Income distribution and inequality in India: 2014-19

TL;DR

This study analyzes income trends in India from 2014 to 2019, revealing persistent inequality but significant income declines at the lower end, especially in rural areas, with implications for economic fragility and redistribution.

Contribution

It provides a detailed empirical analysis of income distribution changes in India, highlighting rural income decline and the decreasing reallocation dynamics at the bottom.

Findings

Income inequality remains stable over 2014-19.

Bottom decile of income distribution experienced a 38% decline in income share.

Rural bottom decile income declined by 41%, with negative growth of -4.3% annually.

Abstract

We study the evolution of income in India from 2014-19 and find that while income inequality remains largely consistent over this time, the lower end of the income distribution has experienced significant losses - the bottom ventile shows not only a decline in income share of ~38%, but also negative real average income growth of -4.6% per annum. We further investigate the composition of this part of the distribution using rural and urban splits, and find that even as income shares at the bottom of the urban distribution have increased over time, those at the bottom of the rural distribution have decreased - income share of bottom decile of the rural income distribution declined by ~41%, and real average income growth was at -4.3% per annum from 2014-19. We also empirically confirm that the bottom ventile of the consolidated Indian income distribution is composed primarily of rural incomes, and therefore the decline in real incomes is essentially a rural phenomenon. Studying occupation data of households, we find that the bottom decile of the rural distribution correlates strongly with occupations of small/marginal farmers and agricultural labour, highlighting the increasing economic fragility of such occupations. Using the RGBM model to estimate the nature of reallocation in the Indian income distribution, we find that reallocation has been decreasing from 2015 and even turned negative in 2018, which is in keeping with empirical evidence of real income declines at the bottom of the distribution, and heralds the risk that persistent negative reallocation in the future could result in regressive redistribution of resources from the poor to the rich.