Source: The post Gini history shows why India misreads inequality data today has been created, based on the article “Useless information has huge political utility” published in “Businessline” on 14th July 2025
UPSC Syllabus Topic: GS Paper1- Indian Economy and issues relating to planning, mobilisation, of resources, growth, development and employment.
Context: A recent PIB claim calling India the ‘fourth most equal’ country triggered widespread criticism. It arose from a misreading of a World Bank study that confused consumption equality with income inequality. This article explores the historical roots and limitations of the Gini coefficient, a widely used measure of inequality.
Origin and Evolution of the Lorenz Curve and Gini Coefficient
- Birth of the Lorenz Curve: The Lorenz Curve originated from an undergraduate essay by Max O. Lorenz in the early 1900s. He used it to illustrate income distribution, though it wasn’t part of his later PhD work on American railroad wages.
- Naming and Popularization: In 1912, Wilford E. King, also from the University of Wisconsin-Madison, named the curve after Lorenz. He was a prominent income statistician but politically conservative, opposing taxation and government intervention.
- Development of the Gini Coefficient: The Italian statistician Corrado Gini developed the Gini coefficient based on the Lorenz Curve. It measures income inequality by calculating the deviation from perfect equality on an XY graph.
Limitations of the Gini Coefficient
- Dependence on Data Quality: The Gini’s reliability depends on complete and accurate data. In countries like India, where data is often unreliable, its usefulness is severely compromised. Scandinavian countries, with near-perfect data, show more accurate results.
2, Misinterpretation and Misuse:Even a correct like-for-like comparison using Gini does not portray India as an equal society. However, institutions sometimes misuse it to present misleading conclusions.
Political Influence and Global Uptake
- Rise in Political Relevance: From the 1970s, growing democratic accountability made income inequality a political issue. The Gini coefficient became a tool for justifying government spending, especially by Left-leaning politicians.
- Role of the World Bank: Under pressure from U.S. lawmakers, the World Bank began compiling extensive global income data. By the 1980s, it became the leading source for income inequality metrics, including the Gini.
Flaws in Policy Application
- Ineffective Spending in High-Gini States. Hindi-speaking states in India, despite receiving more funds, show rising Gini levels. Increased expenditure hasn’t reduced inequality, indicating the measure’s limited usefulness in guiding policy.
- Comparison with Useless Remedies: The article compares political use of the Gini to baldness treatments—highly marketable but largely ineffective. It questions whether spending based on Gini-driven policy offers any real value to taxpayers.
Question for practice:
Discuss how political misuse and data limitations reduce the effectiveness of the Gini coefficient in measuring inequality.
