India’s Economic Boom Has Deepened Inequality, Report Says

Inequality Has Surpassed Levels Seen During British Rule

Newsreel Asia Insight #175
March 29, 2024

India’s recent economic growth has led to a pronounced increase in income and wealth inequality, surpassing levels observed during British rule, according to a new study by the World Inequality Lab and as reported by Article 14. The research indicates that the concentration of wealth in India is now more severe than in countries like the United States, Brazil and South Africa, with the top 1% of the population holding a disproportionately large share of the nation’s wealth.

The paper, a collaborative effort by economists from New York University, Paris School of Economics and Harvard Kennedy School, including notable French economist Thomas Piketty, delves into the distribution dynamics of India’s economic growth. It contrasts the current wealth concentration with the more egalitarian distribution during the British era, raising questions about the equitable distribution of economic gains in India.

India’s economic performance, as reported by the National Statistical Office in January 2024, showed a real GDP growth of 7.3% for 2023-24, outpacing projections and leading major economies globally, Article 14 noted. This growth, however, is examined by the study in the context of distributional outcomes, especially with the upcoming general election in April-May 2024.

The World Inequality Lab’s paper, titled “Income and Wealth Inequality in India, 1922-2023: The Rise of the Billionaire Raj,” combines national income accounts, tax data, billionaire rankings and surveys to trace the evolution of income and wealth distribution in India since 1922.

The findings reveal a sharp rise in inequality since the early 2000s, with a significant uptick post-2014-15. The top 1% now accounts for 22.6% of income and 40.1% of wealth in India. The paper suggests that a modest “super tax” on the wealthiest could generate substantial revenue, aiding in public investment for health, education and nutrition, thereby promoting a more inclusive benefit from globalisation.

Nitin Kumar Bharti, the lead author of the paper, told Article 14 that the rising inequality will have a negative impact on India’s growth potential, pointing out that the country has missed out on consumption-led growth due to the concentration of wealth in the hands of a few. Bharti also noted the historical and structural aspects of inequality in India, which have been worsened by economic policies over the years, regardless of the ruling political party.

The paper’s analysis extends to the role of education in perpetuating wage inequality, highlighting the cyclical nature of educational and income disparities.

Bharti explained, “On how wage inequality in turn starts impacting education inequality, if you have very high wage inequality—I am now going to use wage and income inequality interchangeably because a major part of income inequality comes from wage inequality—and a situation where good schools are mostly private schools with high tuition then good quality education is inaccessible to a large population. This further leads to decreasing intergenerational mobility based on education rank, and thus income inequality starts impacting education inequality.”

The study points out the need for a robust public education system to break this cycle and ensure equitable opportunities for all.

Bharti agreed with the government’s claims that average incomes are rising. However, he explained, this increase mostly benefits the wealthiest small group, leaving the middle and lower-income groups with a smaller share of the wealth. Most people, about 95%, mainly own land and buildings, which make up 90% of their wealth, while only a small part, about 10%, is in financial assets. Since 1991, the rich have seen their asset prices, especially land, increase much faster due to better public amenities in areas where these rich people invest.

Critics of the paper, including economists Surjit Bhalla and Karan Bhasin, have challenged its methodology and conclusions, particularly questioning the assumptions about income and wealth distribution. However, Bharti defends the research, clarifying misunderstandings and emphasising the need for accurate data to understand the true extent of inequality in India, according to Article 14.