In ormation in this chapter is based on the or ing paper Indian Income Ine uality, : rom British a to Billionaire a , by Lucas hancel and homas i etty, ID orld
or ing aper eries No /
Income inequality in India has reached historically high levels. In 2014, the share of national income accruing to India’s top 1% of earners was 22%, while the share of the top 10% was around 56%.
Inequality has risen substantially from the 1980s onwards, following profound transformations in the economy that centered on the implementation of deregulation and opening-up reforms.
Since the beginning of deregulation policies in the 1980s, the top 0.1%
earners have captured more growth than all of those in the bottom 50%
combined. The middle 40% have also seen relatively little growth in their incomes.
This rising inequality trend is in contrast to the thirty years that followed the country’s independence in 1947, when income inequality was widely reduced and the incomes of the bottom 50% grew at a faster rate than the national average.
The temporary end to the publication of tax statistics between 2000–2010 highlights the need for more transparency on income and wealth statistics that track the long-run evolution of inequality. This would allow for a more informed democratic debate on inequality and inclusive growth in India.
India entered the digital age without inequality data
India introduced an individual income ta ith the Income a Act o , under the British colonial administration. from that date up to the turn of the twentieth century, the indian Income a Department produced income ta tabulations, ma ing it possible to trac the long-run evolution o top incomes in a system-atic manner. Given the profound evolutions in india’s economy since the country’s inde-pendence, this provides a rich data resource for researchers to access.41 research has shown that the incomes of the richest—the top incomes declined significantly rom the mid-1950s to the mid-1980, but this trend was reversed thereafter, when pro-business, mar et deregulation policies ere imple-mented.
little has been known, however, about the distributional impacts of economic policies in India a ter , hen real income gro th as substantially higher than in previous
decades his is largely because the Indian Income a Department stopped publishing income ta statistics in , but also because self-reported survey data often do not provide ade uate in ormation concerning the top of the distribution. in 2016, the Income a Department released ta tabula-tions or recent years, ma ing it possible to track the evolution of income inequality during the high average income gro th years post-2000.
Inequality rose from the mid-1980s after profound transformations of the economy
over the past four decades, the indian economy has undergone pro ound evolu-tions In the late seventies, India as recog-ni ed as a highly regulated, centrali ed economy ith socialist planning But rom the s on ards, a large set o liberali ation and deregulation re orms ere implemented liberalization and trade openness became recurrent themes among Indian policyma ers,
25%
30%
35%
40%
45%
50%
55%
2010 2000
1990 1980
1970 1960
1950
Share of national income (%)
In 2014, the Top 10% national income share was 55%.
Top 10%
Middle 40%
Source: Chancel & Piketty (2017). See wir2018.wid.world for data series and notes.
Figure 2.9.1a
top 10% and middle 40% income shares in India, 1951–2014
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World inequality report 2018 124
epitomized by the seventh plan (1985–1990) led by prime minister rajiv Gandhi (1984–
hat plan promoted the rela ation o mar et regulation, ith increased e ternal borro ing and increased imports hese free-market policy themes were then further embedded in the conditions attached to the international monetary fund’s assistance to india in its balance of payment crisis in the early 1990s, which pushed further structural re orms or deregulation and liberali ation his period also sa the ta system undergo gradual trans ormation, ith top marginal income ta rates alling rom as high as in the 1970s to 50% in the mid-1980s.
he structural changes to the economy along ith changes in ta regulation, appear to have had significant impact on income ine uality in india since the 1980s. in 1983, the share o national income accruing to top earners as the lo est since ta records started in
: the top captured appro imately of national income, the top 10% earned 30%
of national income, the bottom 50% earned
appro imately o national income and the middle 40% just over 46% (see Figure 2.9.1a and b). but by 1990, these shares had changed notably ith the share o the top gro ing appro imately percentage points to 34% from 1983, while the shares of the middle 40% and bottom 50% both fell by percentage points to around and , respectively.
hat came to be no n as the first set o economic reforms were implemented from 1991 to 2000 and in practice were the contin-uation of the mid 1980s policy shift. these reforms placed the promotion of the private sector at the heart of economic policies, via denationalizations, disinvestment of the public sector and deregulation de-reservation and de-licensing o public companies and indus-tries)42, eighing the economy substantially in favor of capital above labor. these reforms ere implemented both by the ongress government and its onservative successors as illustrated by Figure 2.9.1, these reforms were concomitant with a dramatic rise in
5%
10%
15%
20%
25%
2010 2000
1990 1980
1970 1960
1950
Share of national income (%)
In 2014, the Bottom 50% national income share was 15%.
Bottom 50%
Top 1%
Source: Chancel & Piketty (2017). See wir2018.wid.world for data series and notes.
Figure 2.9.1b
top 1% and bottom 50% income shares in India, 1951–2014
indian income inequality by 2000. the top 10% had increased its share of national income to , roughly the same as that attributable to the middle 40%, while the share of the bottom 50% had fallen to around 20%.
hese pro-mar et re orms ere prolonged after 2000, under the 10th and subsequent five-year plans he plans ended government fi ation o petrol, sugar and ertili er prices and led to further privatizations, in the agricultural sector in particular Ine uality trends continued on an upward trajectory throughout the s and by the richest 10% of the adult population shared around 56% of the national income. this left the middle 40% with 32% of total income and the bottom 50%, with around half of that, at just over 16%.
Indian inequality was driven by the rise in very top incomes
Ine uality ithin the top group as also high he higher up the Indian income
distribu-tion one looks, the faster the rise in their share of the national income has been since the early 1980s. as depicted by Figure 2.9.2, the income share o India s top rose rom appro i-mately 6% in 1982–1983 to above 10% a decade after, then to 15% by 2000, and further still to around 23% by 2014. the latest data thus sho s that during the first decade after the millennium, the share of national income attributable to the top gre to be larger than that pertaining to the bottom by 2014, the national income share of the bottom a group o appro imately million adults as ust t o-thirds o the share o the top , ho totaled million An even stronger increase in the share o national income as e perienced by the top and top , hose shares gre five-fold and tenfive-fold, respectively, from 2% and 0.5% to almost 10% and 5%, between 1983 and Income gro th rates at the very top ere e treme, as sho n by table 2.9.1. these evolutions are consistent with the dynamics of indian wealth inequality, which
In 1922, the Top 1% national income share was 13%.
Share of national income (%)
5%
10%
15%
20%
25%
2010 2000
1990 1980
1970 1960
1950 1940
1930 1920
Top 1%
Source: Chancel & Piketty (2017). See wir2018.wid.world for data series and notes.
Figure 2.9.2
top 1% income share in India, 1922–2014
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World inequality report 2018 126
e hibit a strong increase in the top wealth share in the recent period, in particular after 2002.43 ighly une ual income gro th at the top mechanically drives wealth inequality across the population, which in returns fuels income concentration.
the recent surge in inequality mirrors inequality declines from the 1940s to the 1980s
after independence, Jawaharlal nehru imple-mented a set of socialist policies, with strict government control over the economy, ith an e plicit goal to limit the po er o the elite he policies implemented by himself and his ollo ers, including his daughter Indira Gandhi, up to the late 1970s, included nationalizations, strong mar et regulation and high ta progres-sivity. nationalizations involved the railways and air transport in the early-1950s, oil in the mid- s and ban ing throughout the entire period, to cite but a e Along ith the trans er of private to public wealth and their implicit reduction in capital incomes, nationalizations brought government pay-scale setting ith them that compressed age distributions In the private sector, incomes were constrained by e tremely high ta rates: bet een and , top marginal income ta rates rose rom
to almost hese changes may have discouraged rent-see ing behavior at the top of the distribution, which can be seen as an e ficient strategy in the presence o e cessive bargaining po er and rent-see ing activity the impact on income inequality was substan-tial, as the top 1% income share decreased from 21% before the second World War to appro imately in the s and 1960s and fell further to 6% in the early 1980s.
revisiting “shining India’s” income growth rates
how do these vast institutional and policy changes translate in terms o income gro th rates or di erent groups o the population as Figure 2.9.3 illustrates, the average gro th of real incomes has varied notably between the di erent groups in the income distribution since the 1950s. the annual real incomes of the bottom gre at a aster rate than the country ide average during the s and s hen socialist central planning domi-nated the indian economy, and at a notably higher pace than the gro th e perienced by those in the top 10% and top 1% of earners.
o ever, this dynamic changed dramatically during the s and has remained as such ever since he s sa a much higher table 2.9.1
total income growth by percentile in China, France, India and the us, 1980–2014
Income group India China France us
Full Population 187% 659% 35% 61%
bottom 50% 89% 312% 25% 1%
middle 40% 93% 615% 32% 42%
top 10% 394% 1 074% 47% 121%
top 1% 750% 1 534% 88% 204%
top 0.1% 1 138% 1 825% 161% 320%
top 0.01% 1 834% 2 210% 223% 453%
top 0.001% 2 726% 2 546% 261% 636%
ource: hancel i etty ee ir id orld or data series and notes
Bet een and , the average income o the op gre by in India Values are net o in lation
average income gro th rates than in the previous decades, but gro th as only marginally higher or the bottom o the population igh gro th as in act concen-trated among the top his situation as prolonged throughout the s During the s, the annual real income gro th o the top as close to , followed by the top 10% at around 7 % and the bottom 50% at less than 2.5 %. india’s coun-try ide average as over the decade table 2.9.2 sho s the gro th rate and the percentage o gro th captured by di erent income groups in India bet een
During this period, the higher the group in the distribution o income, the lo er the gro th rate they e perienced eal per-adult incomes o the bottom and middle groups gre substantially aster than average income, increasing by and respectively, compared to the gro th o average income per adult. furthermore, the top 0.1%, top and top income groups table 2.9.2
Income growth and inequality in India, 1951–1980 Income group total real per
adult income growth
share of growth captured by income group
Full Population 65% 100%
bottom 50% 87% 28%
middle 40% 74% 49%
top 10% 42% 24%
top 1% 5% 1%
top 0.1% -26% -2%
top 0.01% -42% -1%
top 0.001% -45% -0.4%
ource: hancel i etty ee ir id orld or data series and notes Bet een and , the average income o the op gre by he op captured o total gro th over this period Values are net o inflation
0%
1%
2%
3%
4%
5%
2010 2000
1990 1980
1970 1960
1950
Average annual real growth (%)
In the 2000s, the average income of the full population grew by 4.5% per year on average, while the average income of the Bottom 50% grew by 2.4% per year on average Values are net o inflation
Full population
Bottom 50%
Source: Chancel & Piketty (2017). See wir2018.wid.world for data series and notes.
Figure 2.9.3a
Income growth in India, 1951–2014: Full population vs. bottom 50%
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World inequality report 2018 128
e perienced a significant reduction in their real incomes, alling - , - and - respec-tively over the 30-year period. the bottom
group captured o total gro th between 1951 and 1980, while the middle
captured almost hal o total gro th It is particularly interesting to compare the pre- ith the post- gro th rates from 1980 to 2014, the bottom 50% and middle gre at and , respec-tively hereas average income gro th is substantially higher a ter , there is very little di erence in gro th rates or the bottom 50% and middle 40%. since 1980, it is also stri ing that the top earners captured more o the total gro th than the bottom 50% (12% versus 11% of total gro th he top o earners represented less than 800 000 individuals in 2014, this is equivalent to a population smaller to delhi’s I suburb, Gurgaon It is a sharp contrast ith the million individuals that made up the bottom half of the adult population in 2014.
at the opposite end of the distribution, the top 1% of indian earners captured as much gro th as the bottom
table 2.9.3 illustrates the income levels and income thresholds or di erent groups and their corresponding adult population in
he bottom earned significantly less than the average income per adult, receiving less than one-third of the nationwide mean income be ore ta , hile the average income o the middle as around our-fi ths the national average hose in the top earned five times the national average, and
hen one e amines urther up the income distribution, the same e ponential trend as seen in the gro th statistics is evident he top o earners, or e ample, received around ₹ million per year on average, hile the top receive appro
i-mately ₹ million , and
times the average income or Indian adults, respectively. for the top 0.001%, this ratio is 1871. (Figure 2.9.4)
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
2010 2000
1990 1980
1970 1960
1950
Average annual real growth (%)
In the 2000s, the average income of the full population grew by 4.5% per year on average, while the average income of the Top 1% grew by 8.7% per year on average.
Values are net o inflation
Source: Chancel & Piketty (2017). See wir2018.wid.world for data series and notes.
Full population Top 10 %
Top 1%
Figure 2.9.3b
Income growth in India, 1951–2014: Full population vs. top 10% vs. top 1%
table 2.9.3
the distribution of national income in India, 2014 Income group number of
adults
Income threshold
(€)
average income (€)
Comparison to average income
(ratio)
Income share
Full Population 794 306 000 – 6 200 1 100%
bottom 50% 397 153 000 – 1 900 0.3 15.3%
middle 40% 317 722 000 3 100 4 700 0.8 30.5%
top 10% 79 431 000 9 200 33 600 5 54.2%
top 1% 7 943 000 57 600 134 600 22 21.7%
top 0.1% 794 000 202 000 533 700 86 8.6%
top 0.01% 79 400 800 100 2 377 000 384 3.8%
top 0.001% 7 900 3 301 900 11 589 000 1871 1.9%
ource: hancel i etty ee ir id orld or data series and notes
In , the average income o the op as ₹ All values have been converted into urchasing o er arity euros at a rate o ₹ accounts or di erences in the cost o living bet een countries Values are net o in lation Numbers may not add up due to rounding
Bet een and , the average income o the op gre by Values are net o inflation Source: Chancel & Piketty (2017). See wir2018.wid.world for data series and notes.
National income growth per adult (%)
0%
500%
1 000%
1 500%
2 000%
2 500%
3 000%
99.999 99.99 99 99.9
90 80
70 60
50 40
30 20
10
Income group (percentile) Figure 2.9.4
total income growth by percentile in India, 1980–2014
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World inequality report 2018 130