How unequal is India?

Oct 29, 2011

- 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.--------------------- FREE Newsletter ---------------------

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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?"

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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krishnan

Oct 30, 2011

I would request the author to elaborate on the 10% of lowest income figures average and 10% of highest income figures average.
In a city the lowest incomes are around 4000/month amounting to 50000/year .Even if you take the highest 10% average as 10 crores (a ridiculously low figure)the ratio works out to 2000.
so please explain how these figures were arrived at.Hope ,not from the same source which said rs 32/day is above poverty income.

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shankar prasad

Oct 30, 2011

whatever be the gap between average income of poor and rich, that becomes the tolerence level the country.therfore one must not take solace that our gap is low. we need to stabilize before social problems start which ai already shwing its face

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Kazi Nasiruddin Ahmad

Oct 30, 2011

It's wonderful eye opening article by our author Mr. Dossani in the direction of what our Government must act. Unless and untill the govenment have political will to look down and resolve issues related to poor population of India, I do not see any reason for me in enjoying or to be proud of becoming world's power no.1. I would request if editor can send the copy of this Daily Recokoner to our Prime Mininster and Finance Minister. May be this will show them some direction to work. I am sure if country like us with majority of poor RISE no wonder INDIA RISES TOO and nobody can stop us to take top slot.

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Kannan

Oct 30, 2011

Hi!Would you mind also sharing the source of your statistics that your nice analisis is based on!!

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RAVI SHANKAR

Oct 30, 2011

I do not agree with the statement that, the higher income bracket earns 8.6 times the population in the lower 10% of the income bracket. For ex, even if one were to consider that, the lower bracket earns an average of Rs 5,000 p.m or Rs 60k p.a, is the Higher 10% income bracket earning only Rs 5.00 Lacs p.a?? In my opinion, the richest 10% of the population would earn no less than Rs 30-40 lacs p.a, on an average - and even that figure may sound small, if u take the business tycoons, the progressive and growing IT population in India, etc. The very basis of the comparison, is hence a fallacy, in my view... Ravi Shankar R

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Ramamurthy

Oct 30, 2011

From where did you get this figure of 8.6 please? It should be in my opinon much more.

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Sunil bhagat

Oct 30, 2011

WEll Explained and illustrated. It is an eye opener to the world and even India at large.

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Navin Aggarwal

Oct 30, 2011

The difference in India may be less due to suppressed incomes reported by the top 10% rich in India. As rightly pointed out the base(lower 10%) is much higher in Developed countries. Hence it may be showing less.

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Vijoy k Ambasta

Oct 29, 2011

Well for India the stats that are given is totally wrong. It easily could be at least 5 times more than what is projected as 8.6. I could not type further and submit my comments as it said hyperlinks etc are not allowed though mine was a simple text

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