficient ranges from 0 to 1, with 0 representing perfect equality and 1 representing perfect inequality.
  • The Gini coefficient, representing income inequality, decreased from 0.4297 to 0.4197 during the period.
  • Disaggregated by employment type, the Gini coefficient fell for regular wage and casual wage workers but rose slightly for the self-employed.

  • Polarisation in Income Growth
    • An analysis of decile-wise income growth reveals a polarisation trend, especially among self-employed workers.
    • While the majority experienced healthy income growth (8%-9%), the top 10% saw a rate of around 7.23%, outpacing the bottom 20% with only 1.67% growth.

  • 90/10 Ratio and Self-Employed Divergence
    • The 90/10 ratio, measuring income gap between the top and bottom 10%, increased from 6.7 to 6.9.
    • Notably, the 90/10 ratio significantly rose for self-employed individuals, with the income of the top 10% being 8.3 times that of the bottom 10%.

  • Impact of Women's Labor Force Participation
  • The rise in women's labor force participation, primarily in low-paid, part-time self-employed work, contributes to increased income gaps among the self-employed.
  • While overall Gini coefficient reduction suggests lower inequality, the divergence in self-employed incomes contradicts this trend.

Consequences of Discrepancies in Income Inequality Studies

  • Policy Misdirection:
    • Inaccuracies in studies can lead to misguided policy decisions, hindering effective strategies to address income inequality.
  • Public Trust Erosion:
    • Conflicting findings may erode public trust, creating skepticism about the severity of income inequality and impeding support for necessary interventions.
  • Inequality Denial:
    • Discrepancies provide room for denial, hindering efforts to tackle root causes and promote social and economic justice.
  • Resource Allocation Challenges:
    • Challenges in resource allocation arise, with policymakers struggling to distribute resources effectively based on inconsistent data.
  • Benchmarking Difficulty:
    • Establishing benchmarks for measuring progress becomes challenging, impeding the assessment of policy impact over time.
  • Impact on Research:
    • Persistent discrepancies may slow progress in understanding income inequality dynamics within the academic community.
  • Ineffective Advocacy:
    • Advocacy efforts are weakened as inconsistent data hampers the ability to strengthen arguments and mobilize support for change.
  • Global Cooperation Hurdles:
    • Global comparisons and cooperation face obstacles due to inconsistent data, hindering coordinated strategies to address income disparities globally.

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