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Income Inequality In India

By Jayati Ghosh

People's Democracy
17 February, 2004

The period since the neo-liberal economic reforms were introduced in
India has been one of dramatically increased income inequality. This
will come as no surprise to most people. After all, you need only to
look out onto the streets, to see the enormous increase in conspicuous
consumption by the rich and even the urban upper middle income groups,
and also to see side by side how the lives of the poor have become even
more vulnerable and precarious.

But the NDA government is trying to persuade us that this is all a
mirage, and that actually all Indians are much better off than ever
before. They are systematically trying to manipulate even the official
statistics of the country, in order to push this completely false line.
The fact that this will end up destroying the statistical system of the
country, which was earlier one of the most impressive in the developing
world, seems to be of no concern to them. And in the process, they also
seem to believe that by distorting the presentation of facts, they can
somehow make the facts themselves change.


Consider the changes that have already been made in the methods or
collecting and organising official data, simply in order to "dress up"
the data to show much greater prosperity for the majority of the
population and less poverty, when the reality is quite the opposite. The
National Sample Survey Organisation had been conducting surveys which
indicated, up to 1998, relatively flat consumption per person as well as
no decline in poverty.

This was clearly an uncomfortable outcome for the ruling powers, who
have put all their stakes in the process of neo-liberal reform.
Therefore, there was a dramatic revision of poverty figures in 1999-00,
and the National Accounts data were also revised to show higher growth
of rural incomes.

In the National Sample Surveys, a change in survey reference periods led
to much lower reported inequality. As a result, although 9 surveys from
1989-90 to 1998 had shown no poverty reduction, the 1999-00 survey
reported 10 percentage points reduction in the poverty ratio!

Further, the revision of National Accounts more than doubled the
estimates of production of fruits and vegetables - for which there are
no reliable data on which to base the estimates! As a result, although
the official index numbers of agricultural production show stagnant or
declining per capita production since 1996, the National Accounts data
show over 1 per cent growth per year.

All these statistical changes were seen to be necessary for various
reasons. In India, the middle classes were sought to be reassured that
inequality was not increasing as a result of the reforms. Abroad, this
was sold as showing benefits of globalisation did percolate down to the


But even the attempts to massage the official data to serve official
purposes, cannot completely conceal a much more stark and depressing
reality. The truth is that while a minority of the population (around 20
per cent) has indeed benefited greatly from the economic policies and
processes of the last decade, for the majority of the rural population
and a significant part of the urban population, things have got worse.

This comes out very clearly from the statistical work done by Abhijit
Sen of Jawaharlal Nehru University, New Delhi, in calculations based on
the NSS data. The basic results of his work are displayed in the chart,
which shows the per capita consumption by different groups in rural and
urban India since the late 1980s.

The most dramatic and remarkable improvement in consumption has been of
those who were already the richest people in India - that is the top 20
per cent of the urban population. Their per capita consumption has
increased by around 40 per cent since 1989-90, and this increase is
likely to have been even more in actuality since the NSS usually
underestimates the consumption of the rich.

This is the highest and most rapid increase in the consumption of the
rich that has ever been recorded in India. No wonder our rulers think
India is shining, because obviously the people they meet most often have
never had it so good in material terms.

The other group that seems to have done rather well is the top 20 per
cent of the rural population - the rural rich - whose per capita
consumption increased by more than 20 per cent since 1989-90. This was
similar to the increase in consumption among the next 40 per cent of the
urban population.

By contrast, the bottom 40 per cent of the urban population relatively
little increase in per capita consumption compared to these other
groups, at only around 14 per cent since 1989-90.

But the most dramatic evidence is for the bottom 80 per cent of the
rural population - well more than half of India's total population. For
these people, who now number nearly 600 million, per capita consumption
has actually declined since 1989-90. In other words, even the official
statistics of the government still show that more than half of India has
lower consumption per person than more than 10 years ago, after a decade
when national income were supposed to be growing at around 6 per cent!
All through history, sharp increases in economic inequality of this
order of magnitude, have been associated with massive social unrest, and
even with cataclysmic changes in society. This makes the coming national
elections even more notable, because it must be the case that such huge
economic changes will reflect in some way in voting patterns as well.