The media was recently awash with stories claiming that India is the fourth most equal country in the world, attributing the finding to a recent World Bank report. This is a serious misrepresentation. 

Here’s what the World Bank Brief says:

“India’s consumption-based Gini index improved from 28.8 in 2011–12 to 25.5 in 2022–23, though inequality may be underestimated due to data limitations. In contrast, the World Inequality Database shows income inequality rising from a Gini of 52 in 2004 to 62 in 2023. Wage disparity remains high, with the median earnings of the top 10 percent being 13 times higher than the bottom 10 percent in 2023–24.”

Surbhi Kesar writes in her article in The Wire on 5 July: 

“The PIB picks out the 25.5 figure – which measures consumption inequality – and uses it to compare India to other equal countries whose rankings are based on income inequality. This is a basic and critical statistical error.

Note, the consumption inequality as an index is usually lower than income inequality for countries. This is because the rich save a large part of their income, so consumption, as unequal as it is, at least looks more equal than income. So, when the PIB compares India’s consumption Gini of 25.5 with other countries’ income Ginis, it’s comparing apples to oranges. In fact, the World Bank brief also does not make any such comparisons based on these numbers since they are not comparable, even though PIB seems to claim it does.

A fair comparison would either be to compare India’s income inequality with other countries’ income Ginis, or compare India’s consumption inequality with other countries’ consumption Ginis – which the World Bank brief does not provide.

India’s Gini index for income inequality, comparable with other countries, is 61 (in 2019 and 2023), according to the world inequality database, and as also stated in the World Bank brief. This inequality has been consistently increasing since the 1990s, placing India as a highly unequal country (the higher the index, higher the inequality). Ranking countries based on how equal they are in terms of the income Gini, we find that India is ranked 176 out of a total of 216 countries in 2019, while its rank was 115 in 2009 – thereby becoming much more unequal, relative to other countries, over time. The wealth inequality Gini index as per the world inequality database for India is even higher, at 75 in 2023 (and 74 in 2019).

Let’s turn our attention towards comparable consumption inequality figures. First, the World Bank does not compare India’s consumption Gini index with any other country. Worse still, the World Bank brief explicitly cautions that India’s consumption inequality may be underestimated due to data limitations; specifically it notes “International poverty estimates for India are derived from the 2011-12 Consumption Expenditure Survey (CES) and the 2022-23 Household Consumption Expenditure Survey, using the modified mixed reference period and a spatially and intertemporally deflated welfare aggregate. Changes in questionnaire design, survey implementation, and sampling in the 2022-23 survey represent improvements but present challenges for making comparisons over time. Moreover, sampling and data limitations suggest that consumption inequality may be underestimated.” And those limitations are substantial. The survey methodology for the 2022-23 Household Consumption Expenditure Survey underwent considerable changes from the earlier 2011-12 CES, making direct comparisons unreliable. This has been widely discussed by Indian economists and statisticians.
To make some reasonable comparisons of consumption inequality, we can look at inequality in per capita calorie intake, which also reflects food consumption disparities. According to data from the Food and Agriculture Organisation (FAO) of the United Nations and processed by Our World in Data, we find that India ranked 102nd out of 185 countries in 2019 – a worse position than in 2009, when it ranked 82nd. So, by this measure too, India’s relative performance has deteriorated over the past decade.”

Now coming to other facts and figures, the Oxfam Report of 2023, helps us explain the reasons behind this inequality with reference to India’s taxation policy. 

Impact of India’s Taxation Policy:

(a) Reduction in Corporate Taxes:

1. In 2019, the Central Government reduced the corporate tax slabs from 30% to 22%, with newly incorporated companies paying a lower percentage of 15%.
   
2. These tax cuts resulted in corporate tax collections declining by approximately 16% in their first year and resulted in a total loss of INR 1.84 lakh crore. Corporate tax collections were 82% of the collections in 2019-20 and 68% of the collections in 2018-19.
   
3. In 2020-21, the projected revenue foregone by the government in the form of incentives and tax exemptions to corporates is INR 1,03,285.54 crore.
   
4. Consequently, the burden of taxation has shifted away from the corporates towards the individual income taxpayer. 
   

(b) Increase in Indirect Taxation:

1. To increase revenue, the Union Government adopted a policy of hiking the GST and excise duties on diesel and petrol while simultaneously cutting down on exemptions.
   
2. Since 2020-21, the share of indirect taxes in the state exchequer has risen by 50%.
   
3. Since the implementation of GST, the share of direct taxes out of the total gross tax revenue receipt declined by 5% by 2020-21. Similarly, revenue from corporate taxes as a percentage of gross tax revenue declined by 8%. Under the GST regime, there is a decline in the proportion of corporate taxes in the total revenues of the government.
   
4. The bottom 50% of the population at an All-India level pays six times more on indirect taxation as a percentage of income compared to top 10%.
   
5. GST: Of the total taxes collected these food and non-food items, 64.3% of the total tax is coming from the bottom 50%. A little less than two-third of the total GST is coming from the bottom 50%, one-third from middle 40% and only 3-4% from the top 10%.
   
6. Simultaneously, increase in excise duties on diesel and petrol when the price of oil barrels fell to record lows (INR 1,722 a barrel in April 2020). Between 2014-15 and 2021-22, the excise duties on petrol increased by 194%, while the excise duties on diesel were hiked by 512%.
   

In October 2021, PRS Legislative Research reported that taxes made up 54% of the price of petrol (of which 31% were central excise duties and 23% were States’ Sales Tax/VAT). For diesel, taxes comprised 49% of the retail price (of which 34% were central excise duties and 15% were States’ Sales Tax/VAT).

7. While income tax is based on the income they earn, extracting more from individuals with higher income, an indirect tax like GST and excise of diesel and petrol would tax all individuals the same amount, irrespective of their income. In this way, a person with a lower income would end up paying more as a percentage of their income.

8. Of the Total GST collected,

• (i) 64.3% of the total GST is from the Bottom 50%, i.e., almost 2/3 of the total GST is coming from the bottom 50%
• (ii) 1/3 from middle 40% and
• (iii) Only three to four % from the top 10%.
  

9. The poor pay a larger part of their income towards taxes than the rich.

• (i) The bottom 50% spends 6.7% of their income on taxes for food and non-food items.
• (ii) Middle 40% spends half of that at 3.3% of their income on food and non-food items.
• (iii) The top 10% wealth group spends a mere 0.4% of their income on food and non-food items
• (iv) The bottom 50% of the population at an All-India level pays six times more on indirect taxation as a percentage of income compared to top 10%.
  

Whichever way one looks at the data, the picture is clear: India is a highly unequal country, and inequality is worsening. The intervention needed for a massive redistribution, including taxing the rich, is urgent. Misleading data cannot hide this reality.