Mint Primer | Mind the income gap: Is India becoming a plutocracy?

What are the key findings?

Inequality in India declined post-independence till early-1980s, after which it began rising and skyrocketed beginning 2000s, shows the report titled ‘Income and Wealth Inequality in India, 1922-2023: The rise of the Billionaire Raj’, The authors estimate that in 2022-23, the income and wealth shares of the top 1%—at 22.6% and 40.1%, respectively—are at their highest levels. The top 1% earn 23 times an average Indian. The income distribution is so skewed that one must be at the 90th percentile—or make more than 90% of the population—just to earn the average income.

How does India compare globally?

The income share of 22.6% for the top 1% Indians is among the very highest in the world, and only behind some smaller countries like Peru and Yemen. In fact, in 2022-23, the income share of the richest in Indian—the ‘one percent’—was nearly 50% larger than that in China (22.6% vs 15.7%). The top 10% among Indians account for 57.7% of India’s national income—which is higher than Brazil (56.8%), China (43.4%) and the UK (33.7%). Specifically on China, the authors note that low- and middle-income economies can achieve high growth without generating massive income inequality levels, as India is doing.

Why is growing inequality bad?

Extreme concentration of income and wealth is likely to lead to the rich wielding disproportionate influence on society and government and the risk of sliding into a plutocracy, the authors warn. Though the government has started welfare schemes on housing, toilets, electricity and banking, they say, it’s unclear if these have increased the purchasing power of the masses.

What policies can narrow inequality?

The authors recommend a rejig of policies to account for both income and wealth, as tax liability as a share of wealth could fall as one gets richer. A “super tax" of 2% on the net wealth of the 167 wealthiest families in 2022-23 would yield 0.5% of national income, and generate funds for public investments in health, education and nutrition. These investments—historically lower than countries at similar income levels—will enable the average Indian, and not just the elite, to benefit from globalization.

Has inequality impacted markets?

Post-covid recovery of incomes and consumer demand has been uneven, despite rapid economic growth. More than 40% of household expenditure is on food, indicating low average incomes. Due to stagnant wages and high youth unemployment—42% of graduates under the age of 25 are unemployed—many businesses have focused on premiumization to drive revenue. From shoes and motorcycles to cars and clothing, luxury products are seeing higher sales growth compared to mass consumption items.