Income Inequality Trends in India 2023

January 7, 2025

Recent analysis reveals changes in income inequality in India, particularly following the challenges posed by the Covid-19 pandemic. A working paper from the People Research on India’s Consumer Economy (PRICE) indicates that while there has been a slight recovery in income distribution, substantial wealth concentration persists among the highest earners. This situation marks the need for ongoing, inclusive economic strategies to ensure equitable growth.

About the Gini Index

The Gini index is important measure of income inequality within a population. It ranges from 0 to 100, where 0 indicates perfect equality and 100 signifies perfect inequality. In India, the Gini index improved from 0.506 in 2020-21 to 0.410 in 2022-23, revealing a positive shift in income distribution. Despite this improvement, the index remains higher than the 0.367 recorded in 2015-16, indicating ongoing disparities.

Income Distribution Post-Covid-19

The income share of the bottom 50 per cent of earners increased from 15.84 per cent in 2020-21 to 22.82 per cent in 2022-23. This group includes labourers, small traders, and marginal farmers. However, their share is still lower than the 24.07 per cent recorded in 2015-16. The middle 40 per cent also saw an increase in their income share, rising to 46.6 per cent in 2022-23 from 43.9 per cent previously.

Impact of the Top Income Earners

The top 10 per cent of earners in India experienced rise in their income share during the pandemic, reaching 38.6 per cent in 2020-21. This was attributed to the digitisation of the economy and growth in technology sectors. Although their share decreased to 30.6 per cent in 2022-23, they still command a substantial portion of national income. The top 1 per cent saw their income share peak at 9.0 per cent in 2020-21, before declining to 7.3 per cent in 2022-23.

Role of Social Welfare Schemes

Social welfare initiatives have played important role in improving income distribution. Programmes like the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) and Direct Benefit Transfer (DBT) have contributed to the rise in income for the lower segments of society. These schemes aim to provide financial support and enhance economic stability for vulnerable populations.

Strategies for Sustainable Growth

To ensure the continued reduction of income inequality, the paper suggests investments in education, healthcare, and infrastructure, particularly in rural areas. Progressive taxation and robust social safety nets are also vital for equitably distributing the benefits of economic growth. Policymakers must remain vigilant and adaptive to sustain improvements and address disparities across all societal segments.

PRICE – People Research on India’s Consumer Economy.
MGNREGA – Mahatma Gandhi National Rural Employment Guarantee Act.
DBT – Direct Benefit Transfer, a government scheme for financial assistance.
Gini Index – A statistical measure of income distribution inequality.
Income share of the bottom 10% fell to 1.1% in 2020-21.

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