Income distribution: Recent developments

No better, though pace of worsening has reduced at the top

On the last occasion when I wrote on this topic, data availability was inclusive of 2013-14. Now we have up to 2015-16. The population totals considered are 351 million in 1980-81, 778 million in 2013-14, and 810 million in 2015-16 comprising the above-20 age group. Looking at the state of the ‘bottom’ 50 per cent of this group, and even next 40 per cent, that is, all but the top 10 per cent, there is little doubt that the improvement of income distribution remains the most intractable prevailing challenge for India. Statistics reveal the stark reality.

Table 1 dissects income distribution over time. Between 1980-81 and 2015-16 (36 years), the share of national income declined significantly for the bottom 50 per cent population — from 23 per cent to 15 per cent — and for the next 40 per cent population — from 45 per cent to 29 per cent. Contrarily, it increased significantly for the top 10 per cent — from 7 per cent to 21 per cent — as well as its component groups. However, interestingly, the numbers reveal that the degree of inequality caused by the top 1 per cent dipped between 2013-14 and 2015-16. The last two columns of Table 1 confirm these results through positive or negative growth rates of the shares themselves. The first column shows at what rate the shares changed between 1980-16, revealing worse rates as the incomes of groups decrease. Yet, the final 2014-16 period reveals that the shares deteriorated for all groups other than 9 per cent (of the top 10 per cent) which experienced a positive rate of growth.   
 

Source: World Inequality Database (www.wid.world).

Table 2 examines average incomes by income groups in ratio of average national income. Note that the first row is unity (as it should be for the full population). We divide unity into component groups. Looking at 1980-81, the bottom 50 per cent earned half the national average, and the next 40 per cent 1.1 times the average. Thus even in 1980-81, 90 per cent of the population barely reached or lay much below the average income of the population. By 2013-14 (and 2015-16), their shares had deteriorated to 30 per cent and 70 per cent, respectively, of the national average. The top 9 per cent moved from 2.7 times to 3.9 times of the average, and the very top 1 per cent from 7.3 to 21.3 times. It is obvious how, over three-and-a-half decades, the average group incomes of the top 10 per cent rose significantly in terms of the national average, while those of the ‘bottom’ 90 per cent languished and declined.

5- (Sum of per year growth rates)/36

Looking within the very top 1 per cent, for the top 0.1 per cent component, their average compared to the national average rose from 20 to 82 times, for the top 0.01 per cent from 57 to 341 times and, for the topmost 0.001 per cent, from 191 to 1,362 times. Thus, the scale of increase itself increased with higher income groups over the period. The last column of the table takes the sum of each year’s income growth rate and presents the average. Again it reveals more rapid growth rates — from a low of 2 per cent to a high of 14 per cent — as we move up the scale. Clearly income distribution worsened between 1980-81 and 2015-16.

Illustration by Binay Sinha

Nevertheless, an interesting fact emerges from comparing the columns for 2013-14 and 2015-16. Between these years, the averages of the top 1 per cent and their components in ratio of the national average declined, however slightly. This could be an accidental measurement blip, yet it could also comprise a hint of a change for the better. For all other groups comprising 99 per cent of the population, the averages have increased (for 9 per cent) or remained the same (for the bottom 90 per cent). Thus a re-distribution has occurred from the top 1 per cent to the next 9 per cent.    

How does India compare with China and Russia? As Table 3 reveals, all groups in India have experienced real income growth, though the rate goes up rapidly as incomes increase. China has experienced more rapid growth, with much higher numbers as incomes go up. In Russia, unbelievably, the ‘bottom’ 90 per cent population have actually experienced a decline in their real incomes while the top 0.1 per cent has experienced even higher growth than in China. This is a case of extreme deterioration in income distribution.   

6- [(Final Year-First Year)/First Year]*100.

The final question is, who comprises India’s ‘middle class’. Going back to Table 1, Column 1, the average annual income of the bottom 50 per cent is Rs 45,000 and the next 40 per cent is Rs 1,13,000 approximately. It would be a fallacy to term them middle class by acceptable parlance. For the next 9 per cent, it is about Rs 600,000, or Rs 50,000 per month. If we categorise them as middle class, it leaves 90 per cent — let’s say three-fourths  — of the above-20 age group of India as below middle class.