Income divide narrows but wealth gap persists

India’s top 10 per cent households held 55.67 per cent of the wealth in urban areas and 50.84 per cent of it in rural three years ago, shows data released by a state survey last week.

Results from the National Sample Survey Organisation’s All India Debt and Investment Survey (AIDIS) for 2018-19 are in line with earlier estimates of wealth inequality.

A comparison of AIDIS data with income tax numbers shows that though income inequality is paring, the wealth divide continues. Income tax data for individuals for the assessment year 2018-19 shows that the top decile (10 per cent) of the taxpayers account for only 38 per cent of the country’s income. However, the top 10 decile households own more than 50 per cent of the assets, according to AIDIS.

AIDIS shows wealth inequality is sharp in Delhi and Punjab, but a wider study on state-wise income tax trends is unavailable. An intertemporal analysis of data since 2012-13 throws light on rising incomes for the bottom 10 percent of taxpayers.

The income of the lowest 10 per cent of individuals grew five times between the assessment years 2012-13 and 2018-19. The bottom 10 per cent of taxpayers earned a total income of ~25,679 crore in 2012-13: this increased to ~132,577 crore by 2018-19. The bottom 10 per cent accounted for 3.48 per cent of the income in 2018-19, compared to 2.11 per cent in 2012-13.

In contrast, the total income of the top 10 per cent individuals doubled during this period. Rising incomes may also have contributed to increase in asset holdings for the bottom decile.

AIDIS data from 2012 indicates that the difference between the top 10 per cent and bottom 10 per cent is reducing. While the average value of assets for the top decile grew 42 per cent in rural areas from ~56.89 lakh to ~81.17 lakh between 2012 and 2018, the lowest rung witnessed an asset growth of 63 per cent. Even though the top decile holds assets worth nearly 200 times more value than the bottom 10 per cent, the difference between the two has shrunk. In 2012, the top 10 per cent’s assets had 225 times higher value.

Inequality in urban areas was much higher than the rural inequality, with the asset value for the top 10 per cent higher by 7,517 times. The average asset holding was ~10.07 lakh for a rural household, according to AIDIS 201213. It was ~22.85 lakh for an urban household as of June 30, 2012. While rural asset holdings grew 58 per cent from 2012 to 2019, urban asset holding jumped 18.9 per cent.

Further analysis shows that increase in asset values during 2012-18 was inversely correlated with falling inequality. So, on average, states that witnessed a higher rise in total average asset value were also the ones with lower inequality.