OPINION I Economic Times

India’s economic transformation over the past two decades has lifted millions out of poverty and positioned the nation among the world’s fastest-growing economies. However, this growth has not been evenly distributed. Persistent disparities in income, expenditure, and savings highlight a fragile narrative of inequality. Insights from PRICE’s ICE 360° income surveys reveal the scope of these disparities using the Gini coefficient, a global metric for inequality. These findings provide a lens to examine India’s challenges and their parallels with other emerging economies.

The Evolution of Income Inequality: Income inequality in India has shifted significantly over time. In 2005, the income Gini coefficient was 0.48, indicating high inequality. This declined to 0.40 by 2014 and 2016 due to inclusive growth policies like welfare programs and rising rural incomes. However, the pandemic in 2021 pushed the Gini to 0.53, its highest during the survey period, as informal sector workers faced severe challenges while wealthier households benefited from asset price increases. By 2023, interventions such as cash transfers and food subsidies reduced the Gini to 0.41, reflecting partial recovery.

Brazil’s experience parallels India’s. The Bolsa Família cash transfer program reduced Brazil’s income inequality from 0.60 to 0.53 by 2014, but economic recessions and the pandemic reversed these gains, with inequality rising to 0.57. Both countries highlight the vulnerability of progress to external shocks and the need for sustained social policies.

Trends in Expenditure Inequality: Expenditure inequality in India has consistently been lower than income inequality, reflecting consumption-smoothing mechanisms like subsidies and remittances. The expenditure Gini declined from 0.36 in 2005 to 0.31 in 2011, showing improved access to essential goods and services for low-income households. However, between 2014 and 2016, it plateaued at 0.33. The pandemic caused a spike to 0.46 in 2021, as wealthier households maintained consumption levels while poorer households cut back significantly. By 2023, expenditure inequality fell to 0.36, indicating recovery.

South Africa provides a comparable example. While its income inequality is among the highest globally, social grant programs like the Child Support Grant and Old Age Pension have stabilized expenditure inequality at lower levels. However, these efforts demonstrate that addressing consumption disparities alone cannot resolve underlying structural inequalities.

The Persistent Challenge of Savings Inequality: Savings inequality remains India’s most pronounced and persistent challenge. In 2005, the savings Gini coefficient was 0.78, highlighting severe disparities in wealth accumulation. By 2014, it improved to 0.60 due to financial inclusion programs like the Pradhan Mantri Jan Dhan Yojana, which brought millions into the formal financial system. The pandemic disrupted this progress, pushing the savings Gini to 0.73 in 2021 as wealthier households saved more while poorer households struggled. By 2023, it improved to 0.56, but wealth accumulation gaps persist.

Indonesia’s experience echoes these challenges. Despite progress in financial inclusion, wealth disparities endure due to unequal access to investments like real estate and equities, concentrated among the wealthy. This underscores the need for policies that address systemic barriers to wealth creation.

Interconnections and Implications: The dimensions of inequality—income, expenditure, and savings—are interconnected, influencing broader economic outcomes. Income inequality directly drives savings inequality, as higher-income households can save and invest more, compounding wealth disparities. Expenditure inequality reflects disparities in access to goods and services, further amplifying income and savings gaps. Experiences from Brazil, South Africa, and Indonesia reveal that addressing only one dimension of inequality is insufficient. Policies must simultaneously focus on income generation, equitable consumption, and wealth accumulation to achieve inclusive growth.

Addressing the Root Causes: Structural factors underlie India’s inequality trends. Economic changes have disproportionately benefited high-skilled and urban populations, leaving low-income and rural households behind. The pandemic widened these disparities, particularly for informal sector workers and marginalized groups. Financial inclusion programs have narrowed gaps in access to banking and savings instruments, but barriers to wealth-building opportunities remain. Redistribution policies like rural employment schemes and direct benefit transfers have helped mitigate inequality but must be scaled up to address systemic challenges effectively.

A Multifaceted Path Forward: To address these challenges, India must adopt a comprehensive approach. Strengthening social safety nets is critical. Expanding programs like the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) to urban areas could provide a safety net during crises. Progressive taxation, including wealth taxes and higher taxes on luxury goods, could fund redistributive programs. Investments in education and skills development are essential to prepare low-income workers for high-growth sectors like technology and manufacturing. Financial inclusion must evolve to enable wealth creation through access to credit and investment opportunities. Additionally, targeted rural development investments in infrastructure, healthcare, and education can address regional disparities and promote inclusive growth.

In Conclusion, India’s inequality trends are not unique. Lessons from Brazil, South Africa, and Indonesia highlight the importance of sustained, inclusive policies to address disparities. The PRICE ICE 360° surveys reveal that while progress has been made, external shocks like the pandemic expose the fragility of these gains. Policymakers must prioritize resilience and inclusivity to ensure economic growth benefits all segments of society. Reducing inequality is not only a moral imperative but also a prerequisite for sustainable development. By addressing these challenges head-on, India can build a future of shared prosperity and opportunity.