Written by Aditya Raj student at Chanakya National Law University, Patna.
Introduction
“Big achievement! India to become 4th largest economy in 2025 overtaking Japan; will be 3rd largest by 2028.” This was reported by the popular news outlet Times of India on May 5, 2025. They weren’t the only ones. As India’s nominal GDP is expected to grow by leaps and bounds, several Indian media outlets and a significant part of its population are jubilant about it. The credit for it, to an extent, goes to the huge workforce of the country, which itself is a result of the humongous population of the country. For those in the country who belong to somewhat financially empowered and socially influential classes of the country, which may also include the middle-class segment, such headlines are a pleasant sight, and rightfully so. They cannot be reprimanded for celebrating an achievement of the country.
However, the underlying problem that has persisted for decades in our country is that beneath the façade of such picturesque headlines lies the grotesque reality to which many in the country remain oblivious, despite the issue being absolutely ubiquitous. The menace of income inequality is something that has haunted the country for decades and might continue to do so unless and until we take concrete steps to mitigate this massively unequal condition. The absence of those steps is only going to exacerbate the condition.
One of the biggest problems when tackling income inequality is how the issue ends up being suppressed under the sensational headlines of rapid economic growth and an increase in “average” statistics of the country. The core problem with such “average” statistics is that they consider the owner of a multiplex in Mumbai and a ragpicker on the streets beside the building as one monolithic unit, which is deeply disturbing.
The state of inequality in India
The first question that may arise in our minds is: what exactly do we mean when we are referring to “income inequality”? Income inequality, also called economic inequality, can be defined as the significant disparity in income between groups of individuals, countries, and even social classes. To assess this income inequality among nations, the Gini Coefficient has come into existence, in which different countries, classes, or groups are ranked in an index. A perfect score of 0 describes a utopian society where “perfect equality” is present. A score of 1 translates to a society where there is a state of perfect inequality. In short, the lower the number, the better it is for the downtrodden section of that country.
As far as India’s case is concerned, the condition is anything but pleasant. “India stands out as a poor and very unequal country, with an affluent elite.” That’s what the World Inequality Report 2022 states about India. For a country with such a large population, the aggressive pursuit of economic growth without catering to the needs of the poor majority will surely exacerbate the inequalities already present.
But how did we come to this? What circumstances over time ultimately led to the creation of such an unequal structure in our country? The problem, at least in recorded history, dates back to the British colonial period, since 1922 at least, which saw the enactment of the Income Tax Act, allowing the study of how the share of income evolved over an entire century. Unsurprisingly, economic inequality was rampant during colonial rule, as the colonial elite amassed wealth at the expense of poor Indians. The wealthiest 1 percent segment of India’s population held approximately 13 percent share of the country’s total income in 1922, and this share increased at a rapid pace to 20 percent during the inter-war period, only to fall back again to 13 percent by the time India gained independence.
The post-independence period has witnessed certain fluctuations vis-à-vis economic inequality, though there was still a general trend of income inequality being mitigated and the share of the ultra-rich declining. India, after independence, ended up being a country having a centrally directed economy, which was also statist and highly regulated in nature. Key revenue-generating sectors, such as transport, construction, agriculture, railways, banking, oil, and sundries, were entirely controlled by the Government of India. The prices were highly regulated, and several trade barriers were in place. Until the opening of the economy, this era was referred to as the “License Raj.” The policies enacted, mostly socialist in nature, did their part to reduce inequality, as state control over crucial sectors ensured a reduced role for private players in such fields, thus ensuring that billionaires had little scope for benefiting in an unjust manner. All of this did show results with regard to economic inequality. After experiencing a brief uptick during the 1950s, the share of income of India’s wealthiest 1 percent declined significantly, and by 1982, reached just 6.1 percent. However, while it can be said that the socialist haven India had reduced income inequalities, it certainly wasn’t a la-la land. The nominal GDP of India was growing at a glacial pace, with the real growth rate having an average of 1.6 percent per year from 1960 to 1990. Poverty was also rampant in the country during those times.
Then India hit the road to a heightened state of economic inequality in 1991, when the Indian economy was liberalized and the Indian market was opened to foreign investors. It was followed by the Indian economy growing at a decent pace. While it certainly benefited the Indian economy, and the end of the “License Raj” did bring relief to the Indian masses, the moves had unforeseen repercussions. It ended up ensuring an increase in the share of income of the wealthy lot. In 2022, the share of income of the wealthiest 1 percent augmented to an unprecedented 22.6 percent, surpassing the inequality that existed during the British colonial era. The wealth held by the top 1 percent saw a similar pattern, with them now holding a share of 40.1 percent of the total wealth of the country. Likewise, a rise in their respective shares of the country’s total income was experienced by many affluent sections of the country, from the wealthiest 0.1 percent to the wealthiest 0.01 percent as well as the 0.001 percent, with the top 0.001 percent controlling some 2 percent, the top 0.01 percent controlling more than 4 percent, and the top 0.1 percent controlling just a little less than one-tenth of the income of the country, as of 2022. In 1982, some 30 percent of the national income was concentrated in the hands of the top 10 percent. In a span of 40 years, that share almost doubled, with the top 10 percent having possession of some 60 percent of the national income, leaving only around 40 percent for 90 percent of the country’s populace.
To put this into perspective, an average of Rs. 54 million is held by the top 1 percent, 40 times what is held by an average Indian. The bottom half of India’s population possesses merely ₹0.17 million on average, which is around 0.1 times the national average. Even the middle 40 percent of the country’s population holds, at best, Rs. 0.96 million, which constitutes just 70 percent of the national average. In stark contrast, approximately 10,000 people in India possess assets totaling Rs. 22.6 billion—nearly 16,763 times what an average person in India has.
Such is the dire condition of the country’s populace, which gets overshadowed by the shiny statistics of growing nominal GDP and GDP per capita.
How does India compare against other countries?
In order to truly assess the standing of India among all the other countries, it is imperative that we compare the statistics of the country to those of other countries of similar stature.
Only certain major countries, like Brazil and South Africa, have conditions that can be compared with India. When it comes to the share of income of the wealthiest 10 percent, India ranks second only to South Africa among major countries. The condition is even worse when it comes to the share of income of the wealthiest 1 percent, with only countries like Yemen and Peru, along with a few other smaller countries, facing a worse situation.
However, the real comparison should be with China, as both countries have similar populations, began at similar levels of income, and currently are economic powerhouses, at least as per nominal GDP. From the 1970s, the Chinese incomes began outpacing their Indian counterparts. While Indian incomes too boomed in the early 2000s, it was at a much slower pace than their Chinese counterparts. While in both China as well as India the share of the wealthiest 1 percent as well as the wealthiest 10 percent augmented, the trend was reversed in 2006: the Chinese top shares ended up being stabilized, whereas those in India continued to grow. China’s case shows that massive growth is indeed possible for economies having middle and low incomes without having extreme economic inequality, as is the case with India.
Policy Recommendations
Merely highlighting the dire condition in our country certainly does not suffice. It is imperative that we find potential solutions to mitigate this major issue. The solutions include, but are not limited to:
- Imposing an extra tax on the very wealthy: This solution has already been discussed a lot, yet it has never become a reality. While such a measure may face extreme opposition from those taxed, which may include many across sectors including politicians, it can really improve things if it is indeed implemented. A 2 percent annual tax should be imposed on those having a net worth higher than Rs. 10 crore and a 33 percent inheritance tax on estates having a valuation of over Rs. 10 crore. This alone can generate some 2.7 percent of the GDP of India in revenues.
- Restructuring taxes to ease the burden on the marginalized: The GST slabs on essential commodities should be reduced, as these form the majority of the spending habits of the poor. Instead, taxes on luxury items should be augmented. This will not only ease the burden on the poor but can also ensure the generation of revenue.
- Improving access to basic services like health and education: Apart from measures such as direct fund transfers to the poor for essential needs, the government must invest in health and education to ensure that the poor are self-sufficient and are capable of generating revenue for themselves. This can also ease the burden on the government in the long run, as well as significantly improve the condition of the marginalized.
Conclusion
India, the most populous country in the world, is an economic powerhouse and will soon be among the top three largest economies in the world. While economic growth certainly should be applauded, it must be ensured that the poor and the middle class have a reason to celebrate. We cannot pat ourselves on the back while the majority of the populace is suffering. Ignoring their plight can have long-term consequences and can also cause social instability. Urgent action by the government is highly warranted to ensure that growth is inclusive and truly benefits the masses and not just the elite. Only such an approach can improve India’s standing in the world.