Source: The post India’s income inequality is deepening despite growth has been created, based on the article “Time to bridge income inequality gap” published in “Businessline” on 20th June 2025
UPSC Syllabus Topic: GS Paper3- Indian Economy
Context: India’s rapid economic growth has reduced extreme poverty, but widening income inequality poses serious risks. The World Bank’s 2025 Spring brief noted that 171 million Indians moved out of extreme poverty, yet gaps in official labour data reveal that income disparities are redrawing opportunity boundaries.
For detailed information on India’s Rising Inequality read this article here
Structural Nature of Income Inequality
- Persistent Gaps in Labour Market: PLFS data (2017–18 to 2023–24) shows structural inequality. Median incomes rose from ₹1,02,000 to ₹1,44,000 with a 5.92% CAGR, but gains were unequally distributed.
- Faster Growth at the Top: The top 1% saw incomes rise from ₹50,000 to ₹75,000 per month (6.99% CAGR). The top 10% threshold increased from ₹25,000 to ₹32,000, highlighting disproportionate gains.
- Stagnant Incomes at the Bottom: The bottom 50% moved from ₹8,500 to ₹12,000, and the bottom 10% saw just a ₹700 rise—from ₹3,200 to ₹3,900—only a 3.35% CAGR. This reveals stark asymmetries in income growth.
- Inequality Measures Remain High: The Gini coefficient stayed around 0.42, despite per capita GDP increasing from $1,907 to $2,481. The Theil index at 0.33 confirmed income concentration. The top 1% to bottom 50% ratio grew from 5.89x to 6.25x.
Regional Variations in Inequality
- High Inequality States: Himachal Pradesh, Meghalaya, Chhattisgarh, Maharashtra, Odisha, and Jharkhand showed high Gini and Theil indices. The income gap between the top 1% and bottom 50% was especially wide.
- More Inclusive States: Mizoram, Bihar, Manipur, and Goa had lower inequality. Mizoram and Bihar narrowed income gaps at the bottom, suggesting stronger inclusivity.
- Occupational Differences: In Maharashtra and Himachal Pradesh, self-employed workers had large income gaps. Chhattisgarh and Meghalaya showed rising top-end earnings among salaried workers.
- Rural-Urban Divide Worsens: By 2023–24, urban top 10% incomes were over twice rural ones nationally. States like Himachal Pradesh, Bihar, Goa, and Meghalaya saw the greatest divergence.
Erosion of Middle-Income Stability
- Hollowing Middle Class: Data shows a weakening middle-income group, pointing to a shrinking economic centre and uneven growth.
- Risks to Stability: Joseph Stiglitz warns that eroding middle-class strength threatens political stability and demand-driven growth.
- Need for Structural Reforms: Tackling inequality requires rural revitalization, better education and skills, gender parity in labour, and more formal jobs. Equity in income and opportunity is vital for resilient, inclusive growth.
Question for practice:
Discuss how rising income inequality in India affects inclusive growth and social stability despite overall economic progress.
