THE World Bank has recently published a list of Gini coefficients for 61 countries relating in some cases to income distribution and in others to consumption expenditure distribution. In that list India had the fourth lowest Gini coefficient in 2022, on the basis of which the Modi government has gone to town declaring India to be the fourth most egalitarian economy in the world. The ludicrousness of this claim has already been exposed by several researchers; and spending more time over it would appear like flogging a dead horse. There are however a couple of points that still remain to be made, not so much with regard to the absurdity of this claim, but on what exactly has been happening in the economy.
Let us however first summarise briefly some of the arguments already made exposing the absurdity of this claim. Apart from the obvious argument that 61 countries do not constitute the world, there are three main arguments that have been made against this facile claim of the government, each of which is absolutely valid. First, the inequality in income distribution is vastly greater than the inequality in consumption expenditure distribution. This is because as we go up the income scale, the proportion of income devoted to consumption keeps decreasing while the proportion devoted to “savings” keeps increasing. It follows therefore that for any particular country the distribution of consumption expenditure is always less unequal than that of income. Comparing the Gini coefficients across countries which are calculated on the basis of income distribution data for some countries and of consumption expenditure data for others, including India, is therefore illegitimate; no valid conclusions can be drawn about where income distribution is more unequal on the basis of such mixed data.
A point that has not been made in this context but is of some importance is that at the lower end of the income distribution, not only are there zero savings, but actually negative savings; that is, people borrow to maintain a consumption expenditure that exceeds their income. This is especially so for essential consumption expenditure that arises owing to medical emergencies. This is an additional reason why consumption expenditure inequality is much less than income inequality, so that drawing conclusions by comparing Gini coefficients from mixed data becomes doubly erroneous.
Dissaving at the lower end of income distribution is an extremely well-established fact. In fact when the LDF government in Kerala had brought in an agriculturists’ debt relief bill in 2006 to prevent farmer suicides, it was found that a significant proportion of the debt of the distressed farmers was incurred for medical purposes. (Some had even used this argument against the bill on the grounds that relief should be provided only to those who have incurred production debt not to those who have incurred consumption debt.)
Secondly, in any sample survey relating to distribution, whether of income or of consumption expenditure, the very top segments remain necessarily under-represented (since despite their importance they are numerically very small). Researchers therefore adopt various methods to rectify this defect; but no such rectification has occurred in the data presented by the National Sample Survey on the basis of which the World Bank has calculated its Gini coefficient for India. And the same is true for other countries.
The third objection raised is to the use of the Gini coefficient itself, which relates to the distribution as a whole. If for instance the share of the top 1 per cent in total income increases, but at the same time there is some shift of income from the fifth decile from the bottom to the third lowest decile, the Gini coefficient may show a decline, even though the richest have become even richer at the expense of the rest of the population. Such a situation would be considered by most people as an increase in income inequality, but the Gini coefficient would show a decline in income inequality.
The absurdity of taking the Gini coefficient as the measure of inequality becomes evident from a simple consideration. If Gini coefficient was a satisfactory measure, and if actually income inequality in India had come down to a very low level, then the fact that there is rampant and even growing hunger and malnutrition in the country would be difficult to explain. Since the government claims that the GDP growth rate in the country has been high, apparently the highest growth rate among all the major countries, then with the reducing inequality in India, there should have been a notable increase in the income even of the poorest segments of the population; and since foodgrain consumption directly and via feed for animal products rises with income (which is true even in India across income groups), then India would not be in the 107th position among 125 countries on the world hunger index, or the incidence of anaemia would not be rising among Indian women, and the percentage of population below benchmark per capita calorie intakes, that were used for defining poverty according to the erstwhile Planning Commission, would not be rising. The only way that the claim of GDP growth can be reconciled with these worsening health indicators, which government data themselves throw up, is by postulating a worsening income distribution; and if the movement of the Gini coefficient does not show this, as the World Bank has argued, then the Gini coefficient is the wrong metric to look at.
This indeed is exactly what the figures of the World Inequality Database, run by Thomas Piketty and others, suggest. They show sharply rising income inequality, measured by the share of the top segments in national income; in fact according to their figures the share of the top 1 per cent in the country’s national income in 2023-24, at 23 per cent, is the highest it has ever been over the last one hundred years!
In these criticisms of the government’s claims, however, one additional important point has gone unnoticed. One of the main features of neoliberalism is the privatisation of public enterprises, including a shift from public to private provisioning of essential services like education and healthcare. This shift has important implications for income distribution which can be seen as follows.
Consider two dates, between which the distribution of income, no matter what metric is used to measure it, remains absolutely unchanged. For different segments of the population however this income was being spent in the initial year on different goods: for the upper income groups on more expensive private healthcare (since the affluent cannot be bothered to stand in queues), and for the poor on cheaper public healthcare. Now, if between the initial and terminal years public healthcare dwindles and many more people are forced to go in for private healthcare, then the real income distribution would have become worse between the two dates, even to the point of witnessing reduced real incomes at the lower end,though the money income distribution, for which alone we have data, would have remained unchanged and though all prices would have remained unchanged.
Any worsening of the real income of the poor owing to the privatisation of essential services would show itself in either or both of two ways: a reduction in food intake to permit more money being spent on private healthcare that is more expensive; or larger borrowing to finance the use of more expensive private healthcare; or, as is more likely, a combination of the two. In the second case however, the distribution of consumption expenditure would have shown a reduction in inequality; since by assumption the distribution of money income has remained unchanged between the two dates, greater recourse to borrowing by the poor in the second period for financing their healthcare needs through the more expensive private healthcare facilities, would show itself as a reduction in expenditure inequality. The observed phenomenon, namely a reduction in consumption expenditure inequality, for which the government pats itself on the back and which it takes as indicating a reduction in income inequality, would be actually indicative of precisely the opposite, namely, an increase in real income inequality.
This is not just a theoretical possibility; it is an important real-life phenomenon in contemporary neoliberal India. Newspapers are full of heart-rending stories of farmers from northern India coming to Delhi for the treatment of their children in medical emergencies, of their not being able to wait for their turn in grossly overcrowded government hospitals, and being forced to go to private hospitals; to meet the bills of these hospitals they have to take loans or sell their land, and they often end up losing their child too, along with their land.
For a government to crow over the reduction in private expenditure inequalities, when the reality, even if such a reduction is true, is that underlying it in all likelihood is greater distress of the people squeezed by the inordinately expensive costs of essential services due to their privatisation, is the height of callousness.