Worrying trends in economic inequality in India

Source: The post  “Worrying trends in economic inequality in India’’ has been created, based on “Worrying trends in economic inequality in India” published in “BusinessLine” on 08th January 2026.

UPSC Syllabus: GS Paper-3- Economy

Context: Economic inequality has been rising sharply across the world, and India is no exception to this trend. While the country has achieved sustained economic growth over the past decades, the distribution of the gains from this growth has been highly uneven. A significant concentration of income and wealth among higher-income groups has resulted in widening disparities, posing serious challenges to inclusive and sustainable development.

Trends in Income and Wealth Inequality in India

1. High Income Inequality: The income ratio of the top 10 per cent to the bottom 50 per cent in India stands at 3.87, indicating that the top decile earns nearly four times the income of half the population. This reflects substantial income inequality, which is higher than in countries such as China and Russia, though lower than extremely unequal societies like Brazil and South Africa. Such a ratio signals stress on social mobility and fairness.
2. Extreme Wealth Concentration: Wealth inequality in India is far more severe than income inequality. The top 1 per cent control nearly 40 per cent of total national wealth, while the bottom 50 per cent possess only about 6 per cent. This concentration of assets enables higher-income groups to consolidate economic power and influence, further widening long-term disparities.
3. Rising Income Gini: The income Gini coefficient, a comprehensive measure of inequality, has increased from around 0.47 in 2000 to about 0.61 in 2023. This sharp rise indicates a worsening distribution of income over time and suggests that economic growth has disproportionately favoured the top segments of society.
4. Misleading Consumption Equality: Consumption-based inequality indicators show a relatively low and declining Gini of 0.255 in 2022–23, leading some rankings to classify India as a low-inequality country. However, consumption data exclude savings, investments, and wealth accumulation, thereby masking the true depth of economic inequality, especially among higher-income groups.

Reasons Behind Rising Inequality

1. Uneven Growth Pattern: India’s growth trajectory has favoured urban regions, high-skill services, and capital-intensive sectors, while agriculture and the informal sector—employing a majority of the workforce—have lagged behind. This sectoral imbalance has resulted in unequal income generation opportunities across regions and occupations.
2. Jobless and Precarious Growth: Economic growth has not translated into proportional job creation. Job losses, rising informalisation, and the expansion of the gig economy have increased employment insecurity. The lack of stable, well-paying jobs has widened wage gaps and reduced income security for large sections of the population.
3. Reinforcing Income–Wealth Cycle: Higher-income groups benefit more from policy changes and possess a greater capacity to save and invest. These higher saving rates translate into faster wealth accumulation, which further increases income through capital returns. This creates a self-reinforcing cycle where income inequality feeds into wealth inequality and vice versa.
4. Structural and Social Factors: Persistent inequalities in access to quality education, healthcare, credit, and economic opportunities limit upward mobility for disadvantaged groups. Social exclusion based on caste, gender, and region continues to perpetuate inequality across generations.

Policy-Related Contributors

1. Regressive Taxation: India’s taxation and redistribution policies have not sufficiently offset inequality. Limited progressivity in direct taxes and greater reliance on indirect taxes have placed a disproportionate burden on lower-income groups, weakening redistributive outcomes.
2. Declining Social Sector Priority: Despite rising needs, social sector spending has declined as a share of total government expenditure, reaching around 17 per cent in 2024–25, with only a modest increase projected. This reflects a reduced emphasis on welfare and human development.
3. Underinvestment in Health and Education: Public spending on health and education has lagged behind requirements. Declining budgetary shares for these sectors weaken human capital formation, reduce productivity, and exacerbate long-term inequality.
4. Weakened Employment Safety Nets: The replacement of the demand-driven MGNREGS with the supply-driven Viksit Bharat – Guarantee for Rozgar and Ajeevika Mission (Gramin) shifts financial responsibility to fiscally constrained States. This reduces assured income support for rural households and disproportionately affects the most vulnerable sections.

Implications of Rising Inequality

1. Rising inequality weakens domestic demand as large sections of the population have low purchasing power.
2. It hampers inclusive growth and job creation, increases social and regional disparities, and threatens long-term economic stability in a consumption-driven economy like India.
3. Persistent inequality can also undermine social cohesion and democratic accountability.

Way Forward

1. Adopt Demand-Driven Income Policies: Strengthening wages, expanding public employment, and enhancing social protection can directly raise incomes at the bottom and stimulate demand.
2. Revive and Strengthen Employment Guarantees: Restoring demand-driven rural employment programmes can provide income security and act as an automatic stabiliser during economic downturns.
3. Increase Social Sector Spending: Greater investment in health, education, and nutrition is essential to address structural inequality and improve long-term productivity.
4. Progressive Taxation and Redistribution: More progressive taxation of income and wealth, combined with effective redistribution, can help reduce excessive concentration of resources.
5. Support Labour-Intensive Industries: Promoting MSMEs and labour-intensive manufacturing can generate large-scale employment and reduce income disparities.
6. Boost Domestic Demand: Raising incomes of the bottom and middle classes is critical for sustaining economic growth in a consumption-led economy.

Conclusion: India’s rising income and wealth inequality is rooted in deep structural imbalances and policy choices that have favoured capital and high-income groups. Addressing this challenge requires a decisive shift towards inclusive, demand-driven growth, higher social investment, and effective redistribution. Without such corrective action, economic growth risks becoming socially and economically unsustainable.

Question: Economic growth in India has been accompanied by rising economic inequality. Examine the trends, causes, and policy-related factors behind increasing income and wealth inequality in India. Suggest measures to address the challenge.