Income share of top 1% surged: report 

Income share of top 1% surged: report 

Context

‘Inequality rose substantially since implementation of 80s’ deregulation reforms’.

World Inequality Report

Income inequality in India rose rapidly since the 1980s to a situation where the top 10% of the earners accounted for 56% of the income earned in 2014, according to a new report by economists, including Thomas Pickety and Lucas Chancel. 

Main points of the report

• Inequality rose substantially since the 1980s following the implementation of the deregulation reforms by the government.
• In 2014, the share of national income captured by India’s top 1% of earners was 22%, while the share of the top 10% of earners was around 56%
• The top 0.1% of earners have continued to capture more growth than all those in the bottom 50% combined.
• Rise in very top incomes
  • Indian inequality was driven by the rise in very top incomes
  • The income share of India’s top 1% rose from approximately 6% in 1982-1983 to above 10% a decade after, then to 15% by 2000, and further still to around 23% by 2014
  • The latest data thus shows that during the first decade after the millennium, the share of national income attributable to the top 1% grew to be larger than that pertaining to the bottom 50%
  • By 2014, the national income share of the bottom 50% — approximately 390 million adults — was just two-thirds of the share of the top 1%, consisting of just 7.8 million people.

‘Rising inequality’

“An even stronger increase in the share of national income was experienced by the top 0.1% and top 0.01%, whose shares grew fivefold and tenfold, respectively, from 2% and 0.5% to almost 10% and 5%, between 1983 and 2014 

Contrast with first 30 years following independence

According to the authors, this rising inequality is in sharp contrast to the trends seen in the 30 years following Independence, when income inequality was widely reduced and the incomes of the bottom 50% grew at a faster rate than the national average.

Why?

Socialist policies

• After independence, [the then Prime Minister] Jawaharlal Nehru implemented a set of socialist policies, with strict government control over the economy, with an explicit goal to limit the power of the elite
• The policies implemented by himself and his followers, including his daughter Indira Gandhi, up to the late 1970s, included nationalisations, strong market regulation and high tax progressivity.
• These measure, and others, the report said, had a significant impact on reducing income inequality.