By Satya Narayan Misra* in Bhubaneswar, June 15, 2025: Following the post-1990s liberalizing reforms, GDP growth has averaged about 6% over the last 30 years, lifting approximately 400 million people out of poverty. Taking the World Bank (WB) criterion of $2.15 a day (2017 PPP) as the poverty line, poverty has decreased from 40% in 2000 to 13% in 2021.

Estimates from the 2022-23 Consumption Expenditure Survey show a poverty count ratio of 10% for urban and 5% for rural India. But the debate has turned to inequality, with the widely quoted World Inequality Lab, associated with Thomas Piketty, research seeing it as rising sharply. While they estimate the top 1% of income earners made 21% of disposable income, while the bottom 50% earned only 13% in 2022-23, the PRICE & NCAER survey estimates get opposite results.

As per these surveys, the top 1% had 8.8% of income, and the bottom 50% had 22.8%. C Rangarajan, formerly RBI Governor & Mahendra Dev, presently Chairman PMEAC, based on the Consumption Survey 2023-24, has brought out the Gini coefficient of total consumption expenditure has come down from .363 in 2011-12 to .284 in 2023-24, showing that overall inequality in consumption expenditure has come down in India. Kaushik Basu, formerly CEA, has pointed out that India’s increasing prosperity is accompanied by increasing inequality. He quotes Joseph Stiglitz, who wrote, “A larger pie does not guarantee that everyone or even most people get a larger slice.”

Contrasting Perspectives on Income Inequality

Market fundamentalists like Milton Friedman make no bones about income inequality and ‘consider it inevitable in a free market economy, and may even be beneficial’. He wrote: ‘Social levelling leads to economic stagnation as it caps aspiration and removes incentives for hard work.’ On the other hand, in a powerful book “The Spirit Level” (2009), Richard Wilkinson argues that there are “pernicious effects that inequality has on societies, like eroding trust, increasing anxiety and illness” Plotting a relationship between income inequality & index of health, he found that outcomes like mental health, drug abuse, teenage pregnancies and child well-being are significantly worse in more unequal countries, rich or poor”.

Thomas Piketty in his seminal book “Capital in the 21st Century “ (2014) brought out how when the rate of return on capital is greater than the rate of economic growth over the long term, the result is concentration of wealth and this unequal distribution of wealth causes social and economic instability. For Piketty, rising inequality is not an accident of history, but a consequence of conscious public policy where the government favors the superrich and wealthy.

World Inequality Report (2022)

Jointly authored by Piketty and the Nobel Laureate Abhijit Banerjee, the report brought out how the bottom half accounts for 13.1% in terms of total income and 5.9% in terms of total wealth. In contrast, the top 10% account for 57.1% in terms of total income and 64.6% in terms of wealth. Further, there is a sharp increase in inequality after the year 2000.

Piketty recommends that the tax rate on the superrich should be increased in the range of 40%-50%, and wealth tax at @5%. He also strongly pleads for access to quality education at the primary level for all, which will minimize the advantage of lotteries of birth. Amartya Sen also consistently pitches for a higher allocation to education from the present level of 3% of GDP to 6%. The income share of the top 10% & bottom 50% from 1900 to 2021 is plotted below.

It clearly shows how income inequality has been rising sharply since 2000, post-economic liberalization, due to taxation policy, which has favoured the super-rich.

PRICE Survey & Policy Recommendation

The PRICE Survey finds the WER too heavily based on tax data, when IT payers form a tiny% percentage in India. It includes the informal sector and arrives at the opposite result. The survey offers valuable insights into how income, consumption, savings, and debt are distributed across households. While the top 20% account for 46% of income, their savings account for 68% of total savings. In contrast, the bottom 20% accounts for only 6% of total income, and they are deeply indebted. The middle 60% of India accounts for 48% of income and contributes 33% of total savings.

The recommended policy intervention could be how to encourage the top 20% to go for productive and inclusive investments. For bottom 20%, the critical hump to be overcome is job creation and appropriate skilling so that they have a reasonable real wage, and they live without the fear of debt traps.

As far as the middle 60% is concerned, the challenge is how they have tax-friendly tools and can build assets. The next phase of India’s journey will not be defined by how fast it grows, but who grows with it. The thrust should be to align capital with inclusion, making India’s Digital Public Infrastructure work for every household. The following graph brings out income and savings share of the top 20%, the bottom 20%, and middle 60%.

The Unemployment Challenge

The Employment Report (2024) brings out how average monthly earnings hover around Rs 10925, Rs 4712 for casuals, and Rs 6843 for the self-employed. This is further compounded by the underemployment of 7.5% of workers. S&P Global Market Intelligence (2023) that due to low skill levels, real manufacturing value added per employed person in India is $8076 as compared to $ 22871 in the Philippines and $ 18309 in Thailand.

With around 94% of workers in the unorganized sector, the challenges are access they confront vary from technology, credit, particularly for the micro enterprises who constitute 85% of the MSME sector,and wages. The Employment Report recommends missions for bolstering employment and better remuneration, viz production to be more labour intensive, overcome labour market inequality, provide effective skill, create productive nonfarm employment, and support the micro enterprises.

The Way Forward

The Indian Constitution sets out the template for state policy to promote socio-economic justice and distribute resources of the community to sub serve the common good. In particular, it calls upon the state to strive to minimize inequalities in income and endeavor to ‘eliminate inequalities in facilities and opportunities.’ Quite clearly, these constitutional postulations are in line with what is being advocated by economists like Sen, Piketty, Banerjee, and Basu. To be fair to the free market economists, they are also looking at a more inclusive India, making prosperity and upward mobility easier in every income range, and making DPI (Digital Public Infrastructure) work for every household.

They seem to have come out of the Friedmanian unconcern for inequality. However, they continue to be soft and complicit with the superrich and lean on borrowing to fund welfare programs instead of increasing the tax kitty. There is a strong case for using tax as an instrument of distributive justice in place of the present tendency to placate the superrich with benign tax. They dominate policy discourse and often roil considerations of equity, empathy and social justice.

• Emeritus Professor, KIIT University