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Income Inequality
Utilising unit-level data from the India Human Development Surveys, income inequalities in India and in 17 major states for 2004–05 and 2011–12 are estimated. Income inequality was generally high and was rising during the years, notwithstanding some declines in a few states. It is observed that income inequalities among Indians are unlikely to be narrowed down on their own from trickledown effect of income growth.
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Until recently, most studies of economic inequality in India were limited to looking at inequality in consumption expenditure (Tendulkar and Jain 1995; Jha 2000; Deaton and Dréze 2002; Sen and Himanshu 2004; Sarkar and Mehta 2010; Weisskopf 2011). These studies relied on monthly per capita consumption expenditure (MPCE) data collected by the National Sample Survey Office (NSSO) in its rounds of household consumption expenditure surveys. Inequality in consumption expenditure, however, unlike that in income, underestimates economic inequality as the higher savings and bequests of the rich and greater consumption-related indebtedness of the poor are not reflected in it (Okun 1975). After data on individual incomes became available from India Human Development Surveys (IHDS)1 of 2004–05 and 2011–12, Piketty and Lucas (2017) and Sam et al (2020) profiled income inequality in India at the national level. The present paper explores the unit-level data of the two IHDSs more intensively to go beyond the all-India picture to examine the extent and trend of income inequality in 17 major Indian states.2 Further, by splitting the IHDS samples by religious, caste and rural–urban components, it estimates income inequalities among and within mutually exclusive socio-spatial categories.
Given that some amount of inequality is inevitable in any social set-up, economists have drawn a distinction between fair and unfair inequality (Roemer 1998; Brunori 2016). That part of inequality which arises from factors over which the individuals have no control, such as one’s caste, race, gender, parental wealth, etc, has been defined as unfair inequality. By contrast, the extent of inequality which can be ascribed to factors within the individual’s control, such as the individual’s own effort and initiatives, has been described as fair inequality. Our estimated cross-group inequalities reflect the part of unfair inequality arising from caste, religion and location. The within-group inequalities of course cannot be said to contain only fair inequality as the role of important contributors to unfair inequality such as inheritance and gender could not be filtered out. Yet the exercise gives an idea about a significant part of unfair inequalities in the country.
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