Inequality is an important concern for the political economy of a democracy. However, the Indian inequality debate is often characterised by the selective use of data to make exaggerated claims that fuel misperceptions rather than result in a better understanding. The sharp reactions to a recent World Bank report (“India Poverty and Equity Brief: April 2025”) are an illustrative case in point.
The World Bank report claims that India has almost eradicated extreme poverty. Further, it claims, the country has significantly reduced consumption inequality since 2011-12, in terms of consumption patterns of the population. In terms of the Gini coefficient, a measure of inequality, the report (without separating the consumption and income inequality-based estimates) has placed India among the top four least unequal countries. These findings have created quite a stir, as the media and the public are accustomed to reports claiming very high inequality in India. What has happened?
What it is based on
The World Bank’s claims about the Indian inequality are based on the official Household Consumption Expenditure Survey (HCES) data for 2022-2023. This data is collected using the modified mixed reference period (MMRP) method, which employs the state-of-the-art statistical technique. As the World Bank report correctly observes, “The MMRP is considered an improvement and alignment with international best practices…” The World Bank has adjusted the Indian data to account for some but not all government-provided free goods and services.
The World Bank finds that during 2011-12 and 2022-23, India registered a major decline in consumption inequality; in this period, the consumption-based Gini coefficient dropped from 28.8 to 25.5.
Critics of the report argue that the World Bank has underestimated the inequality, as the HCES data does not capture consumption by the rich. It is a valid critique, but India is not an exception. This limitation applies to all survey data in all countries and, in itself, does not question the broad ranking of countries. Even if we discount the precision of the World Bank’s inequality estimates, a significant improvement in India’s international ranking is a fact. Of course, we should not confuse consumption inequality with income inequality.
The decrease in India’s consumption inequality is substantial and indisputable. To address the data issue, let us assume that the problem of missing elite consumption is more pronounced in India — say, the HCES rounds do not capture consumption by the top 5% families at all. In that case, going by the consumption expenditure data, it is irrefutable that the consumption inequality has decreased between 2011-12 and 2022-23 for the remaining 95% of the population covered in HCES data.
The HCES data show that the country’s consumption basket is healthier today than ever. Between 2012 and 2023, the per capita availability of milk and eggs has increased by 45% and 63%, respectively. The availability of fruits, vegetables and protein products has increased. The share of cereals in the food bill, as well as calorie intake, has decreased, while that of healthier products has increased, for all strata. All this improves the diet for the 95%, rather than the richest groups, whose consumption already matches the best in the world.
The dietary intake improvements are most striking for the bottom 20% of households in rural and urban areas, even if we ignore the free food and cash transfers received by these groups. The share of rural households consuming fresh fruits (to a different frequency) has increased from 63.8% in 2011-12 to 90% in 2023.
The 2022-23 and 2023-24 rounds of consumption data irrefutably demonstrate that extreme poverty has been almost eradicated. Whether we use the Rangarajan, Tendulkar, or the multi-dimensional poverty index of NITI Aayog, poverty has declined significantly. Based on the International Poverty Line of $3 between 2011 and 2023, India has pulled around 27 crore people out of extreme poverty.
Independently, the nightlight data show a significant increase in ownership rates of pucca homes and paved roads in rural areas over the last 10 years, owing to the Pradhan Mantri Gramin Awas Yojana and Pradhan Mantri Gram Sadak Yojana. Among the poorest 20% of households, more than 40% own a vehicle today, compared to just 6% in 2011-12. This enables rural workers to work part-time in nearby cities without having to migrate. If we factor in these and the other policies targeted at the bottom of the pyramid, such as Ayushman Bharat, the aggregates of welfare for the poor would look even better.
Examining income levels
True, it is important to examine income inequality separately from consumption inequality. There is no official income survey data yet. The mainstream media and commentators use the income shares of the top 1%, as estimated by the World Inequality Lab (WIL) to argue that the income inequality is very high in India, disregarding critical limitations of these estimates.
Given the lack of data on income distribution, the WIL uses the income tax data to estimate top income levels. They use the old consumption data and estimates of the income-consumption relationship to estimate income for low- and middle-income households. The latter estimates unrealistically assume that consumption expenditure exceeds income for 70%-80% of households. How can it be that all families, except the top 20-30%, spend more than they earn, year after year?
As an inevitable consequence of using such an implausible assumption, the income of the bottom 80% gets underestimated. This reduces their estimated share of national income. Conversely, shares of top income groups are overestimated.
Even if we ignore these limitations, we do not find an increase in income inequality. Taking the WIL estimates as they stand, the national income shares of the bottom 50% have increased from 13.9% in 2017 to 15% in 2022. During the same period, the share of the top 10% has decreased from 58.8% to 57.7%.
The high national income shares of the top 1% are a matter of concern. However, since 2017, the income shares of the top 1% have increased by only 0.3 percentage points. Research by this writer indicates that a part of this increase is attributable to improved income reporting by affluent groups in response to the Centre’s anti-tax evasion measures since 2016-17. Better reporting should not be mistaken for increased inequality.
Furthermore, the WIL inequality estimates used by the media and commentators are based on pre-tax income levels. However, it is the post-tax and post-subsidy/transfer income that matters to people. Therefore, to be meaningful, income inequality estimates should be based on the post-tax rather than the pre-tax income. For instance, in the assessment year 2023-24, the top 1% of all taxpayers accounted for 72.77% of the total tax paid. Even in the individual category, the top 1% paid 42% of the total tax paid.
Arguably, wealthy individuals should pay more taxes, but the point is that even at the existing tax rates, the actual post-tax income of top-income taxpayers is only 65%-75% of the levels used in headline-grabbing estimates. For low-income groups, in contrast, the income levels used are smaller than the actual effective income, which is higher, due to the all-time high welfare transfers that account for more than 8% of GDP. On a post-subsidy, post-tax income basis, over the last decade, we will find a decrease in income inequality in recent years.
The other story about India
Admittedly, we must travel a long way before we can claim to be an egalitarian society. Inequality in accessing quality health and education is a serious concern. For a country of our size and diversity, inevitably, there are many lived realities. However, the story of India is not just about poverty and inequality any more; it is about progress and aspirations too. While being mindful of the current problems and challenges ahead, let us also celebrate the country’s successes.
Ram Singh is Director, Delhi School of Economics, Member, Monetary Policy Committee of the Reserve Bank of India (RBI) and Member, Technical Expert Group for the First Household Income Survey, Ministry of Statistics and Programme Implementation (MoSPI), Government of India. The views expressed are personal