//=ucwords($r1['title']);?> A tale of Two Indias: Inequality alleviation remains a challenge
OPINION I Mint
Over the past seven decades, India’s income inequality has transformed significantly, with stark divergences between rural and urban areas. These changes highlight contrasting socio-economic trajectories and reflect the successes and shortcomings of policy efforts to address disparities. Drawing on scientific household income surveys (1953–2023), a recent PRICE working paper provides valuable insights into India’s uneven growth story and the challenges of inclusive development.
The rural landscape: In rural India, income inequality has fluctuated due to agricultural developments, economic reforms and targeted interventions. The Gini ratio—a measure of inequality—offers insights into these changes. Between 1955 and 1975, the rural income Gini ratio rose modestly from 0.341 to 0.388 (indicating more inequality), driven by unequal land ownership and the limited reach of government programmes. The Green Revolution modernized agriculture, but disproportionately benefited wealthier farmers with access to irrigation and advanced inputs, leaving marginalized groups behind.
From 1975 to 1995, the income Gini ratio declined slightly to 0.376, reflecting poverty alleviation schemes like the Integrated Rural Development Programme (IRDP) and land reforms. Policies such as the Minimum Support Price (MSP) mechanism offered small farmers stability. Despite uneven implementation, these measures curbed inequality modestly.
Economic liberalization from 1995 to 2005 reversed this trend, with the Gini ratio climbing sharply to 0.438. Reforms opened new markets but primarily benefited wealthier households that were able to access credit, technology and infrastructure. Small and marginal farmers faced declining subsidies and limited institutional support, widening the gap.
From 2005 to 2020, inequality worsened further, peaking at a Gini ratio of 0.498. Rapid rural-to-urban migration and a shift towards non-farm activities created stark divides. Wealthier households diversified into higher-paying sectors, while the rural poor remained stuck in low-wage agricultural labour. The covid pandemic exacerbated this divide, hitting informal workers hardest.
Post-2020, government interventions, including expanded MGNREGA support and direct cash transfers, began mitigating disparities. By 2023, the rural Gini ratio declined to 0.405, reflecting a partial recovery and the success of social welfare measures. However, achieving sustained equity will require deeper structural reforms and enhanced policy coordination.
The urban story: Urban India’s inequality has consistently been higher, shaped by industrialization, urbanization and market-driven growth. Between 1955 and 1975, urban inequality rose steadily, with the Gini ratio increasing from 0.392 to 0.416. State-led industrialization created formal job opportunities for skilled labour, while unskilled workers remained in low-paying informal sectors. Rapid rural migration to cities strained infrastructure, intensifying disparities.
From 1975 to 1995, urban inequality declined slightly to 0.390. Welfare policies, such as labour laws and small-scale industry promotion, supported low-income groups. Urban poverty alleviation initiatives offered stability, but had an uneven impact across cities.
The post-liberalization years from 1995 to 2005 marked a turning point, with the Gini ratio rising to 0.455. Economic reforms spurred growth in high-skill industries like IT and finance, disproportionately benefiting middle- and upper-income groups. Informal workers faced displacement and rising living costs.
Between 2005 and 2020, urban inequality peaked at a Gini ratio of 0.532. Urbanization and digitalization created opportunities for the educated elite, while sidelining low-income groups. The pandemic deepened disparities, as informal workers faced job losses, while affluent groups benefited from remote work options and digital-sector growth.
From 2020 to 2023, urban inequality declined sharply, with the Gini ratio falling to 0.382. Targeted measures such as the PM Svanidhi scheme for street vendors and affordable housing under the Pradhan Mantri Awas Yojana stabilized low-income groups’ earnings. Pandemic relief programmes, including cash transfers and food rations, also played a critical role in reducing disparities. Despite these gains, bridging the persistent urban divide remains a formidable challenge.
Rural versus urban inequality: Urban India has consistently exhibited higher income inequality than rural India. However, rural inequality has risen gradually due to structural constraints and slower policy impact, while urban inequality has experienced sharper fluctuations tied to economic reforms and external shocks.
The pandemic exposed vulnerabilities in both regions, with urban areas seeing sharper spikes in disparity. By 2023, the Gini ratios in rural and urban areas converged, reflecting shared recovery challenges and the importance of targeted government interventions. This convergence also underscores the interdependence of rural and urban economies in India’s development trajectory.
Policy implications for balanced growth: The imperatives outlined above emphasize that rural and urban inequality are not isolated phenomena but interconnected challenges that require a holistic approach. Strengthening rural-urban linkages can foster synergy between the two, creating opportunities for balanced development. For instance, investments in agro-industries and transportation can enable rural producers to access urban markets, while urban demand for services and goods can stimulate rural economies. Similarly, digital connectivity can bridge the information divide, allowing rural communities to participate in the digital economy and urban workers to access decentralized opportunities.
Ultimately, achieving inclusive growth requires moving beyond reactive measures and embracing long-term structural reforms. Policies must not only address immediate disparities, but also lay a foundation for sustainable development by ensuring equitable access to education, healthcare and economic opportunities for all. Rural and urban areas, though distinct in their trajectories, are part of a shared national story—one where progress in either directly influences the other.
By fostering a unified vision for development that recognizes and addresses these interdependencies, India can build a resilient economy that uplifts all its citizens. In doing so, the country will not only bridge its rural-urban divide, but also advance towards a more equitable and prosperous future for generations to come.