Context

• Debates on inequality in India often suffer from selective data interpretation and exaggerated claims, which can distort public perception rather than improve understanding.
• A recent controversy surrounding the World Bank’s India Poverty and Equity Brief: April 2025 illustrates this problem.
• The report’s claims of near-eradication of extreme poverty and reduced consumption inequality in India have sparked sharp reactions, largely because they challenge the entrenched narrative of high inequality.
• A careful analysis of the data and methodology reveals a more nuanced picture of inequality and progress in the country.

The World Bank’s Findings and Methodology

• The World Bank report bases its conclusions on the official Household Consumption Expenditure Survey (HCES) for 2022-23, which employs the modern Modified Mixed Reference Period (MMRP) methodology, aligned with international best practices.
• According to the report, India has witnessed a significant decline in consumption inequality over the last decade.
• The consumption-based Gini coefficient, a widely used measure of inequality, fell from 28.8 in 2011-12 to 25.5 in 2022-23.
• These findings place India among the world’s four least unequal countries in terms of consumption inequality, a striking contrast to the narrative of extreme inequality prevalent in the media.
• Critics, however, argue that the HCES data underestimates inequality as it fails to adequately capture the consumption patterns of the wealthy.

A Closer Examination of the HCES Data and The Debate on Income Inequality

• A Closer Examination of the HCES Data: Improved Consumption Patterns and Living Standards
  • Per capita availability of milk and eggs increased by 45% and 63%, respectively, between 2012 and 2023.
  • The share of cereals in food expenditure and calorie intake has declined, while the consumption of healthier foods such as fruits, vegetables, and protein products has risen across all income groups.
  • This dietary transition indicates a broad-based improvement in nutrition and quality of life, particularly for the bottom 20% of households.
  • For example, the proportion of rural households consuming fresh fruits rose from 63.8% in 2011-12 to 90% in 2023.
  • The data also shows that extreme poverty has been nearly eradicated. Between 2011 and 2023, approximately 27 crore Indians were lifted out of extreme poverty as per the International Poverty Line of $3.
• The Debate on Income Inequality
  • While consumption inequality has clearly declined, the question of income inequality is more complex due to the absence of reliable income survey data.
  • Most discussions rely on estimates from the World Inequality Lab (WIL), which uses income tax records combined with outdated consumption data.
  • Critics argue that these estimates rest on questionable assumptions, such as the notion that 70%-80% of households consistently spend more than they earn, a claim that defies economic logic.
  • As a result, the income of the bottom 80% is often underestimated, while that of the top income groups is exaggerated.
  • Even accepting the WIL data at face value, there is no evidence of a rising trend in income inequality.
  • In fact, between 2017 and 2022, the national income share of the bottom 50% increased from 13.9% to 15%, while the top 10% saw a slight decline from 58.8% to 57.7%.
  • Although the high-income share of the top 1% remains a concern, part of this is attributed to better income reporting following anti-tax evasion measures introduced since 2016-17.

Challenges and Future Directions

• While India has made substantial progress in reducing poverty and consumption inequality, significant challenges remain.
• Inequality in access to quality education and healthcare persists, particularly in rural areas. Moreover, as India transitions to a knowledge-driven economy, disparities in skills and opportunities could widen unless addressed through targeted policies.
• Nevertheless, the overarching narrative of India is no longer defined solely by poverty and inequality.
• It is equally about aspiration, progress, and structural transformation.
• Improvements in infrastructure, welfare programs, and living standards have elevated millions out of poverty and provided them with the means to pursue better lives.

Conclusion

• The World Bank’s findings, while controversial, highlight a reality that deserves recognition: India has made remarkable strides in reducing extreme poverty and narrowing consumption inequality over the last decade.
• While debates on income inequality remain valid and necessary, they must be grounded in robust data and realistic assumptions.
• A balanced perspective demands acknowledging both the challenges and the achievements and India’s story today is not just about disparities but also about resilience, growth, and the aspirations of a billion people.