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    Indian Inequality and the World Bank’s Claims

    The World Bank’s 2025 report highlights a sharp decline in consumption inequality and near-eradication of extreme poverty in India, sparking debate on data accuracy and inequality measurement. This editorial explores challenges in income vs consumption metrics and calls for improved data and policy focus on quality public services.

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    Context

    • India's inequality discourse has taken a new turn with the World Bank's recent report showing a sharp reduction in consumption inequality and near-eradication of extreme poverty. This editorial examines the data, critiques, and broader implications for India's development narrative. 

    Background

    • The World Bank's India Poverty and Equity Brief (April 2025) claims:
    • Extreme poverty has been nearly eradicated.
    • Consumption inequality has declined significantly since 2011–12.
    • India ranks among the top four least unequal countries based on consumption-based Gini coefficient.
    • These claims have stirred public debate due to a longstanding narrative of high inequality in India.

    Gini Index

    • Also called Gini coefficient or Gini ratio) measures income or wealth inequality within a population.
    • Origin: Developed in 1912 by Italian statistician Corrado Gini.
    • Range: Values range from 0 to 1 (or 0% to 100%). 
    • 0 (0%): Perfect equality - everyone earns the same income.
    • 1 (100%): Perfect inequality - one person earns all the income, others earn nothing.
    • Interpretation: Higher Gini values indicate greater inequality; lower values suggest more equitable income distribution.

    Household Consumption Expenditure Survey (HCES)

    • Purpose: Collects data on household consumption and expenditure on goods and services
    • Utility: Tracks economic well-being trends.
    • Helps determine and update the CPI (Consumer Price Index) basket and weights.
    • Aids in assessing poverty, inequality, and social exclusion. 
    • Key Indicator: Monthly Per Capita Consumption Expenditure (MPCE) is the main metric derived from HCES for analysis. 

    Challenges Highlighted 

    • Data Limitations in Household Consumption Expenditure Survey (HCES): Does not adequately capture elite/rich consumption. Critics argue it underestimates real inequality.
    • Misinterpretation of Income vs Consumption Inequality: Gini estimates are consumptionbased, not income-based. Lack of official income survey data in India.
    • Flaws in World Inequality Lab (WIL) Estimates: WIL uses tax data for top incomes and extrapolates income for bottom 70–80% using unrealistic assumptions (e.g., most households consume more than they earn). Leads to underestimation of lower-income shares and inflated top-income shares.
    • Pre-tax vs Post-tax Income Debate: Media focuses on pre-tax income inequality, ignoring welfare benefits and progressive taxation. Top 1% pay 42% of individual taxes; post-tax inequality is lower.
    • Persistent Inequality in Social Services: Access to quality education and health remains unequal despite progress in basic needs. 

    Way Forward

    • Develop Comprehensive Income Data: Support MoSPI's First Household Income Survey for realistic post-tax income assessments.
    • Separate Consumption from Income Narratives: Prevent misleading comparisons by recognising their distinct nature.
    • Policy Focus on Quality Public Services: Bridge gaps in healthcare and education to reduce inequality of opportunity.
    • Acknowledge Achievements Alongside Challenges: Move discourse from "poverty/inequality only" to a progress-plus-aspiration framework.
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