Gini Coefficient: Misreading India’s Inequality

Why in the News?

1. In July 2025, the Indian government claimed that India is not only the world’s fourth-largest economy but also one of the most equal societies.
2. This claim was based on the World Bank’s Poverty and Equity Brief, which measured India’s Gini Coefficient at 25.5.
3. According to this measure, India ranked as the fourth most equal country, after the Slovak Republic, Slovenia, and Belarus.
4. However, this conclusion is based only on consumption-based Gini Index, which experts say presents a misleading and incomplete picture of actual inequality in India.

Key Highlights

1. Consumption based Gini Index
   1. The Gini Index based on consumption does not reflect true income or wealth inequality.
   2. Consumption levels remain more stable and appear equal, even if incomes differ widely.
   3. When incomes rise, people tend to save more, but this is not reflected in consumption data.
   4. Therefore, this method often understates the real level of inequality and leads to inaccurate comparisons with other countries.
2. Income and Wealth Data
   1. As per the World Inequality Database:
      1. Income-based inequality rose sharply: the Gini index increased from 52 in 2004 to 62 in 2023.
   2. According to 2023–24 wage data:
      1. The top 10% of earners make 13 times more than the bottom 10%.
   3. However, the government’s statement ignored this income and wealth data, which paints a more realistic and concerning picture of inequality.
3. Limitations of Survey Data
   1. While inequality between the top 10% and bottom 10% is increasing, surveys often fail to capture this.
   2. Two major reasons for this:
      1. Rich households often refuse to participate in surveys.
      2. Random sampling rarely includes very rich individuals, so their incomes are underrepresented.
   3. If 90% of the population appears relatively equal and the inequality lies within the top 1%, then missing this group skews the data (make data look more equal than it actually is).
   4. This leads to inaccurate inequality measurement.
   5. This data gap can also be seen in other countries like the US, UK, etc.
4. Problems with the Gini Index
   1. The Gini Index does not capture all dimensions of inequality.
   2. It is not sensitive to the extremes (top 1% or bottom 1%), where inequality is often most severe.
   3. It is too sensitive to changes in the middle, which can make inequality appear lower than it actually is.
   4. Thus, relying only on the Gini Index, especially consumption-based Gini, gives an incomplete and often misleading picture.

Implications for India

1. Flawed Policy Design
   1. Governments may underplay inequality, leading to misaligned welfare schemes.
   2. Policies like PM-KISAN or Ujjwala may miss deserving households.
   3. Focus may shift away from redistributive measures like taxation or subsidies.
2. Weak Social Equity
   1. Inaccurate data hides social and economic disparities.
   2. Real inequality may deepen despite rosy official indicators.
   3. Can damage India’s inclusive growth agenda.
3. Reduced Credibility in Global Forums
   1. International bodies may question India’s data transparency.
   2. Claiming high equality using flawed metrics can weaken India’s policy credibility.
   3. Hurts India’s image as a data-driven democracy.
4. Skewed Taxation and Resource Allocation
   1. If inequality appears low, progressive tax reforms may be neglected.
   2. Public spending may favor middle-income groups over the truly poor.
   3. Lack of reliable data hinders budget planning and fiscal targeting.
5. Neglected Structural Reforms
   1. The illusion of equality may delay the labour market, education, and healthcare reforms.
   2. Urban-rural, gender, and regional inequalities may remain unaddressed.
   3. Reforms needed to boost social mobility may be ignored.

Challenges and Way Forward

Conclusion

India’s claim of being among the most equal countries rests on a narrow consumption-based Gini index, which fails to reflect rising income and wealth inequality. To ensure fair policymaking and social justice, India must adopt multidimensional, data-rich approaches. True equality can only be achieved by measuring it accurately, transparently, and inclusively.