The prevalent trend indicates that income inequality in India is rising independent of absolute incomes.
The Gini Coefficient for the country is estimated to be close to 0.50, which would be an all-time high.
What is Gini coefficient?
Gini Coefficient is a statistical measure to gauge the rich-poor income or wealth divide.
It measures inequality of a distribution be it of income or wealth within nations or States.
Gini Coefficients can be used to compare income distribution of a country over time as well.
Its value varies anywhere from zero to 1, zero indicating perfect equality and one indicating the perfect inequality.
A Gini figure below 0.40 is generally considered to be within tolerable limits by economic experts.
There are many ways to measure itTwo popular ways are those based on pre-tax (or market) income and disposable income.
The latter considers taxes as well as social spend before arriving at the figure.
The difference between the two kinds of measures indicates the efficacy of a country’s fiscal policy in reducing the rich-poor divide through taxation and social spends.
Why is the coefficient significant?
A general rise in Gini Coefficient indicates that government policies are not inclusive and may be benefiting the rich as much as (or even more than) the poor.
For instance, a subsidy on passenger train tickets may entail a big budget outlay and may be targeted at the poor,but its benefit could actually be derived by the non-poor.
It is important that rich-poor divide is kept in check to ensure that a larger section of society reaps benefits from economic growth.
A higher Gini Coefficient also could mean temptation for an incumbent government to splurge more on welfare schemes and tax the rich more.
What is the way forward?
This inequality, however, tends to be temporary as workers and investors soon catch up, resulting in improvement of their incomes.
However, it is quite possible that the post-tax Gini Coefficient for India is lower, as government welfare schemes are focussed on the lower income groups.
Also the progressive rates that India uses for income tax slabs could also narrow the disparity.
