Income Inequality Declined in India During Covid-19, Nation Managed Shocks Well: SBI Report

Inequality of Income in India has declined significantly since FY17, while inequality has also declined during the pandemic, according to the latest SBI Ecowrap research report. The decline in income inequality has been significant since FY17, the year of big bang formalisation that started with demonetisation, RERA reforms and GST reform in FY18, said the report authored by  Soumya Kanti Ghosh, group chief economic adviser, State Bank of India. As per the SBI Ecowrap report, India’s poverty ratio has also declined to 17.9 per cent in 2020-21 from 21.9 per cent in 2011-12.

“With a progressive growth in output across states as proxied by GSDP, it is clear that the fruits of such a growth have clearly reverberated and dovetailed into an inclusive growth if estimates from Gini coefficient of state-wise per capita income are any indication that has improved since FY17. India has thus done quite well during pandemic in terms of navigating income shocks across deciles of population,” said the report published by India’s largest public sector lender’s research wing.

The paper said that as per studies, inequality declined in India during the pandemic. “In fact, the NBER study concludes that there was decline in income of the rich attributable to the high sensitivity of business income to aggregate fluctuations. Additionally, the study concluded that labour demand for the occupations the rich occupy may have significantly declined than demand for the services provided by the poor,” it said.

The report explained that using output and income data for 33 states for the decade ending FY21 shows that while the output growth as measured by Gross State Domestic Product has steadily increased over the decade, with a minor blip in FY21, has been declining even before pre pandemic and has moved in a very narrow range. “The decline in income inequality has been significant since FY17, the year of big bang formalization that started with demonetization, RERA reforms and GST reform in FY18,” it said.

The report also mentioned that the average income of states increased gradually to reach Rs 18,118 in 2001-02 and further to Rs 68,845 in 2011-12 and Rs 1,74,024 in 2021-22.  “The ratio of per capita income of a state from the average continues to show similar pattern over the years, within Sikkim and Goa leading the pack of states with a ratio of exceeding 3, indicating that the average per capita income of these states was more than three times the average income of all the states put together,” it said.  Bihar, Jharkhand, Madhya Pradesh, Chhattisgarh, Uttar Pradesh and Rajasthan continue to be at the bottom, it said.

India’s poverty ratio has declined modestly to 17.9 per cent in 2020-21 from 21.9 per cent in 2011-12, the report mentioned. “Poverty in some states including Karnataka, Maharashtra, Rajasthan, J&K, Uttarakhand and Sikkim has increased, while it has declined in states including Assam, Bihar, Chhattisgarh, MP, UP, Odisha and West Bengal,” it said.

Our results substantiate that in the Indian context, it is thus an incorrect conjecture to assume that inequality has worsened during pandemic, the SBI Ecowrap report further said

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