Has Economic Inequality Risen in Bharat?

World Inequality Lab report methodology, databases deployed are questionable & biased. It does not stand rigour of academic scrutiny.

Chaitanya Khurana

Over past several years, Bharat has made remarkable progress in ending poverty and hunger. In July 2023, United Nations has said that 415 million people have been brought out of extreme poverty within just 15 years spanning from 2005 – 21. These numbers were mentioned in absolute as part of global multidimensional poverty index which was released by United Nations Development Programme (UNDP), Oxford Poverty and Human Development Initiative (OPHI).

Surjit S. Bhalla & Karan Bhasin, renowned commentators on poverty and economic issues recently reviewed latest official consumption expenditure data for 2022-23 which has shown an unprecedented reduction in rural and urban inequality.

The inference from this latest released official data is that Bharat has achieved a remarkable feat of ending extreme poverty and there are suggestions for upward revision in poverty line and redefining existing social protection programmes for better targeting of beneficiaries so that few people who might have been left behind are uplifted.

On the contrary, World Inequality Lab report, “Income and Wealth in India, 1922-2023: The Rise of the Billionaire Raj” (Pikketty et al, 2024) has made some claims that may not be tenable as per data points available in public domain.

As per World Inequality Lab report, inequality levels declined post-independence but after early ‘80s, income and wealth inequality spiked and increased at rapid pace from early 2000s. The report claims that in terms of Income and Wealth, India’s top one percent holds 22.6 per cent and 40.1per cent respectively. The report added that India’s top one percent holds the highest income and wealth as against their peers in any other country and higher than South Africa, Brazil and USA.

This is not the first time that Western Think Tanks and self-proclaimed intellectuals tried to defame India’s rising economic growth and success the country had in uplifting its poor. They seem to harbour unfounded fears in Bharat’s rise, dominance as an economic power and leader of the changing world order. The report has so many flaws and deficiencies that it may not stand academic scrutiny of its Data and methodologies used. On both the metrics, World Inequality Lab is flawed and found deficiencies. This whole analysis regarding Bharat’s wealth inequality is more propaganda and less of reality.

First limitation in the World Inequality Lab arises out of combining data sets. Usually, Different databases use different methodologies to collect and estimate data. It is not an acceptable academic practice to combine two datasets just for the sake of an analysis. For instance, the report uses forecasting techniques of interpolation and extrapolation which can give you biased and inconsistent results as these are estimates and forecasts, not actual data.

Instead of using latest consumption expenditure data, the study uses Generalized Pareto interpolation techniques for extracting which in itself shows that the data has been generated which can be inconsistent and biased because all forecasting techniques have limitations.

The two datasets PLFS and HCES used in the report are not comparable so therefore claims of rising inequality are false. The reliance on PLFS data of the past which has been red flagged by India, International Labour Organization and giving this information in the footnote explains the hidden agenda.

Secondly, tax collections database cannot be the basis to justify its claim on rising inequality. Higher tax collections imply that over the years, tax compliance has become better, more and more people are coming into the tax net with taxable incomes. Taking the tax database from 1920 and concluding that top one per cent earned less before 2010 and 1990 eras pre-supposes uniform tax compliance over the years which is absolutely false.

Thirdly, focus of the authors was solely on top one per cent income earners in India. Over past many years, many foreign think tanks and intellectuals have had problems with Indian billionaires but if the billionaire was from a western developed economy, then it is not a crime. The report has cherry picked top one per cent earners and ignored emerging middle class that expanded considerably over past many years and constitute 31 percent of the population.

Fourthly, the report has attempted to focus on perceived inequality aspect which is a very uni-dimensional approach to poverty. Many development economists now use multi-dimensional poverty index (MPI) to measure poverty and inequality which is more appropriate for analyzing the reduction in poverty for any country. Niti Aayog’s report on MPI has shown that 248 million individuals in India have overcome multi-dimensional poverty between 2013-23 and this holds greater significance for the typical ambitious Indian than count of billionaires in the nation. Reduction of Poverty is the ultimate goal and reduction inequality is its consequence. 

Fifth, the Report considers market capitalization or stock market wealth as part of net wealth. This is a very debatable assumption which has been considered in the report. Top one percentile income earners’ companies are listed on the stock market and with their valuations increasing related stock prices on the boom, suggestion has made that it translated to higher wealth for these income earners. On the contrary, if the stock prices fell and valuations dipped, their wealth would decrease and inequality shrinks. Taking this as a parameter to comment on India‘s inequality is completely inconsistent with good academic data driven rigor.

This is not the first time that Piketty’s work has been criticized by economists and related commentators for its use of erroneous methodologies and inconsistent results.  Geloso, Magness, Moore and Schlosser wrote in 2003 that in the Paper titled. 

“How Pronounced is the U-Curve? Revisiting Income Inequality in the United States, 1917–60”, inequality for United States of America has been overstated.

Hence, the Inequality Lab report does not stand academic scrutiny, inconsistent and flawed with its methodologies and results which shows that this is just propaganda and nothing more.

(Author is a doctoral scholar in finance at Indian Institute of Management, Indore)