Indian income inequality 1922-2014: From British Raj to Billionaire Raj…

Lucas Chancel and Thomas Piketty analyse the trends in this paper (HT:CafeEconomics).

Not surprisingly, the share of national income held by 1% is the highest since 1922:

We combine household surveys and national accounts, as well as recently released tax data in a systematic way to track the dynamics of Indian
income inequality from 1922 to 2014. According to our benchmark estimates, the share of national income accruing to the top 1% income earners is now at its highest level since the creation of the Indian Income tax in 1922.

The top 1% of  earners captured less than 21% of total income in the late 1930s, before dropping to 6% in the early 1980s and rising to 22% today. Over the 1951-1980 period, the bottom 50% group captured 28% of total growth and incomes of this group grew faster than the average, while top 0.1% incomes decreased. Over the 1980-2014 period, the situation was reversed; the top 0.1% of earners captured a higher share of total growth than the bottom 50% (12% vs. 11%), while the top 1% received a higher share of total growth than the middle 40% (29% vs. 23%).

These findings  suggest that much can be done to promote more inclusive growth in India. Our results also appear to be robust to a range of alternative assumptions seeking to address data limitations. Most importantly, we stress the need for more democratic transparency on income and wealth statistics to avoid another “black decade” similar to the 2000s, during which India entered the digital age but stopped publishing tax statistics. Such data sources are key to track the long run evolution of inequality and to allow an informed democratic debate on inequality.

The research shows shining middle class is hardly shining:

Our results shed light on a particularly striking characteristic of Indian growth over the past three decades: the very moderate rise of the “middle class” – at least defined as individuals above median income and below the top 10% earners. Incomes of the middle 40% grew at 102% over the 1980-2014 period. Compared to industrialized countries’ growth rates for this group, the figure is impressive.

In the Indian context however, the middle 40% were notably below average growth (187%). Since 1980, the middle 40% group in India captured a much smaller share of total growth (25%) in than its counterparts did in China or Europe (more than 40%) or even the USA (33%). This result should help us better characterize what has been termed as “the rise of India’s middle class”.

From the perspective or our newly income inequality dataset, “Shining India” corresponds to the top 10% of the population (approximately 80 million adult individuals in 2014) rather than the middle 40%. Relatively speaking, the shining decades for the middle 40% group corresponded to the 1951-1980 period, when this group captured a much higher share of total growth (49%) than it did over the past forty years. It is also important to stress that, since the early 1980s, growth has been highly unevenly distributed within the top 10% group. This further reveals the unequal nature of liberalization and deregulation processes. India in fact comes out  as a country with one of the highest increase in top 1% income share concentration over the past thirty years.

Hmm..

Raises lot of questions over India’s reform period and the trickle down theory. Yes the have nots have benefitted since 1991 but haves have become only stronger. This is what led to turbulence in Western world as well where per capita incomes are much higher. To see similar trends in India with much lower per capita incomes is a food for thought…

4 Responses to “Indian income inequality 1922-2014: From British Raj to Billionaire Raj…”

  1. Linkfest - Kairos Capital Says:

    […] Mostly Economics – British Raj to Billionaire Raj […]

  2. vikramml Says:

    I think the trickle down theory fails even more spectacularly because the rich can get their kids’ education and their healthcare from out of the country (as well as other goods and services). There is no incentive to improve things locally.

    Hypothetically, if there was a rule that politicians and bureaucrats have to use public schools and hospitals, I’m sure we would have excellent institutions in those sectors.

    Pratap Bhanu Mehta called it the upper class exit from the system. Also illustrated by the gated society phenomenon with generators, etc, isolating oneself from the wretchedness outside. And, then people wonder why guards and maids are committing crimes. Duh!

  3. indiachangingtheworld Says:

    Can You lend any hypothesis about the living conditions and other factors of growth about the middle class of India .
    I want to write an article about the rising world inequality comparing developed and non developed world .

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