Evidence of the Disappointing Increase in Income Inequality in India Over the Years – The Lorenz Curve Study
Since the pandemic, India has been economically constrained on many fronts and has exacerbated the flaws in some of its most fundamental indicators. Although we have been very busy determining the path of economic recovery and assessing the outcome since the pandemic has advanced, one of the key parameters that has worsened is the inequality in the distribution of the country’s income.
The country is replete with shreds of evidence of increased economic inequality and the uneven distribution of wealth in the country after the pandemic. Still, it seems the authorities aren’t too concerned about the subject. Nor have we had any recognition on the issue or political action to alleviate the problem.
Well, it seems we don’t care too much about the rich who continue to line their pockets while the poor are out there, struggling to make ends meet every day.
The objective of this discussion is to understand and analyze why the issue of income inequalities in India is essential, not only from an equitable point of view but also from a growth point of view, since significant income inequalities and unequal distribution of wealth have a negative impact on the country’s growth potential, known as work-level functional economic disparities.
So even if you don’t care about the problem of inequality on an intrinsic level, you can do it on a functional level.
However, to do all of this, we need to understand the context of inequality conceptually and see how the country behaves on the parameter regarding the Inequality Measure Index. The Lorenz curve.
Measuring income inequality
Through this discussion of measuring inequalities and the Lorenz Curve, we intend to study one of the most critical defining parameters of income distribution in the country and understand how it has deteriorated. over the years.
It is said that recognition is the first step in correction. We see this as a primitive step towards understanding the problem to hold our authorities accountable for the lack of red flags in the country’s income distribution and economic inequalities over the years.
Let’s try to understand what a Lorenz Curve is and how it conveys information about the income distribution of the country.
Unlike most indices, the Lorenz Curve is a graphical indicator of a country’s income distribution, used for absolute and relative assessment and comparison. It plots in the form of a curve the cumulative income as a percentage relative to the percentiles of the cumulative population.
The figure below would help to better convey the notion-
Therefore, measured from the left, the curve denotes the percentage of the population that earns a particular proportion of the total income in the country. According to the diagram, the poorest 20 percent of the country gets to share about 5 percent of the payment.
The Lorenz curve is completed by the line of equality, called the imaginary fair distribution line, against which the inequality is measured. This means that the further the country is from the equality line, the 45 degree line, the higher the income inequality in the country.
This exact notion gives us the Gini coefficient. This index measures the area between a country’s Lorenz curve and the hypothetical line of absolute equality, presenting an index that represents the country’s income inequality, measured as a percentage of the maximum area below the bar.
India’s Gini coefficient has deteriorated dramatically in recent years, increasing at a devastating exponential rate, a sign of increasing income inequality. In 2020 itself, the richest 1% of the country saw their share return to more than 40% of the total wealth of the country, a statistic strong enough for us to realize the extent of the inequalities we face.
One of the most commonly used concepts when measuring inequalities is Dalton’s principle. The principle states that the transfer of wealth from a “not richer” individual to a “non-poor” individual will be called a regressive transfer. Such a transfer would, however, increase the inequality of income distribution. While a series of regressive transfers can result in an income distribution, the first distribution should be considered more unequal than the second.
In simpler terms, we call the tendency of the poor to get poor and the rich to get richer, because there is an unequal pattern of income distribution of the wealth that is consistent with the wealth that exists.
In accordance with this principle, a Lorenz curve to the absolute line of another curve would have greater inequality in its distribution of income. Now, a regular examination of India’s Lorenz Curve over the years, both in relation to itself and to other emerging economic countries, indicates how income inequality and inequality in the Wealth distributions have increased in the country over the years, more steadily in recent years. a few decades or so.
This can be best seen with the help of the diagram given as follows-
The decline in the lower percentiles of the income distribution and the uniformity in the upper percentiles is a complete reflection of the regressive transfers we have discussed, where the share of income held by the poorest strata of society has systematically declined, stabilizing in the hands of the richest, say the top 30th percentile.
Over the past few years, as the graph above shows, the Gini coefficient, a coefficient for measuring inequality, has increased dramatically, simply proving that we are talking about income inequality.
In 2020, global wealth increased by about 7.4%, a record figure over the years. Allow this number to be meaningful to you and me as ordinary people. While most typical Indian households could no longer afford to support themselves, the wealthiest people in the country and apparently the world were lining their pockets with more millions than ever before.
Well, if those graphs and charts are too much to handle, well, pull out a list of the world’s billionaires and mark the increase in the number of Indians on that list over the past pandemic year.
While noting the 7.4% increase in wealth, reports said wealth per adult rose 6%, reaching a dramatic high of $ 79,952. The countries that have been hardest hit by the pandemic have recorded the highest gains in wealth per adult. Well, the simple fact that wealth per adult is an average of total wealth per population speaks volumes about why there is such a stark contrast between households and the overall economy.
The results of the discussion mean that in the run-up to the reform, there was an overall decline in inequality. On the other hand, it showed a persistent trend of escalation during the post-reform period. These current data on income inequality in the country prove that the lion’s share of income is held by 20% of the population, and it shows an increasing trend.
So whether one blames the lack of educational opportunities, the uneven distribution of assets, or whatever reasons we have cited these days, the problem remains with the complete lack of action on the part of the government and to the lack of concern on the part of the ordinary citizen.
We assert how capitalism made us the puppets of the rich and how the system is broken. Yet when it comes to fixing the system, we are too busy fighting over our populist agendas and religious innuendos to forget things about familiar people like you and me.
The country’s vision for itself in Nehruvian’s time began with poverty reduction and equitable growth. While we’ve strayed too far from the path in all respects, it’s never too late to start from scratch and focus on what should really be our concern right now. Choose better because it is only us, familiar people, victims of this abuse of authority and privilege.
Article reviewed and edited by Shreedatri Banerjee