9 takeaways from World Inequality Lab working paper

Key Highlights

Growth in average incomes

• According to the WIL paper, between 1960 and 2022, India’s average income grew at 2.6% per year in real terms
• This period can be broadly divided into two halves: “Compared to a real growth rate of 1.6% per year between 1960 and 1990
  • Average incomes grew by 3.6% per year between 1990 and 2022”.
• It further states that the periods 2005-2010 and 2010-2015 saw the fastest growth at 4.3% and 4.9% per year respectively.

Emergence of very high net worth individuals

• The period between 1990 to 2022 witnessed a rise in national wealth and the emergence of very high net worth individuals

Rise in the percentage of income tax payers

• The paper finds that the share of adult population that filed an income tax return — which had remained under 1% till the 1990s - also grew significantly
  • With the economic reforms of 1991.

Extreme levels of inequality in India

• The paper finds that in 2022-23, 22.6% of India’s national income went to just the top 1%, the highest level recorded in the data series since 1922
• The top 1% wealth share stood at 40.1% in 2022- 23 — also at its highest level since 1961 when the data series on wealth began.

Extreme wealth concentration at the very top

• The paper notes that a “key feature of the wealth accumulation process in India is the extreme concentration at the very top”.
• Between 1961 and 2023, the top 1% wealth share increased threefold, from 13% to 39%.
• Most of these gains came post-1991 after which point top 1% shares have been on a steep upward trend right until 2022-23.

International comparison of income inequality

• If one looks at the income share of the top 10%, India stands second only second to South Africa
• If, however, one compares the income share of the top 1%, India ends up having the highest levels at 22.6%.
• As it happens, India’s top 1% income share appears to be among the very highest in the world based on World Inequality Database data
  • Behind only perhaps Peru, Yemen and a couple of other small countries,” notes the paper.

Poor data leading to likely underestimation of inequality

• Notwithstanding such stark findings, the authors “emphasize that the quality of economic data in India is notably poor and has seen a decline recently.

Policy solution

• “Implementing a super tax on Indian billionaires and multimillionaires, along with restructuring the tax schedule to include both income and wealth
• so as to finance major investments in education, health and other public infrastructure, could be effective measures,” to address the rising inequalities.