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Income inequality: Is it misinformation or a conceptual faux pas?

8 Min Read

The Government of India (GOI) argues that its policies promote rapid economic growth, making India the fourth largest economy in the world and one of the most equitable societies in the world. Income inequality in India measured by the Gini coefficient fell from 28.8 in 2011-12 to 25.5 in 2022-23, citing World Bank data claiming that it ranked India as the fourth-equal country in the world, after only Slovakia, Slovenia and Belarus. However, these claims are misleading and fundamentally flawed.

The government report combines a decrease in consumption inequality with a decrease in income inequality based on the Household Consumption Expense Survey (HCES, 2022-23).

Important warning

The World Bank report, which is selectively referenced in the government’s PIB press release, contains important warnings that undermine these claims.

Data Limitations: The reported reduction in consumption inequality may be modest due to the methodological changes in HCES 2022-23 using multi-stage visits, unlike the single-visit approach in 2011-12.

Inequality in rising income: Contradicting the government’s claims, income inequality increased, increasing the coefficient of income, from 52 in 2004 to 62 in 2023 (see chart 1).

Wage disparity: In 2023-24, the top 10% achieved a median income of 13 times higher than the bottom 10%, highlighting significant wage gaps.

Invalid global comparison: The comparison of PIB and Indian consumption inequality with indicators of income inequality in other countries is misleading and distorting the narrative.

(The Gini coefficient measures the deviation (0-100) of income or consumption distribution from perfect equality (0).

In rapidly growing emerging economies, rising revenue inequality is not inherently negative, when attributed to increased productivity and technological advances. As long as the actual increase in income is based on a wide range, they encourage effort and promote a noble cycle of growth.

However, rising inequality alongside stagnant or actual suspension or decline in revenue is a concern. It undermines labor productivity, blocks work and increases reliance on government handouts. This simply provides a lower limit for consumption without dealing with the actual income contraction of most households. In India, this coincides with the reduced middle class (50th-90th percentile), as pointed out by Piketty et al.

Long-term income inequality with reduced real income can curb demand, hamper investment in education and health, and hamper long-term growth, especially in emerging economies with limited social safety nets. The PIB touts the actual GDP growth of India at 6.5% from 2024-25, and is projected to last from 2025-26 as evidence of robust domestic demand and sound policy, but falling inequality is attributed to lower welfare measures against free food distribution, direct benefit transfers and state-level subsidies. This story of a profit growth spiral — characterized by the widespread benefits of actual income, employment, spending and savings — is in stark contrast to new economic trends.

Inappropriate Consumption Survey Comparison: HCES 2022-23 Comparison with the 2011-12 survey is ineffective due to methodological differences. Yet, actual per capita consumption expenditures increased at a modest 3.3% CAGR in rural areas and a 2.8% in urban areas, far below reported GDP growth, indicating an overwhelming household situation.

Sustained income stress: Multiple data sources confirm actual revenue decline. RBI’s KLEMS data show real income per work slowing down from 8% in 2009 to a CAGR of 5 and after 4 years from 2019. Workers’ income per worker was signed with a 1.6% CAGR (2019-24) as employment was shown to rise by 5.4%, the lowest since 1986 (see chart 2).

Regular Workforce Survey (PLFS) reveals actual income shrinkage in 80% of states over the past five years. Furthermore, data from the Ministry of Labor, RBI and NABARD show increased reliance on rural wages, strained urban employment, particularly among rural women, offsetting increased cost of living, including poorly-quality self-employment and government services.

Annual surveys of unincorporated companies show that the true value added and revenue has declined over the past eight years. This stagnation in actual income has supported a sharp slowdown in household consumption and savings over the past 11 years.

Increasing inequality in the formal sector: Income tax data to acquire formal sector incomes reveals almost consistent inflation in revenue growth after the pandemic (4.5% in 2024 and 10-year CAGR of 5.1%). Inequality among payroll workers has risen to a decade high, with deviations from full equality increasing from 43.1% in 199 to 47% in 2024. The bottom 40% of pay earners saw their stocks fall from 15.5% to 13.6%, while the top 20% rose from 44.7% to 50%. Compensation growth is biased towards sectors such as service exports and BFSI, but manufacturing and other services are lagging behind inflation.

Structure backslide: The rising egalitarian narrative ignores the reversal of economic change, characterized by increased ruralization, declining quality jobs, and reduced migration over the past decade. Industrial policies that support market concentration among a small number of oligocolicists have limited formal job creation and drive growth in capital and import intensiveness. KLEMS data has emphasized the evacuation of formal sector labor forces due to deepening capital, pushing workers towards disguised unemployment of agriculture and low-productivity self-employed. Despite the actual growth of agricultural GVA over five years of 4.7%, the actual wage is contracted by 0.6% CAGR.

K-shaped recovery: India’s economy shows a K-shaped progression, with wealthy households benefiting from increased productivity, leverage spending and buoyant stock markets, as opposed to increased productivity, leverage spending and budget constraints for low-income households. This is evident in downtrading and spending reductions across consumer goods, from staples to entry-level vehicles.

The policy does not meet Utopian narrative: The utopian narrative of economic abundance sounds hollow to the paradoxical switch in policy away from supply-side driven strategies that have failed to create crowds due to the revival of private CAPEX, increased manufacturing/GDP ratios, and productive employment generation. The outcome of the growing gap between burgeoning public debt (£280 trillion) and household income is rising at a half-pause, enforcing trade-offs in favour of doll-outs such as free food, state-specific cash payments, employment-linked incentives (ELI) schemes and income taxes.

In conclusion, the government’s claim to reduce inequality is misleading, hiding the broader reality of increasing income inequality and widespread economic hardships. These trends undermine the claims of poverty reduction as poverty alleviation is unlikely to result in real-world declines in income and rising inequality. By highlighting the narrative of economic success, the PIB and the World Bank report that they obscur the pressing need for policy measures to tackle these structural issues.

The writer is the CEO & Co-Head of Equities and Head of Research at SystemAtix Group. The view is personal

Released on July 10, 2025

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