Individual income inequality has significantly declined during FY14-FY22: SBI report 

Individual income inequality has significantly declined during FY14-FY22 because of a “great migration” at the bottom of the pyramid, even as individual’s weighted mean income has risen from ₹3.1 lakh to ₹11.6 lakh during FY14-FY21, according to SBI’s economic research department (ERD).

Gini coefficient estimated using ITR (Income Tax Return) data of taxable income of individuals show that individual income inequality has significantly declined from 0.472 to 0.402 during FY14-FY22, per a ERD report.

This co-efficient measures inequality on a scale from 0 to 1, with higher values indicating higher inequality. 

Based on trends in ITR filing, the ERD assessed that 36.3 per cent of individual ITR filers belonging to lowest income in FY14 have left the lowest income group and shifted upwards, resulting in 21.1 per cent more income for such individuals during FY14-FY21.

Further, the income disparity of people earning less than ₹3.5 lakh have declined from 31.8 per cent to 15.8 per cent during FY14-FY21, signifying share of this income group in total income in comparison to their population has increased by 16 per cent.

The ERD said top 2.5 per cent of taxpayer’s contribution in income has declined from 2.81 per cent to 2.28 per cent during FY14-FY21

“There is a palpable change in income pattern of MSMEs too, reflecting the changing contours of industry/services as formalisation drive brings more entities into the net. Around 19.5 per cent of majorly micro sized firms have been able to shift their income upwards, to classify them into Small, Medium and large sized firms,” Soumya Kanti Ghosh, Group Chief Economic Adviser, SBI, said.

Out of these, 4.8 per cent firms have transitioned themselves into small firms, around 6.1 per cent firms transitioned into medium sized firms, and around 9.3 per cent firms are transitioned into large sized firms.

This clearly indicates MSME units are getting bigger and getting integrated into larger value chains with initiatives like PLI (productivity linked incentive), Ghosh said.

Individual’s weighted mean income

Based on the trends, SBI’s ERD has projected the weighted mean income for FY22 to come in the range of ₹12.5 lakh to ₹13 lakh.

Ghosh observed that the weighted mean income represents a more nuanced and granular barometer of increase in income within specific income brackets and their contribution to overall increase (against the simple mean income, which is the ratio of total income of taxpayers to total number of taxpayers as given in Income Tax Portal).

Mean income would shoot up if income is increasing along any bucket (upper, middle, or lower) but weighted mean income would increase more when contribution of each income group is increasing towards total income growth, he added.

Shaped recovery theory flawed

Ghosh emphasised that the oft repeated conundrum debating a K-shaped recovery post-pandemic seems at best flawed, prejudiced, ill-concocted and fanning interests of select quarters to whom India’s remarkable ascendance, signaling more the renaissance of the new global south, is quite unpalatable.

He opined that the patterns emanating from income (and, its disposable part), savings, consumption, expenditure and policy measures aimed at empowering the masses through phygital means and support systems by way of a host of enablers, question the efficacy of using ages-old proxies like low 2-wheeler sales or fragmented land holdings to support some pre-destined narratives of India not doing well.

Here, enablers range from food security and money transfer through DBT (direct benefit transfer) to multiverse of welfare schemes (Ujjwala to Ayushman Bharat to Awas Yojana to maternal/neo-natal welfare).

Ghosh said that post-pandemic, the sales figures of 2-wheelers could reflect households reconfiguring their savings towards physical assets (real estate) and a not too small buyers percentage shifting to used/entry-level cars (substitution effect). Further, tractor sales, another rural resilience indicator, have been quite gung-ho recently.

“There has been Inter-group and Intra-group transitions happening in two-wheeler and four-wheeler segments. In the Inter-group transition, people are buying expensive motorcycles and cars than what they have bought earlier.

“Under the Intra-group transition, two wheelers are being considered as giffen goods (a low income, non-luxury products) with the rise of income and people are substituting two wheelers for the four wheelers,”he said.

The ERD assessed that post pandemic there has been two-way shift between savings channelised into physical assets from financial assets in consonance with the global trend to take advantage of lower interest rates. However, recent data show that in India there is now a shift towards financial assets since 2023 onwards.

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