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May 27, 2016

The Question of India’s Inequality

In this blog post, Branko Milanovic re-visits inequality in India by using income based surveys of Indian population for 2004 and 2011.

 

"The gap between the slow moving survey mean and much faster changes in per capita GDP was also explained by the failure of NSS to capture top incomes. The top incomes may have been pulling up the mean (presumably reflected in GDP per capita) and if surveys continued, partly by design and partly by the reluctance of the rich to participate,  to be focused on the bottom of the income distribution, that could explain the rising gap between NSS and national accounts...

 

But until recently we had no other reliable and nationally-representative survey to confront NSS with...And the results are very different from NSS’s. First, Indian Gini is remarkably consistent in both 2004 and 2011 and is (on per capita basis) 51 Gini points. This is at the level of Latin American countries and is some 15 points (or almost 40% ) higher than the Gini’s calculated from NSS. Thus a key question is immediately asked: is India’s inequality more like Latin American? NSS was saying for years that it is not; the India Human Development Survey (IHDS) argues it is.

 

This “reasonableness” of the data, and the absence of discontinuities when comparing income and consumption leads one to believe that it is possible that both NSS and IHDS provide accurate information (with likely underestimation of top-end consumption and income), but that income distribution in India is much more unequally distributed than consumption.

 

So if we compare India with other countries that use income surveys.. India seems slightly more unequal than Brazil, and more egalitarian than only South Africa.

 

What happens is that global inequality goes down by approximately 1 Gini point since the higher income levels implied by IHDS push Indians toward the middle of the global income distribution and more than offset the contribution to higher global inequality that comes from the stretched-out Indian distribution. Thus, somewhat paradoxically, a global implication of a new, and I think more reasonable,  approach of viewing India as a country with Latin American levels of income inequality is that global inequality, as calculated so far, might have been overestimated.

 

In conclusion, more unequal but richer India, makes the world more equal."

 

Read the full post here.

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