Income inequality in India has reached historically high levels with the share of national income accruing to India’s top 1 per cent earners touching 22 per cent in 2014, while the share of the top 10 per cent was around 56 per cent, according to the World Inequality Report 2018 released in the Capital on Wednesday. Inequality in India has risen substantially from the 1980s onwards, following profound transformations in the economy that centered on the implementation of deregulation and opening-up reforms, as per the report.
Since the beginning of deregulation policies in the 1980s, the top 0.1 per cent earners have captured more growth than all of those in the bottom 50 per cent combined, while the middle 40 per cent have seen relatively little growth in their incomes.
This rising inequality trend is in contrast to the 30 years that followed the country’s independence in 1947, when income inequality was widely reduced and the incomes of the bottom 50 per cent grew at a faster rate than the national average, said Lucas Chancel, Co-Director of the World Inequality Lab at the Paris School of Economics.
“Post 1980s, inequality has risen in China and India. Inequality rose to extreme level in India and moderate level in China as China invested more in education, health and infrastructure for its bottom 50 per cent population,” he said. Chancel said the key question to ask is whether the enormous rise of income of the top 1 per cent was essential for the growth of the bottom 50 per cent. “The answer is no. It is possible to combine high growth with low inequalities,” he said.
The report, launched globally recently, was coordinated by economists Facundo Alvaredo, Lucas Chancel, Thomas Piketty, Emmanuel Saez and Gabriel Zucman and shows unequal impacts of globalisation over past 40 years. The report noted that the temporary end to the publication of tax statistics between 2000–2010 by Indian government highlights the need for more transparency on income and wealth statistics that track the long-run evolution of inequality.
“The structural changes to the economy along with changes in tax regulation, appear to have had significant impact on income inequality in India since the 1980s. In 1983, the share of national income accruing to top earners was the lowest since tax records started in 1922: the top 1 per cent captured approximately 6 per cent of national income, the top 10 per cent earned 30 per cent of national income, the bottom 50 per cent earned approximately 24 per cent of national income and the middle 40 per cent just over 46 per cent, but by 1990, these shares had changed notably with the share of the top 10 per cent growing approximately 4 percentage points to 34 per cent from 1983, while the shares of the middle 40 per cent and bottom 50 per cent both fell by 2 percentage points to around 44 per cent and 22 per cent, respectively,” the report said.
India introduced an individual income tax with the Income Tax Act of 1922, under the British colonial administration. From that date up to the turn of the twentieth century, the Indian income tax department produced income tax tabulations, making it possible to track the long-run evolution of top incomes in a systematic manner, it said.