Income Distribution and Inequality in India : 2014–19

We study the evolution of income in India from 2014-19 and find that the lower end of the income distribution has experienced significant losses – the bottom ventile shows not only a decline in income share of ~41%, but also negative real average income growth of -5.5% per annum. We further investigate the composition of this part of the distribution using rural and urban splits, and find that even as income shares at the bottom of the urban distribution have increased over time, those at the bottom of the rural distribution have decreased – income share of bottom decile of the rural income distribution declined by ~43%, and real average income growth of this decile was -5% per annum. We also empirically confirm that the bottom ventile of the consolidated Indian income distribution is composed primarily of rural incomes, and therefore the decline in real incomes is essentially a rural phenomenon. We model the extent of reallocation in the Indian income distribution since 2014 and find that reallocation has been decreasing from 2015 and even turned negative in 2018, which is in keeping with empirical evidence of real income declines at the bottom of the distribution. Further, we find that the bottom decile of the Indian income distribution is composed of small/marginal farmers and agricultural labour belonging predominantly to Scheduled Caste and Scheduled Tribe populations, highlighting both their increasing economic fragility and deepening povertization over time. These trends are exacerbated by findings from our model which suggest that incomes at the bottom of the income distribution are sticky, and escape to higher parts of the distribution over time is rare. Providing sustained income support to the bottom of the income distribution is therefore an immediate economic priority