Updated February 21st, 2024 at 18:29 IST

Ginni Coefficient: Why a measure for inequality is declining in India?

In a recent study conducted by SBI Research, a positive trend emerged in India's economic landscape, signaling a decline in income inequality.

Reported by: Business Desk
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Declining Ginni Coefficient: The world order is rapidly changing, the dynamics have gone through a tremendous transformation, and the chasm between affluents and have-nots has widened massively, These are the words we have been raised up with. But at least in India’s case, inequality is declining. 

In a recent study conducted by SBI Research, a positive trend emerged in India's economic landscape, signaling a decline in income inequality. This shift is attributed to the upward trajectory of incomes and the expanding Indian middle class.

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Drawing from CBDT data, the report emphasizes the widening Income Tax base, with an impressive increase in the number of individuals filing Income Tax Returns. In the Assessment Year 2022-23, this figure reached 74 million, showcasing a significant uptick from the previous year's 70 million. Remarkably, for the ongoing Assessment Year 2023-24, a substantial 82 million Income Tax Returns have been filed by December 31, 2023.

The study delves into specific income brackets and said that individuals with incomes between Rs 5 lakh and Rs 10 lakh witnessed a striking 295 per cent surge in the assessment years 2013–14 to 2021–22, indicating a positive shift towards higher income levels. 

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Additionally, those earning between Rs 10 lakh and Rs 25 lakh saw a remarkable threefold increase (291 per cent) in the number of Income Tax Returns filed during the same period.

Declining Inequality

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To assess income inequality, the study leverages the Gini Coefficient, a widely recognized measure ranging from 0 to 1. A decline from 0.472 in Assessment Year 2014-15 to 0.402 for AY 2022-23 is noted, underscoring a tangible move towards a more equitable income distribution in the country.

In summary, the SBI Research study paints a picture of encouraging economic trends in India, highlighting a surge in Income Tax filers, upward mobility in income brackets, and a substantial reduction in income inequality. These developments augur well for the nation's economic inclusivity and the burgeoning middle class.

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Meanwhile, the share of the Top 2.5 per cent taxpayers with income more than Rs 10 crores has declined from 2.81 per cent in 2013-14 to 2.28% in 2020-21.  The share of the Top 1 per cent of taxpayers with income more than Rs 100 crores has fallen from 1.64 per cent to 0.77 per cent during a similar period. 

"The decline in income inequality is because of a great migration at the bottom of the pyramid; 36.3 per cent of individual ITR filers belonging to the lowest income in FY14 have left the lowest income bracket and shifted upwards resulting in 21.1 per cent more income for such individuals during FY14-FY21," said the report.

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SBI Research Report also highlighted rising female labor force participation, visible highlights in income levels of MSMEs, and changing consumption patterns post-Covid pandemic like people substituting two-wheelers with four-wheelers and increased sale of tractors to underline India’s robust economic recovery and bust the myth of the oft-repeated ‘K’ shaped growth, where some select sectors perform well while others keep declining.

 

 

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Published February 20th, 2024 at 16:29 IST