Income inequality in India improved in 2022-23 after worsening during the Covid-19 pandemic (2020-21), reflecting the impact of effective post-pandemic recovery measures.

• A working paper by the People Research on India’s Consumer Economy (PRICE) highlighted persistent wealth concentration among the top income earners despite overall improvements in inequality.

Key Findings on Inequality

• The Gini index, a measure of income inequality:
  • Improved from 0.463 post-independence to 0.367 in 2015-16.
  • Worsened to 0.506 in 2020-21 due to pandemic disruptions.
  • Improved to 0.410 in 2022-23, indicating reduced disparities.
• Income distribution trends (2022-23):
  • Top 10%: Income share declined to 30.6% from 38.6% in 2020-21.
  • Bottom 50%: Share increased to 22.82%, up from 15.84% in 2020-21.
  • Middle 40%: Share rose to 46.6%, compared to 43.9% in 2020-21.
• The top 1% peaked at a 9.0% income share in 2020-21, which declined to 7.3% in 2022-23.

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About Lorenz Curve and Gini Coefficient

• The Lorenz Curve is a graphical representation used to visualize the distribution of income or wealth within a population.
• It compares the actual distribution of income or wealth with an ideal situation of perfect equality.
• Line of perfect Inequality: In the case of perfect equality, the Lorenz Curve would be a straight line at a 45-degree angle.
• If there is income inequality, the Lorenz Curve bends away from the line of perfect equality.

About Gini Coefficient

• The Gini Coefficient assigns a numerical value between 0 and 1 to measure income or wealth inequality.
• A Gini Coefficient of 0 represents perfect equality, where everyone has the same income or wealth.
• A Gini Coefficient of 1 signifies perfect inequality, where one person or household has all the income or wealth, and everyone else has none.
• The Gini Coefficient is calculated by comparing the area between the Lorenz Curve and the line of perfect equality.
  • Gini Coefficient = A/(A+B)
• Lorenz Curve helps visualize the distribution of income or wealth.
• The Gini Coefficient provides a precise measure of the degree of inequality.

Factors of Inequality

• Pandemic Impact:
  • Job losses and economic instability disproportionately affected the bottom 50%.
  • Sectors like technology and e-commerce flourished, boosting the wealth of the top income earners.
• Structural Barriers:
  • Limited access to quality education, healthcare, and infrastructure, especially in rural areas.
  • Concentration of wealth among top earners reflects entrenched economic disparities.

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Government Initiatives to Address Inequality

• Social Welfare Schemes: Government has launched several schemes targeting the Inequality Issues such as: 
  • MGNREGA: Ensures employment for rural households, reducing income disparities.
  • Direct Benefit Transfer (DBT): Delivers subsidies and benefits directly to beneficiaries.
• Financial Inclusion:
  • JAM Trinity: Combines Jan Dhan accounts, Aadhaar, and mobile technology to improve access to financial services.
  • Pradhan Mantri Jan Dhan Yojana: Provides bank accounts to economically weaker sections.
• Social Security Net:
  • Pradhan Mantri Suraksha Bima Yojana: Offers accident insurance to the underserved.
  • Atal Pension Yojana: Secures income for workers in the unorganized sector.
  • Pradhan Mantri Jeevan Jyoti Yojana: Provides life insurance for low-income groups.
• Employment and Skill Development:
  • Skill India Mission: Focuses on enhancing employability through vocational training.
  • MUDRA Bank: Offers microfinance to rural entrepreneurs.
  • National Hub for SC/ST Entrepreneurs: Supports entrepreneurship among marginalized communities.
• Focus on Social Infrastructure: As per the Economic Survey (2017-18), the government prioritizes education, health, and social protection to ensure inclusive growth.

Challenges in Tackling Inequality

• Entrenched Wealth Concentration: The top 10% still hold a significant share of national income, highlighting the need for redistributive measures.
• Slow Recovery for Vulnerable Groups: The bottom 10% remain far behind, with their income share recovering only marginally post-pandemic.
• Policy Implementation Gaps: Inefficiencies in delivering benefits of social programs reduce their impact on inequality.
• Economic Shocks: External disruptions like pandemics and economic downturns exacerbate existing disparities.

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Way Forward

• Strengthening Social Safety Nets: Expand coverage and efficiency of welfare schemes to benefit the most vulnerable.
• Progressive Taxation: Implement equitable tax policies such as Wealth Tax to reduce wealth concentration.
• Investment in Rural Development: Prioritize education, healthcare, and infrastructure in rural and marginalized areas.
• Inclusive Growth Strategies: Ensure economic growth benefits all segments through targeted reforms and equitable policies.
• Vigilance and Adaptive Policies: Regularly assess inequality trends and update policies to address emerging challenges.

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