India’s income inequality grows to its widest since 1922 amid a wealth grab by the top 1%

The top 1 per cent of Indian earners make at least 22 per cent of the nation’s income – a level of inequality that may not have been seen since 1922, a new study says.

The study by the French economists Lucas Chancel and Thomas Piketty, based on income tax data, says that ratio that has risen sharply over the past three decades.

India Income Inequality, 19222014: From British Raj to Billionaire Raj? was published last week.

In 2013, the Financial Times called Mr Piketty a “rock-star economist” after his book Capital in the Twenty-First Century was published, calling for to reduce income inequality around the world.

Mr Chancel is a co-director of the World Inequality Lab and of the World Wealth and Income Database at the Paris School of Economics.

“The share of national income accruing to the top 1 per cent of income earners is now at its highest level since the creation of the Indian income tax in 1922,” the report said.

“The top 1 per cent of earners captured less than 21 per cent of total income in the late 1930s, before dropping to 6 per cent in the early 1980s and rising to 22 per cent today.”

The trend tracks India’s economic policy changes. The country was brought under strict state control in 1947, at independence. Liberalising the economy began slowly in the mid-1980s before picking up pace the following decade.

In the 1990s, there were no Indians on Forbes’ annual list of billionaires. Today there are 101.

The Indian economists Ishan Anand and Anjana Thampi last year revealed, using data from the state’s National Sample Survey Office, that in 2012 the richest 1 per cent of Indians held 28 per cent of the country’s wealth. In 1991, it was just 11 per cent.

The investment bank Credit Suisse also said last year that the richest 1 per cent hold as much as 58 per cent of India’s wealth.

Another measures of inequality, Gini coefficient, also emphasises the growing wealth gap:

it rose last year from 45 in 1990 to 51.4. China’s Gini coefficient also rose in the same time – from 33 to 53. The French economists said that the past two and a half decades of swift economic growth, known as “Shining India”, has mostly benefited the wealthiest 10 per cent of India’s population.

The middle 40 per cent were better off between 1951 and 1980, they said.

“India comes out as a country with one of the highest increases in top 1 per cent income share concentration over the past 30 years,” said their report.

James Crabtree, at Singapore’s Lee Kuan Yew School of Public Policy, confirmed their observation that liberalising the economy triggered the drastic divergence in incomes and wealth.

“India’s government hasn’t done enough to counteract these factors – for instance, by ensuring the wealthy pay their taxes,” he said. His book The Billionaire Raj on India’s political economy is to be published soon. Opinions about how to tackle it are also widening.

One school of economic thought says that developing countries, such as India, should focus on economic growth and worry about inequality later.

But the Nobel-winning economist Amartya Sen says India has not done enough for its wide, deep base of poor people, and that its policies ought to focus more on human development than pure growth.

Crabtree believes that India’s growing inequality is a problem.

“Countries in East Asia that managed to escape poverty and become prosperous almost always did so while staying much more equal than India is now,” he said.

“The risk is that India’s situation will worsen as it grows richer over the coming decades, making it much harder to reverse later.”