British Raj to Billionaire Raj: India’s inequality is now worse than in 1922
India’s income inequality in 2017 may be worse than what it was during the British Raj. According to a new paper titled ‘Indian income inequality, 1922-2014: From British Raj to Billionaire Raj?’ penned by renowned economists Thomas Piketty and Lucas Chancel, India witnessed a sharp rise in the incomes of top 1 per cent post 1980s.
India’s income inequality in 2017 may be worse than what it was during the British Raj. According to a paper titled ‘Indian income inequality, 1922-2014: From British Raj to Billionaire Raj?’ penned by renowned economist Thomas Piketty and Lucas Chancel, India witnessed a sharp rise in the incomes of top 1 per cent post 1980s.
The study, which took inputs from household surveys, national accounts, NSSO data and recently released tax tabulations tracks the dynamics of Indian income inequality from 1922 to 2014.
The share of national income accruing to the top 1% income earners is now at its highest level since the creation of the Indian Income tax in 1922 during the British colonial rule. The top 1% of earners captured less than 21% of total income in the late 1930s, before dropping to 6% in the early 1980s and rising to 22% today, the paper said.
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The study says the share of fiscal income accruing to the top 1 per cent of population shrank substantially from the mid-1950s to the mid-1980s, from about 13 per cent of fiscal income, to less than 5 per cent in the early 1980s. However, after India’s economic liberalization when pro-business, market deregulation policies were implemented the situation was reversed, the share of fiscal held of the top 1% doubled from approximately 5 per cent to 10 per cent in 2000.
The revised paper which was released on Tuesday found that the bottom 50% group grew at a substantially lower rate than average growth (Figure 1a) since the 1980s. Middle 40% grew at a slower rate than the average (Figure 1b). On the contrary, top 10% and top 1% grew substantially faster than the average since 1980 (Figure 1c).
The paper stressed on the need for more democratic transparency on income and wealth statistics to avoid what it called another ‘black decade’ similar to the 2000s, during which India entered the digital age but stopped publishing tax statistics.
Such data sources are key to track the long run evolution of inequality and to allow an informed democratic debate on income patterns, it said.
Calling for a more inclusive growth in India, the paper said its findings reveals the unequal nature of liberalization and deregulation processes in the country.
In 2016, the Income Tax Department released tax tabulations for recent years (2011-12, 2012-13 and 2013-14), making it possible to revise and update previously published top income estimates and better inform public debates on growth and income inequality in India, it added.
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Indian income inequality, 1922-2014: From British Raj to Billionaire Raj?
Lucas Chancel & Thomas Piketty
Abstract. We combine household surveys and national accounts, as well as recently released tax data in a systematic way to track the dynamics of Indian income inequality from 1922 to 2014. According to our benchmark estimates, the share of national income accruing to the top 1% income earners is now at its highest level since the creation of the Indian Income tax in 1922. The top 1% of earners captured less than 21% of total income in the late 1930s, before dropping to 6% in the early 1980s and rising to 22% today.
Over the 1951-1980 period, the bottom 50% group captured 28% of total growth and incomes of this group grew faster than the average, while the top 0.1% incomes decreased. Over the 1980-2014 period, the situation was reversed; the top 0.1% of earners captured a higher share of total growth than the bottom 50% (12% vs. 11%), while the top 1% received a higher share of total growth than the middle 40% (29% vs. 23%). These findings suggest that much can be done to promote more inclusive growth in India. Our results also appear to be robust to a range of alternative assumptions seeking to address data limitations.
Most importantly, we stress the need for more democratic transparency on income and wealth statistics to avoid another “black decade” similar to the 2000s, during which India entered the digital age but stopped publishing tax statistics. Such data sources are key to track the long run evolution of inequality and to allow an informed democratic debate on inequality.
India introduced an individual income tax with the Income Tax Act of 1922, under the British colonial administration. From this date, up to the turn of the 20th century, the Indian Income Tax Department produced income tax tabulations, making it possible to track the long-run evolution of top incomes in a systematic manner. Using this data, Banerjee and Piketty (2005) showed that the share of fiscal income accruing to the top 1% earners shrank substantially from the mid-1950s to the mid-1980s, from about 13% of fiscal income, to less than 5% in the early 1980s.
The trend was reversed in the mid-1980s, when pro-business, market deregulation policies were implemented. The share of fiscal held of the top 1% doubled from approximately 5% to 10% in 2000. According to National Accounts estimates, post-2000 income growth has been substantially higher than in the previous decades. Average annual real income growth was below 2% in the 1960 and 1970s, it reached 2.5% in the 1980s and 2% in the 1990s1.
Since 2000s it is of 4.4% on average since 2000 (Figure 1). Little is known however on the distributional impacts of economic policies in India after 2000 in part because the Income Tax Department stopped publishing income tax statistics in 2000, and also because self-reported survey data does not provide adequate information concerning the top of the distribution (fiscal data is not perfect either, but it delivers higher and more plausible income levels for the top). In 2016, the Income Tax Department released tax tabulations for recent years (2011- 12, 2012-13 and 2013-14), making it possible to revise and update previously published top income estimates and better inform public debates on growth and income inequality.
We find that the bottom 50% group grew at a substantially lower rate than average growth (Figure 1a) since the 1980s. Middle 40% grew at a slower rate than the average (Figure 1b). On the contrary, top 10% and top 1% grew substantially faster than the average since 1980 (Figure 1c). The first objective of this paper is to mobilize this newly released set of tax data in order to track the evolution of income inequality from 1922 to 2014. The second objective is to go beyond top income shares and produce estimates of income dynamics throughout the entire distribution using concepts that are consistent with National Accounts (following, as much as possible, the Distributional National Accounts Methodology, see Alvaredo et al., 2016).
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India’s richest 1% garnered as much as 73% of the total wealth generated in the country in 2017, according to a new survey by international rights group Oxfam. The report’s findings are in line with those of similar studies including the one published by renowned economists Lucas Chancel and Thomas Piketty last July, and give credence to the theory that the rich have disproportionately benefited from liberalisation while others have been left struggling. Titled ‘Indian income inequality, 1922-2014: from British Raj to Billionaire Raj?’ the research paper by the two economists showed that income inequality in India was at its highest in 2014 since 1922, the year the country passed the Income Tax Act.
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