Income and wealth inequality in India from 1922 to 2023

• Context (IE | IE): A new working paper by the World Inequality Lab examines income and wealth inequality in India from 1922 to 2023.
• Data from various sources, such as national income accounts, wealth aggregates, tax records, and surveys, were used for the analysis.

Key Findings

Growth in average incomes

• 1960-1990: growth rate of 1.6% per year.
• 1990-2022: growth rate of 3.6% per year.
• The fastest growth periods: 2005-2010 (4.3% per year) & 2010-2015 (4.9% per year).

Emergence of very high net worth individuals

• From 1990 to 2022, India experienced a rise in national wealth along with the emergence of very high-net-worth individuals.
• The number of such individuals increased from 1 in 1991 to 52 in 2011 and further to 162 in 2022.

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Rise in the percentage of income tax payers

• The proportion of adults filing income tax returns was less than 1% until the 1990s, but it saw significant growth after the economic reforms of 1991.
• By 2011, this proportion had exceeded 5%, indicating a substantial increase.
• Over the last decade, roughly 9% of adults filed tax returns between 2017 and 2020.

Extreme levels of inequality in India in 2022-23

• The top 1% received 22.6% of the national income, the highest since 1922, surpassing even the colonial period.
• Additionally, the wealth share of the top 1% stood at 40.1%, the highest since data collection began in 1961.
• It raises concerns about the sustainability of such heightened inequality levels without significant social and political repercussions.

Extreme wealth concentration at the very top

• Between 1961 and 2023, the wealth share of the top 1% tripled from 13% to 39%. Most of these gains occurred after 1991, with the top 1% shares consistently rising until 2022-23.
• Within the top 1%, wealth concentration is exceptionally high. In 2022-23, the top 1% held 39.5% of the wealth.

International comparison of income inequality

• The paper compares India’s income and wealth inequality with several countries, including Brazil, China, France, South Africa, the United Kingdom, and the United States as of 2022.
• India ranks second in terms of the income share of the top 10%, trailing only South Africa.
• However, when looking at the income share of the top 1%, India has the highest level at 22.6%.
• According to the paper, India’s top 1% income share is among the highest globally.

International comparison of wealth inequality

• Both with the top 10% and the top 1%, India’s wealth concentration is moderate.
• Brazil and South Africa exhibit extreme levels of wealth concentration, with top 10% shares of 85.6% and 79.7%, respectively.

Poor data leading to likely underestimation of inequality

• The economic data quality in India is notably poor and has worsened recently.
• The paper suggests that the findings likely underestimate the true levels of inequality.

Policy solution

• Implementing a super tax on Indian billionaires and multimillionaires is suggested.
• Restructuring the tax schedule to cover both income and wealth is proposed.