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Deccan Herald
13-07-2025
- Business
- Deccan Herald
Data and distortion: Decoding inequality in India
In July 2025, the government's Press Information Bureau celebrated a World Bank brief that proclaimed India had become the fourth most equal country in the world, citing a Gini index of 25.5. According to the World Bank's 2025 Poverty and Equity Brief, India's consumption-based Gini coefficient declined from 28.8 in 2011–2012 to 25.5 in 2022–2023. The Gini index is a widely used measure of inequality, where 0 denotes perfect equality and 100 indicates perfect inequality. A lower Gini index, therefore, implies a more equal distribution of income or the brief itself clarified that this figure refers to the consumption Gini index calculated using the 2022-2023 Household Consumption Expenditure Survey (HCES) and warns that inequality may be underestimated due to data and sampling limitations. Therefore, the celebratory headlines following the PIB release were based on a measure of consumption inequality, while many international rankings use income-based Gini indices—a mismatch that calls for closer scrutiny. .The 2022–2023 HCES marked a significant methodological shift from earlier rounds. It adopted the Modified Mixed Recall Period (MMRP), using shorter recall periods (e.g., 7 days) for frequent purchases like food and longer periods (e.g., 365 days) for less frequent purchases like durable goods, replacing the fixed 30-day Uniform Recall Period. Additionally, it valued all goods, including those provided free or at subsidised rates, at their market price rather than the price actually paid by households. These adjustments led to capturing higher levels of reported methodological changes play a key role in the low consumption-based Gini index for India. While these changes have garnered some critics, they are largely in line with global best practices. However, the World Bank brief does provide a caution that 'sampling and data limitations suggest that consumption inequality may be underestimated' in critical point remains that the Gini coefficient reported in the World Bank brief is based on consumption, not income. Consumption-based Gini indexes are typically lower than income-based Gini indexes. Understanding this difference is key to interpreting claims about India's relative equality in a global context. Wealthier households typically save a large share of their income, resulting in a smoothing of consumption that hides the volatility of income. As a result, their consumption patterns appear more equal than their income. Thus, India's consumption Gini index cannot be equated to other countries' income Gini index to conclude where India ranks in terms of equality. .By contrast, income-based measures tell a very different story. The World Inequality Database (WID) estimates India's income Gini at 62 in 2023. It classifies India as one of the most unequal countries in the world and also claims that inequality in India has been steadily increasing ever since liberalisation. It is also referenced within the same World Bank brief as an alternative viewpoint. However, these numbers come with their relies heavily on tax records to compile its database. Several Indian economists point out that changes in tax policy and compliance can skew these instance, rising incomes reported at the top may partly reflect better tax compliance (as rates fell), not a real jump in inequality. Similarly, tax evasion is another major factor that is difficult to account for. Therefore, while the WID paints a grim picture, its methodology has been challenged in a private think tank called PRICE has conducted intensive income surveys and finds a higher Gini than the World Bank's but lower than WID's. PRICE reports India's income Gini at about 41 in 2022–23. This implies that income inequality in India is substantial, though still below WID's level of 62. Of course, household income surveys have their own pitfalls. Self-reported income is notoriously unreliable, with people often under-reporting, especially at the top. Recent RBI research confirms that the wealthiest Indians report incomes far below what their assets would imply. .While the claim that India is the 4th most equal country in the world is not supported by the evidence, understanding the extent of inequality in India is limited by the lack of quality data. Consumption data shows low inequality, while income data shows higher inequality, and each data source comes with its limitations. Recognising this, MoSPI has recently pledged to conduct an All-India Household Income Survey. This will be India's first full-scale income distribution survey in planned survey will be guided by experts and is intended to incorporate global best practices in design and coverage. Until it is conducted, we must rely on piecemeal indicators and treat headline claims with now, all evidence suggests that India is far from the 'equal' club. Until better data is available, it is important to keep an open mind to all these data points and their caveats and not be swayed by oversimplified headlines..(The writer is an independent researcher)
Hindustan Times
08-07-2025
- Business
- Hindustan Times
Power games that the big boys play
The 2025 World Economic Outlook of the International Monetary Fund (IMF) listed India as the fourth-largest economy in the world with a GDP of $4.187 trillion, pushing Japan to the fifth place. And the World Bank's 2025 Poverty and Equity Brief notes that India has achieved record poverty reduction with the share of those living in extreme poverty (under $2.15 per day) having fallen from 16.2% in 2011-12 to just 2.3% in 2022-23. Such affirmation should normally have meant only khushi (happiness) with the Bretton Woods Institutions (BWIs). But, it has been kabhi khushi, kabhi gham (sometimes happiness, sometimes sorrow) principally because of their largesse towards Pakistan, overlooking its role in fomenting and spreading terror in India and globally. Added to this, there has been the termination of the services of our executive director (ED) at IMF at the very moment that matters pertaining to a bailout for Pakistan were coming up. There are allegations he misused his position to get several State-owned banks to buy a book of his in extraordinarily large quantities. There are also reports of his having fallen foul of internal protocols at IMF related to handling of insider information and work methods. The Fund's ethics committee was likely to act, leaving the government with little option other than avoiding the ignominy of its ED facing strictures on ethical issues. Galling, from India's perspective, was the IMF decision to authorise the release of $1 billion as a financial bailout to Pakistan soon after the Pahalgam terror attack on April 22, despite India's strong protest. A few days later, there were reports of the World Bank agreeing to a 10-year, $40-billion development package for Pakistan. Following this, the Asian Development Bank (ADB) authorised $800 million in early June, again, sidestepping strong criticism by India. Are there lessons for us in these happenings? The most important one — more so now than earlier, as India climbs the global leadership ladder — is internalising that BWIs are institutions of international governance and not just partners for economic development. Apart from pursuing our domestic development agenda, we must also play the power game of nations. Second is having a clear understanding of the structure of the BWIs, where voting, unlike in the UN, is not based on a one-country-one-vote system. Rather, as it is in a corporate structure, voting is determined by quotas (analogous to shareholding in a company). The US has a vote share of around 16.5%, a blocking stake for major decisions which, at IMF, must get a super majority of 85%. Japan and China follow with slightly over 6%. Germany has around 5%, and the UK and France have 4% each, giving, along with others, the Europeans a share of around 25%. India's vote share is 2.6%. The issue of quota reform has been on the table for years and keeps getting pushed back. There is little doubt that reform will seriously diminish the Europeans. But, from our perspective, though it will bolster our share, it will also hike China's share substantially. This would be difficult for us to stomach politically. At IMF, there is a 24-member board of executive directors (the World Bank has 25 members), representing the major quota-holders. India, traditionally, has been on these boards, representing a group of four countries — India, Bangladesh, Bhutan and Sri Lanka. These executive boards clear most proposals, but its secretariat, like the management of a company, is a key player. Practically speaking, the executive board must be on board for most operational matters. For matters of strategic importance, this means not only reaching out to board members in Washington and other capitals but also having the secretariat in alignment with your perspective. As a developing country, India's interest in BWIs has focused on the domestic implications of the latter's actions, especially on helping us with our development priorities. Naturally, the custodian of dealing with these institutions is the ministry of finance. But, with India now vying for a place on the global high table, it is important that the country's representatives in the governance structures of these bodies now not merely push actions that have positive domestic bearings for us but also serve our external relations. An integrated domestic and external approach is thus an inescapable imperative. A metaphoric Kartavya Path (previously Rajpath) dividing the North Block (where the finance ministry is based) and South Block (where the external affairs ministry is based), must be bridged. For years, the custodian of the government purse (the finance ministry) successfully placed its officers in key Indian diplomatic missions dealing with economic issues. But now, it is time for them to also take in diplomatic expertise both in New Delhi and within the office of our executive directors to the IMF, the World Bank and the ADB. Simultaneously, efforts need to be made to place government officers in BWI secretariats — a tough call as the latter rebuff such efforts by pointing to their own recruitment of the 'best and brightest'. Such recruitment has, of course, seen many Indians rise in these institutions and make us proud. But, for an institution of international governance, 'mine' can't really be substituted by 'good'. In the past, senior officers of the government with several years of experience with multilateralism in the finance ministry and/or the Reserve Bank of India (RBI) were usually seconded to the posts of EDs. Such choices must now require capabilities not only tuned to batting for India's domestic but also our global agenda. We can't be content with evenness between khushi and gham, but must strive for more khushi and less gham. Manjeev Puri is former ambassador of India to the European Union and deputy permanent representative of India to the UN. The views expressed are personal.
