Economics

Income Inequality Growing in India

An updated version of this post now appears on the IEB, with additional references.

In the debate over growth and equality, and comparisons of India and China, proponents of India’s path to development make much of the fact that income inequality in India is relatively low. The UN Human Development Report 2006 estimates the Gini Index for India to be 32.5 (in 2000). This compares favorably with much of the world, including the USA and OECD countries (Sweden: 25; Norway: 25.8; China: 44.7; USA: 40.8; Brazil: 58).

Yes, India’s income distribution is relatively less unequal. But inequality is rising - fast.

A plot of several countries’ Gini Index (at Wikipedia) illustrates inequality in growing in both India and China. I drew data from World Income Inequality Database (WIID) and the UN Human Development Reports to draw the plot only for India. The plot below shows the Gini Index from 1951-2000 (note: not all years are available; only figures from the National Sample Survey for consumption were used; raw data available in excel).

For observers of the India-China debate, indeed for observers of economic growth, this plot is illustrative because growth has not reduced inequality. Instead, income inequality has exacerbated considerably, rising from a historic low of 29.6 in 1990 to 32.5 in 2000 (a rise of 9.7%). This ignores the high of 36 seen in 1999 (I exclude the Gini of 37.8 recorded in 1997, as that is from a separate data series).

In a recent post I had noted the inverse link between economic growth and improvements in public health. The rate at which India achieved improvements in life expectancy slowed considerably in the post-reform era. I suggested two reasons for this:

1. As GNP rises, the resulting income inequality may be impacting overall life expectancy. As fewer people earn more the GNP rises, but the large majority that gets relatively poorer are worse off.
2. Another ugly truth may well be that a market-oriented India and China provide far less for its people than did socialist India and China. Under the guise of reform, governments in both countries are not only withdrawing from the market but also from public services.

This observation of increasing income inequality seems to strengthen at least the first of these hypothesis.

Of course, a correlation between growth and inequality does not by itself disprove the need for economic growth. Economists still argue that growth is a necessary condition for reducing poverty, and in India it has indeed brought millions out of poverty. But it may also have made many worse off. Now if only the economists could come up with a solution for that conundrum.

For recent data on public health expeditures in India, see this piece in The Hindu, which seems to confirm that the state is indeed withdrawing from provision of basic healthcare.

© 2007 The Discomfort Zone.