A recent research of SBI highlights suggests a significant decline in income inequality in India over the last decade.

Key Findings of the Report:

• Gini Coefficient Decline:

  • The Gini coefficient, a measure of inequality, has fallen from 0.472 in 2014-15 to 0.402 in 2022-23, indicating a nearly 15% reduction.

• Taxpayer Data Analysis:

  • The analysis is based on taxpayer data, raising concerns about the exclusion of a significant portion of income-earners who fall below the taxable threshold.
  • Approximately 80% of income-earners, earning less than ₹2.5 lakh per annum, are not considered in the taxpayer data.

Gini Coefficient

  • It derived from the Lorenz Curve, serves as an indicator of economic development in a country.
  • It quantifies the level of income equality within a population.
  • The Gini Coefficient’s scale ranges from 0 (perfect equality) to 1 (perfect inequality).

• Income Polarization:

  • Despite the overall decline in the Gini coefficient, there is evidence of income polarization, particularly among self-employed workers.
  • Incomes of the top 10% have grown faster than the bottom 30%, with the self-employed category showing notable polarization.

• Aggregate Inequality Analysis:

  • The Gini coefficient has fallen from 0.4297 in 2017-18 to 0.4197 in 2022-23, but there is a slight rise in inequality for the self-employed.

• Changes in Polarization:

  • The study introduces the concept of polarization in incomes, showing a divergence in fortunes between the top and bottom income scales.
  • The 90/10 ratio, indicating the income gap between the top 10% and bottom 10%, has increased from 6.7 in 2017-18 to 6.9 in 2022-23. 

• Polarization Amongst Different Forms of Work:

  • The 90/10 ratio has fallen for wage earners, especially for regular wage workers, while significantly increasing for the self-employed.
  • The income gap between the top and bottom 10% of self-employed individuals has notably widened.

Reasons for income inequality in India:

  • Land ownership and agricultural income: Unequal land distribution and challenges in agriculture, including low productivity and market fluctuations, contribute to income disparities, especially for small and marginal farmers.
  • Access to education and healthcare: Limited access to quality education and healthcare, concentrated in urban areas and among wealthier populations, restricts social mobility and reinforces income inequality.
  • Social inequalities: Caste, gender, and religious discrimination impact education, employment opportunities, and resource access, affecting earning potential and widening income gaps.
  • Taxation structure: The reliance on indirect taxes like GST, coupled with tax evasion by wealthier individuals, distorts income distribution and contributes to financial inequality.
  • Unemployment and underemployment: High unemployment rates, inflation, and underemployment create economic disparities, widening the gap between employed and unemployed individuals.
  • Informal labor market: The significant informal sector, characterized by limited job security and benefits, contributes to income disparities among workers.
  • Black money and corruption: The presence of black money and corruption in the economy undermines the taxation system, leading to unequal income distribution.

Government Measures to Address Income Inequality in India

• Constitutional Provisions:

  • Article 38: Guarantees the right to an adequate means of livelihood and advocates for the equal distribution of resources.
  • Article 39(b): Mandates the state to ensure that the ownership and control of material resources are not concentrated in the hands of a few.
  • Article 46: Promotes the development of weaker sections of society, scheduled tribes, and scheduled castes.

• Legal efforts:

  • Minimum Wages Act, 1948: Sets minimum wage standards for various industries and occupations to ensure basic living standards. 
  • Right to Education Act, 2009: Guarantees free and compulsory education to children aged 6-14, improving access to education for all.
  • MGNREGA (Mahatma Gandhi National Rural Employment Guarantee Act), 2005: Provides guaranteed 100 days of employment in a financial year for rural households, enhancing income security and rural development.

• Major Schemes:

  • National Education Policy 2020: Focuses on equitable access to quality education, potentially reducing skill gaps and income inequality.
  • Pradhan Mantri Awas Yojana (PMAY): Provides housing assistance to low-income families in urban and rural areas, improving living conditions and reducing poverty.
  • Swachh Bharat Mission: Aims to improve sanitation and hygiene in rural areas, contributing to better health and well-being, especially for vulnerable communities.
  • Pradhan Mantri Kisan Sampanna Yojana (PM-KISAN): Provides income support to small and marginal farmers, enhancing agricultural income and rural livelihoods.
  • Skill India Mission: Focuses on skilling and upskilling the workforce, equipping individuals with skills relevant to the job market and improving employability.
  • Pradhan Mantri Jan Dhan Yojana (PMJDY), 2014: Promotes financial inclusion by providing bank accounts and access to financial services for unbanked individuals.

Way Forward

  • The success of these measures hinges on their efficient execution, precise targeting of beneficiaries, and a sustained process of evaluation. 
  • Additionally, addressing systemic challenges such as social discrimination and disparate access to resources remains pivotal for advancing substantial progress toward greater income equality in India. 
  • Achieving this goal requires collaborative endeavors involving the government, civil society, and the private sector to foster a more inclusive and equitable society for all.

Also Read

Semiconductor Design-Linked Incentive (DLI) Scheme