Paper: GS – III, Subject: Economy, Topic: Economy related- Acts, schemes, policies, indices, Issue: Issues with the World Bank report on inequalities in India.
Context:
The recent World Bank report (April 2025) claims that India has almost eradicated extreme poverty based on the new Household Consumption Expenditure Survey (HCES) data for 2022–2023.
Key Highlights:
Key Findings of the World Bank Report:
- Reference period: Uses Modified Mixed Reference Period (MMRP), a more accurate data collection method.
- Decline in Gini coefficient: Claims that the Gini coefficient (measure of inequality) declined from 0.36 in 2011–12 to 0.29 in 2022–23.
| Gini coefficient measures consumption/income inequality (ranges from 0 = perfect equality to 1 = perfect inequality). |
- Decline in consumption inequality: There has been a significant reduction in consumption inequality since 2011–12.
- Need for improvements: The report points of the need for improvements in:
- Availability and consumption of fruits, eggs, milk, and vegetables.
- Dietary diversity and nutritional quality across income groups.
- Per capita consumption especially for the bottom 80%.
Criticism raised on the report:
- Distorted parameters: World Bank understates inequality by relying only on consumption data, ignoring income and wealth gaps.
- Income vs Consumption: Consumption data can mask real inequality, especially in top income groups. Income estimates for the rich are often understated, since they save more and consume less proportionately.
- Survey Data Limitation: Top 20-30% income groups underreport or are underrepresented in surveys. Even Government data misses wealth and capital income, which are central to understanding true inequality.
Findings from other Indicators:
- The data from the Multidimensional Poverty Index of NITI Aayog shows:
- Decline in extreme poverty between 2011–12 and 2023.
- Increase in rural assets such as vehicle ownership, roads, homes.
- Govt schemes such as PMAY, PMGSY, MNREGA etc have improved rural economic indicators.
- Direct tax data shows:
- Top 1% taxpayers account for 22–27% of income, but pay 42% of direct taxes.
- Actual tax burden on the rich is not negligible, contrary to popular belief.
Conclusion:
While India has made progress in reducing poverty and consumption inequality, this does not mean income or wealth inequality has reduced. Policies must rely on accurate, comprehensive data to address inequality. Future welfare and tax policies must better target the real income distribution.
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