Context

• Recent there have been significant economic and labour reforms in India, including the Labour Codes and the replacement of MGNREGA with the Viksit Bharat-Guarantee for Rozgar and Ajeevika Mission (Gramin) Bill, 2025.
• This has intensified concerns regarding the welfare of informal workers and rural populations.
• Simultaneously, official narratives increasingly claim that inequality is no longer a major issue in India.
• However, patterns of consumption expenditure, class divisions, and rural-urban disparities reveal that inequality remains deeply rooted in the Indian economy.

Understanding Inequality in India

• It involves differences in income, wealth, and consumption expenditure, along with disparities based on class, caste, gender, and region.
• Using data from the Household Consumer Expenditure Survey (HCES 2023–24) conducted by the NSSO, the estimated Gini Index for India stands at 0.29, higher than the widely cited World Bank estimate of 0.25.
• This difference highlights methodological issues in measuring inequality and suggests that existing estimates may underestimate the actual extent of economic disparity.
• Since the richest sections are often underrepresented in surveys, inequality appears lower than it truly is.

Urban-Rural Divide and Consumption Inequality

• Urban India as More Affluent but More Unequal
  • India’s economic growth and consumption boom have been driven largely by non-food expenditure, including spending on healthcare, education, housing, and consumer goods.
  • These opportunities are concentrated in urban areas, making urban India more affluent but also more unequal.
  • Urban non-food Monthly Per Capita Expenditure (MPCE) is around 1.5 times higher than the national average, while rural expenditure remains below it.
  • Inequality in non-food expenditure is significantly higher than in food expenditure, reflecting unequal access to better living standards and opportunities.
  • Persistent agricultural distress and limited rural development have widened the gap between rural and urban India.
• Growing Gap Between Rich and Poor
  • Economic benefits are heavily concentrated among higher-income groups. In urban India, the top 10% account for 27% of total non-food expenditure.
  • The richest urban decile spends six times more than the poorest urban decile, while the richest urban group spends nine times more than the poorest rural group.
  • Such figures demonstrate increasing concentration of wealth and consumption among affluent urban populations, while lower-income groups struggle with rising living costs and limited opportunities.

Structural Nature of Inequality

• Inequality in India is increasingly structural rather than individual. Between-decile inequality contributes far more to overall inequality than differences within the same group.
• Nearly 90% of urban non-food expenditure inequality arises from disparities between income groups.
• This indicates a widening economic distance between the rich and the poor, especially in access to education, healthcare, technology, and social mobility.
• The unequal distribution of opportunities reinforces long-term social and economic divisions.

Limitations of Official Data

• Official surveys fail to fully capture the super-rich, leading to underestimation of actual inequality levels.
• At the same time, weaknesses in welfare targeting are visible in cases where affluent households benefit from schemes such as the Pradhan Mantri Garib Kalyan Yojana (PMGKY) or possess BPL ration cards.
• Such inconsistencies reveal flaws in the identification of beneficiaries and weaken the effectiveness of welfare policies aimed at supporting vulnerable groups.

Debt-Led Consumption and Economic Insecurity

• A large section of India’s population depends on debt-led consumption to maintain living standards.
• Increased spending does not necessarily reflect genuine prosperity because many households rely on borrowing rather than stable income growth.
• This creates economic vulnerability and financial insecurity, especially during inflation, unemployment, or economic slowdown.
• Rising consumption, therefore, should not be mistaken for declining inequality.

Critical Evaluation of Policy Assumptions

• Policies based on the assumption of lower inequality may weaken labour protections and reduce welfare support for vulnerable populations.
• Reforms affecting employment guarantees and labour rights could disproportionately harm rural workers and the informal sector.
• Addressing inequality requires more accurate measurement, stronger welfare systems, inclusive development policies, and structural reforms that reduce disparities in access to income, opportunities, and resources.

Conclusion

• Inequality in India remains widespread, multidimensional, and structurally embedded and while urban India has become more prosperous, it has also become more unequal.
• Economic growth has primarily benefited affluent urban groups, while rural labourers, informal workers, and marginalised communities continue to face insecurity and exclusion.
• Persistent class divisions, unequal consumption patterns, flawed welfare targeting, and debt-driven survival strategies reveal the limitations of current development policies.
• Sustainable and inclusive growth requires policies that prioritize social justice, equitable distribution of resources, and long-term welfare protections rather than relying solely on aggregate economic growth indicators.