How unequal is India? - The Daily Reckoning
The Daily Reckoning by Bill Bonner
On This Day - 29 October 2011
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- By Asad Dossani, Author, The Lucrative Derivative Report

Asad Dossani
A common criticism of India's growth story has been that it is very unequal. The rich get richer while the poor get poorer is a common mantra we hear. Casual observation confirms just how unequal incomes are in the country. For example, what the average driver or servant earns in a year is often less than what the average middle class professional earns in a month.

But does this mean that India is a highly unequal country? Are the poor not benefitting from the high economic growth? And how does India's inequality stack up against the income inequality in other countries? Some of the answers are quite surprising, and may show that India's income inequality is not as bad as it seems at first glance.

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First, let's compare India versus other countries. A useful statistic we can look at is the ratio of the average income of the richest 10% to the average income of the poorest 10%. Effectively, how many times greater is a rich person's income compared to a poor person's income? For India, this figure is 8.6. That is, the income of the richest 10% is 8.6 times higher than the income of the poorest 10%. Does this seem very high?

Compared to most countries, it is actually on the low end of the scale. For example, for the US this figure is 15.9. For the UK, this figure is 13.8. For China, this figure is 21.6, and for Brazil this figure is 40.6! Compared to these three countries, India's income inequality is considerably lower. The country with the lowest inequality is Japan, for whom this figure is 4.5. The most unequal countries by this measure are primarily in Africa and South America.

These statistics tell us that while India does have considerable income inequality, most other major economies have higher income inequality. In particular, other emerging economies have much higher income inequality. Another way we can analyze income inequality in India is by looking at different states. As we know, some states are considerably richer than others. But are the poorer states catching up?

The richer states (i.e., those with the highest average income per person) include Maharashtra, Delhi, Haryana, Goa, Gujarat, and Punjab. The poorer states include Uttar Pradesh, Bihar, Madhya Pradesh, Manipur, and Nagaland. The poorest of these states is Bihar. Any guesses as to which state had the highest growth rate in income per person?

Most of us would probably guess that places like Maharashtra, Delhi, Karnataka, or Gujarat had the highest growth rates, as these are the places that have seen more development and investment than others. The correct answer is none of these places. In fact, the state with the highest growth rate in income per person is Bihar, also the poorest state. Most of the poorer states have growth rates that are sometimes higher or roughly equal to the growth rate of the country as a whole. The only exceptions are states with political problems like Kashmir and some states in the northeast, where growth remains well below the average.

The purpose of this article is to highlight many of the misconceptions about income inequality in India. Compared to other major economies, India's income distribution is less unequal than others. Furthermore, many of the poorer states in India have high growth rates implying eventual convergence.

What is important to point out is that income inequality is a relative measure only. It is not about absolute income levels. Poverty is still widespread in India, and this is a problem that needs to be solved over time. The gap between rich and poor is greater in the US than in India. However, the poor in India are much worse off than the poor in the US, and this is the important distinction to make.

is a financial analyst and columnist. He actively trades his own and others' funds, investing primarily in currency, commodity, and stock index derivative products. Prior to this, he worked at Deutsche Bank as an analyst in the FX derivatives team. He is a graduate of the London School of Economics. Asad is a keen observer of macroeconomic trends and their effects on global financial markets. He is deeply passionate about educating investors, and encouraging individuals to take part in and profit from financial markets. To put it colloquially, he wishes to take Wall Street products and turn them into Main Street profits!

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22 Responses to "How unequal is India?"

Kumar

Nov 3, 2011

40% of people are Below Poverty Line (Approx 25 USD) . The last person in top 10% earns around 3000 USD. This works out to ratio of 120. Most flats cost in Mumbai today cost a crore. The last man of top 10% has to work for 10 years to get a flat. This article is just wrong

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Nirav Mehta

Nov 1, 2011

A question to Mr. Dosaani

Do you believe in the statistics that you have provided in the article, by quoting UN...whatever??

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Dharmendra

Nov 1, 2011

Good article. However one question for Indian data - the income figures in the article only reflect the disclosed income/wealth. It would be interesting to know the ratio if the actual data is considered. Just a short time back, one of the richest politicians gave a ridiculously low figure of his wealth.

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debu

Nov 1, 2011

The adage says- There are three kinds of lies. Lies,damn lies and statistics. Our common sense and every day life does not confirm the above income statistics. We would request equitymaster not to publish any article which create disbelief or confusion to us.

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Asad Dossani

Oct 31, 2011

In response to some of your queries on the source of this data: The income inequality statistics are from the UN Human Development Report 2009, in the economy and inequality table. This can be found on a Google search and downloaded if one wants to read it. The UN statistics are compiled from each country's government statistical agencies.

Regards,
Asad

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Arun Patel

Oct 31, 2011

Dear Sir,
The ratio of richest to poorest is 8.6 is seems to be fictitious. Because top 10% people are getting more the 60% India's income while 10% poorest are those people, who do not get food for even one time. How has derived this figure? Is it Mr. Ahluwalia?

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G K Barman

Oct 31, 2011

Good analysis on the 10% band of poverty, but seems impossible. It would be better if Mr. Dosany put some data as attachement on which he came to that fact of only 8.6
It is possibly more than 8600

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Ruhul

Oct 30, 2011

It wrong to justify the inequality with help of mere statistics. Sometimes statistics like bikini which reveales everything but hides vital things. In fact I agree with the last para that poor in India are much worse than US or UK. I doubt whether you taking into account access to safe drinking water, health care, electricity, schools, roads etc to clculatate income of the poor. If you factor these, the ratio would be more than 1000.

Like (1)

Sathya

Oct 30, 2011

Ratio of top 10% and bottom 10% is only 8.6 in India? Rs 32/day or Rs 1000/month is the poverty cutoff limit and a lot more and 10% are below it even as per planning Commission est. So let is say bottom 10% is on Rs 1000/ month. The top 10% is then on 8600/month?! The ratio looks more like 860 times!
Just goes to show our statistics are too unreliable to make any estimates.

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Vikas a sivaraman

Oct 30, 2011

Mr Dossani's basic premise of the average income of the top 10% richest and poorest in the country is itself extremely debatable and reeks of having missed a couple of zeros somewhere!! The richest in India are just 8.6% better off than the poorest in terms of income? Not way! More likely 800%!!
As regards his observation - that poverty needs to be solved over time - I think it's already way past about time!!! Don't you? Countries like Thailand, Namibia and the once devastated Croatia have built themselves speedily back mostly with enormous political will. Something we seem to distinctly lack - or perhaps it's just the politician big industry nexus in this country that we need to tackle to even begin to dismantle poverty. The non inclusive growth mantra of this country is doing very well thank you and banish any thought of the income gap narrowing. It will only widen given the Eco political scenario currently in this country.

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