Understanding inequality in India’s growth story

Source: The post “Understanding inequality in India’s growth story” has been created, based on “Understanding inequality in India’s growth story” published in “The Hindu” on 7 May 2026. Understanding inequality in India’s growth story.

UPSC Syllabus: GS Paper-2- Economy

Context: India has experienced rapid economic growth in recent decades. However, the Household Consumer Expenditure Survey (HCES) 2023-24 shows that inequality in consumption expenditure remains high, particularly in urban areas and in non-food expenditure. This highlights that the benefits of growth have not been distributed equally across different sections of society.

Nature of Inequality in India

1. Consumption expenditure inequality remains high:

1. The HCES 2023-24 estimates India’s consumption expenditure inequality at a Gini index of 0.29.
2. This estimate is higher than the World Bank estimate of 0.25, indicating that inequality in India is more severe than previously understood.
3. It shows that economic growth has not translated into equal improvement in living standards.

2. Urban inequality is higher than rural inequality:

1. Urban areas exhibit greater inequality than rural areas.
2. Although urban regions are more affluent, the gains from economic growth are concentrated among a limited section of the population.
3. The urban sector therefore experiences sharper disparities in consumption and living standards.

3. Non-food expenditure drives inequality:

1. Inequality in non-food expenditure is significantly higher than inequality in food expenditure in both rural and urban areas.
2. India’s recent consumption growth has mainly been driven by spending on non-food items such as education, healthcare, housing, transport, and lifestyle goods.
3. Unequal access to these services has widened economic disparities.

4. Large gap between richest and poorest sections:

1. The gap between the richest and poorest sections of society is extremely high.
2. In urban areas, the richest 5% spend nearly nine times more than the poorest 5%, while in rural areas the richest 5% spend six times more than the poorest 5%.
3. This reflects the unequal distribution of purchasing power in the economy.

5. Rural–urban disparity persists:

1. A substantial gap continues to exist between rural and urban consumption levels.
2. Average urban non-food monthly per capita consumption expenditure (MPCE) is much higher than the all-India average, whereas rural expenditure remains below the national average.
3. Agricultural distress and slower rural income growth have further widened this divide.

Dynamics Behind Rising Inequality

1. Growth has been urban-centric:

1. India’s economic growth since the 1980s has mainly benefited urban owners, professionals, and managerial classes.
2. In contrast, rural labourers, small farmers, and informal workers have not benefited proportionately from the growth process.
3. This has increased inequality between different occupational groups.

2. Rise in within-class inequality:

1. Inequality in India is no longer limited to differences between broad social groups.
2.  Increasing disparities are also visible within caste and class groups.
3. Even within the same social category, some sections have advanced rapidly while others continue to lag behind.

3. Informal sector vulnerability:

1. Workers employed in the informal sector continue to face insecure employment, low wages, and weak social security protection.
2. Policy changes and labour reforms have raised concerns regarding the welfare of informal workers and vulnerable households.
3. This has contributed to widening inequality.

4. Exclusion of the super-rich from surveys:

1. The NSS consumption surveys do not adequately capture the expenditure and wealth of the super-rich population. As a result, existing inequality estimates may understate the actual extent of inequality in India. The concentration of wealth at the top is therefore likely to be much higher.

5. Debt-led consumption:

1. A large section of the population depends on borrowing to maintain consumption levels.
2. Debt-led consumption creates an illusion of economic well-being despite stagnant incomes.
3. This reflects underlying financial distress among poorer households.

Concerns Arising from High Inequality

1. Threat to inclusive growth:

1. Rising inequality weakens the objective of inclusive growth because the benefits of development become concentrated among a small section of society.
2. Marginalised groups therefore remain excluded from economic progress.

2. Social and regional disparities:

1. Persistent inequality intensifies social tensions and deepens regional imbalances between rural and urban areas.
2. Such disparities can adversely affect social cohesion and stability.

3. Welfare implications:

1. Policies formulated on the assumption of lower inequality may fail to adequately address the needs of vulnerable populations.
2. This can reduce the effectiveness of welfare programmes and increase exclusion errors.

4. Weak demand sustainability:

1. Excessive concentration of income reduces broad-based consumer demand in the economy.
2. This can negatively affect long-term economic growth and sustainability.

Way Forward

1. Strengthen rural economy: The government should increase investment in agriculture, rural infrastructure, and rural employment generation programmes. This would help reduce the rural–urban consumption gap.
2. Expand social protection: Social security coverage for informal workers and economically weaker sections should be strengthened through better welfare measures and targeted support.
3. Promote equitable urban growth: Urban development policies should focus on affordable housing, accessible healthcare, quality education, and public transport to reduce inequality in cities.
4. Improve inequality measurement: Surveys and data collection mechanisms should better capture the expenditure and wealth patterns of high-income groups to provide a more accurate picture of inequality.
5. Generate employment-intensive growth: India should promote labour-intensive manufacturing and support MSMEs to create more inclusive employment opportunities for the wider population.

Conclusion: India’s growth story has been accompanied by rising inequality, especially in urban areas and non-food expenditure. The persistence of rural–urban divides, class disparities, and unequal access to opportunities challenges the goal of inclusive development. Therefore, economic growth must be supported by stronger social protection, equitable distribution policies, and employment generation to ensure balanced and inclusive progress.

Question: “Despite rapid economic growth, inequality in India continues to widen.” Discuss the nature and dynamics of inequality in India based on recent consumption expenditure trends.

Source: The Hindu