With $4.19 trillion (current prices), India has surpassed Japan in terms of GDP in the year 2025, as per the IMF. Now, India ranks fourth in the world, just below Germany ($4.74 trillion) with a small margin. It is expected to surpass Germany within two to three years if India continues its growth trajectory.
It is undoubtedly a remarkable feat for India. However, there is one concern raised in public discourse that needs to be addressed: 'Is India's growth inclusive or unequal?', and, 'Should India do more to eradicate inequality?' This question is frequently raised by a section of economists. In this article, an effort is made to understand this inequality, its trends, and how to tackle it based on secondary data and reports available, while considering all opinions.
The most common index to measure inequality is the Gini coefficient (values between 0 to 1, where 0 represents perfect equality and 1 shows extreme inequality). As per the Economic Survey 2024-25, inequality has shown declining trends. The Gini coefficient for rural areas declined to 0.237 in 2023-24 from 0.266 in 2022-23, and for urban areas, it fell to 0.284 in 2023-24 from 0.314 in 2022-23, based on consumption expenditure. Historically, the Gini index has fluctuated between 31.6% (the lowest in 1993) and 35.9% (the highest in 2017) between 1977 and 2021 (World Bank). However, some experts believe that the expenditure-based Gini coefficient does not represent the true picture, as households or individuals with low incomes tend to spend more than they earn, whereas high-income groups spend much less in percentage terms, resulting in long-term wealth inequality that remains uncaptured in the data. Other reports on this matter also need to be considered, as findings vary.
According to the ‘Pandemic, Poverty, and Inequality: Evidence from India' report by Bhalla Surjeet S. et al. (2022), "Real inequality, as measured by the Gini coefficient, has declined to near its lowest level reached in the last forty years—it was 0.284 in 1993/94 and in 2020-21 it reached 0.292.". The percentage of total consumption at the national level by the top 10% income group changed from around 28% to 32%, while for the bottom 40%, it remained around 9% between the 1980s and 2013, as per the ‘Inequality and Locational Determinants of the Distribution of Living Standards in India' report by the IMF in 2021. Other literature also shows that inequality has declined in recent years (Ghatak et al., 2022 and Gupta et al., 2021). A report titled ‘State of Inequality in India' (Kapoor and Duggal, 2022) states that 6%-7% of total incomes are earned by just the top 1% and expresses concerns over the concentration of growth benefits without percolation to the poorer classes.
In contrast, some studies report stark inequality based on different parameters or data sets, such as unequal median-to-top pay ratios among NIFTY50 companies, flight usage data, the Forbes list, or even food-delivery app usage data. Most reports on inequality in India are based on expenditure data, but a few also derive estimation for income or wealth inequality. One of the world's leading voices on inequality, the World Inequality Lab (WIL), provided various estimates for India in its report. According to the report, the top 1% hold 40.1% of wealth, the top 10% hold 65%, and the bottom 50% hold just 6.4%. In terms of income, the top 1% earn 22.6%, the top 10% earn 57.7%, and the bottom 50% earn just 15% of the total income share for the year 2022-23. Although after liberalisation, between 1990 and 2022, the average real growth rate in income in India became 3.6% per year, significantly higher compared to 1.6% between 1960 and 1990. But most of the income share increased for the top 1% and declined for the bottom 50%.
Now, the question that arises is, is India unique in its inequality? The answer is no. The same report by WIL shows that India's income share held by the top 10% (57.7%) is in the middle with respect to other developing countries like South Africa (65.4%) and Brazil (56.8%), but higher than the USA (48.3%) and China (43.4%). Another report, ‘Trends in Income Inequality and its Impact on Economic Growth (2014)' by the OECD, states, "Today, the richest 10% of the population in the OECD area earn 9.5 times the income of the poorest 10%; in the 1980s, this ratio stood at 7:1 and has been rising continuously ever since.........incomes at the bottom grew much slower during the prosperous years and fell during downturns, putting relative (and in some countries, absolute) income poverty on the radar of policy concerns." This proves that inequality is a part of growth for most countries and is inevitable for free market-based economies.
Before delving deeper into the reasons behind inequality and strategies to tackle it, there must be clarity of thought. No matter what economic or market system a country has, inequality is a reality. No matter how hard a nation tries, inequality will persist. Except in the utopian communist system, which exists only theoretically or in propaganda literature. Such systems do not make everyone equally rich but equally poor, as experienced by many economically failed countries. Does this mean we shouldn't strive for equality and inclusivity in growth and development? No, we should certainly aim to maximise equality in a pragmatic way without falling into the trap - the trap of policies that sacrifice growth and turn a nation into a banana republic.
As rightly stated in The State of Inequality in India report 2022, "Inequality is not simply a lack of resources…It is living in vulnerability and deprivation with restricted means of upward mobility. Income distribution is not an accurate measure of assessing the degree of inequality, but as a variable...These socio-economic inequalities transcend into everyday lives in ways that restrict mobility, limit one's capability to make choices, and intensify their experiences of exclusion and isolation." Thus, it is more appropriate to focus on empowering the economically and socially deprived classes. Certainly, attacking market-friendly policies, businesses, and businessmen won't help in fighting inequality.
Often, incentives or tax relief for industries or corporate tax cuts are blamed for inequality and shown as the root cause. But it is essential to understand that these measures promote further investment in the economy and help create employment. High tax rates may seem attractive in the short run, but eventually, the economy suffers in the form of slow growth or business migration in the long run.
To counter inequality, the most reliable and potent weapon is the philosophy of 'Antyoday', that is, the upliftment of the poorest and most marginalised members of society. Inequality is triggered primarily by social vulnerabilities in health, education, and skills among the lowest sections of society. If the government keeps uplifting the lowest strata through schemes and policies, the results can be expected to be far more positive compared to policies that may sabotage the growth cycle.
Over the last decade, the government has worked in this direction. With initiatives like the 'Ayushman Card' coupled with schemes like 'Poshan,' the insecurity and risk of falling suddenly into the poverty cycle have reduced significantly. Health-related expenses are one of the most common 'emergency expenses' for low-income groups. According to the Economic Survey of India, between FY15 and FY22, the share of government health expenditure increased from 29.0% to 48.0%, and the share of out-of-pocket expenditure in total health expenditure declined from 62.6% to 39.4%. With these kinds of efforts, the government has achieved great success in eradicating extreme poverty (below 1%), poverty (low middle income PPP$3.2 per day, just 14.8% in 2019-20 compared to PPP$1.9 in 2011-12), and multi-dimensional poverty in India.
Improvements in access to health and education facilities, along with food security and other basic amenities, bring the poorest of the poor to an equitable platform. An opportunity and chance from which they can at least start dreaming and aiming for higher goals and become part of India's growth story. This is the actual equality for which we, as a nation, should strive. Schemes like 'Start-up India' have paved the path for many first-generation entrepreneurs to build successful startups and unicorns. Merit and equal opportunity-based competition motivate individuals to work harder and take risks to benefit from high returns. Thus, if India maintains its economic growth trajectory while empowering socially and economically weaker sections through quality education, access to health and nutrition and skill development, inequality will be reduced - not in a utopian sense, but in a practical one.
(The author is Member, Governing Council, India Foundation)
Disclaimer: These are the personal opinions of the author
