It is often held that India's economy had a slow and steady rate of growth for a long time. Trade and investment liberalization and economic reforms initiated in 1991 provided the necessary break. As a result, the long-term pace of economic growth accelerated dramatically. What impact has this economic development had on inequality and poverty in India? The purpose of this research is to draw some preliminary findings on this pressing matter. The Indian government's Economic Survey 2019-20 claimed that fusing the market's "invisible hand" with the "hand of trust" is the key to the country's economic growth. Inequality has been raised as a major problem with this economic paradigm. In developed nations, inequality is mostly unaffected by income per capita, a number that is used to measure the effects of economic success. Following the financial crisis, the opinions of a number of commentators from wealthy nations stated that inequality is an inherent aspect of capitalism, rather than only an undesired outcome. This article draws attention to a possible tension between increasing the money supply and ensuring that wealth is distributed fairly. The most dramatic challenge to the premise of a conflict between economic growth and inequality is posed by the huge decrease in poverty that fast economic development has created in India and China (Bhalla, 2002). Is it possible that the high rates of absolute poverty and sluggish economic development in affluent countries are the primary drivers behind this conflict? The question of whether a developing economy such as India can avoid this conflict because of the potential for high levels of economic growth, on the one hand, and the significant scope for poverty reduction, on the other hand, becomes especially relevant in light of the attention that will inevitably be paid to inequality in the wake of the SARS and now the COVID-19 pandemics.

There are three causes for the increase of inequality:

·        A modification in the distribution of income, favoring capital gains over labor gains,

·        The increasing need for skilled labor as a result of the booming service industry firefighting in particular.

·        There was a decrease in the rate of labor assimilation throughout the era of reform.

Regional disparities, notably the prevalence of poverty in rural areas, have worsened. Because of this increase in inequality, progress toward alleviating poverty has been slow even as overall economic conditions have improved. (Bhalla, Bhasin 2020) It is argued that this is necessary because a vast and diverse democracy like India has to reach a consensus on economic changes, and because India's economic crisis was not as severe as that of the transition economies. Generally speaking, the economic reform agenda entailed the following steps:

Fiscal Consolidation and Stabilization: Since a stable and reduced budget was viewed as crucial to the success of the changes, it was prioritized early on in the reform programme. Fiscal deficits were reduced somewhat as a result of systemic changes.

Industrial Policy and Foreign Investment: The government rethought its industrial policy from the ground up. Multiple obstacles to entrance in various businesses have been eliminated. Except for a few micro-enterprises, industrial licensing has been eliminated. Similarly, the Monopolies and Restrictive Trade Practices Act did away with its own set of limits on the investment and development of huge industrial corporations.

Trade and Exchange Rate Policies: Except for consumer items, trade restrictions were greatly loosened. Almost all of the barriers to bringing in things like raw materials, intermediate products, and capital goods were eliminated. Carriage limits for those flying internationally have been increased. There was a loosening of quotas and tariffs on imported goods.

Tax Reform: The number of tax brackets was simplified. While progress was made in reducing the number of exemptions, much more work need to be done. Up until this point, excise duties on manufactured items had been imposed at different rates for different commodities, and most of these levies had been specific rather than ad valorem. There were a plethora of tax law interpretations and exemptions. (Cochrane 2020)

Financial Sector Policy: The depth of the long-ignored issues of real sector stagnation and finance sector complacency was exposed during the 1991 crisis. Adopting up-to-date accounting practices and appropriate definitions of assets and liabilities, establishing the Board of Financial Supervision within the Reserve Bank of India, and building a trustworthy financial database were all efforts made to increase transparency and decrease transaction costs.

Agricultural Sector Reforms: Agriculture is a state responsibility under the Indian Constitution. Therefore, public and private investment in agriculture has stalled due to the federal government's goal of decreasing the budget deficit by cutting the allocations to the states. The anti-agriculture bias in India's development policy has been mitigated, on the other hand, by the reduction of protection for industry and the termination of the overvaluation of the currency.

Labor Market Reforms: Workers in India's organized economy benefit greatly from the country's anti-retrenchment labor regulations. (Government of India (2008)) the success of other policy areas has been diminished as a result of this legislation. In order to entice new investment and revitalize older companies plagued by chronic overstaffing, flexible labor rules are essential.

India was worried about the problem even before the pandemic began. There are advantages and disadvantages to any potential economic policy. Therefore, it is crucial to identify policy objectives in light of the existing economic situation. Because of their degree of development, the potential rate of economic growth they may experience, and the absolute levels of poverty they must deal with, the advanced countries may put a priority on reducing inequality. As a result, it is possible that they may compromise the growth-versus-inequality trade-off in favour of inequality reduction. Despite the fact that they are confronted with the same trade-off, it is likely that the environment in India does not lend itself to the policy purpose of concentrating on inequality. This is because of differences in the development stage, expected rate of economic growth, and absolute levels of poverty. In light of these considerations, the next portion of the Survey investigates the likely divergence or convergence of growth and inequality in the Indian context. The goal of this investigation is to determine the policy target that will prove to be the most successful for India.

Inequality or Poverty?

There should be a differentiation between poverty and inequality. The extent to which wealth, income, or consumption is unequally distributed is what is meant by the term "inequality." Those living at the very bottom of the income, wealth, or consumption distribution are said to be poor. Absolute poverty is another way to think about poverty. If one's standard of living is significantly lower than the norm in their culture, that person will likely view themselves and others as impoverished. A condition of having relatively little resources available to oneself is what is meant by the term of poverty. When we look at poverty through the lens of relative deprivation, we no longer need to distinguish it from inequality. The relative poverty rate is a measure of social stratification as well as an indication of economic inequality. [Citation needed] Nevertheless, if the absolute amounts of assets, income, or consumption of those at the bottom of the distribution are taken into account, then increases in inequality may be accompanied by reductions in poverty. This is the case provided that the absolute amounts of these factors are taken into account (Gupta, 2021) Perception prevalent in both the public and scholarly spheres that inequality, rather than poverty, is the primary issue. According to his proposal, government action should priorities alleviating poverty over reducing inequality. Feldstein uses a scenario in which a magic bird gives $1,000 to every subscriber of the journal Public Interest to demonstrate why this would be universally viewed as a positive thing. There will be more income disparity as a result, because each subscriber has a higher average income. Feldstein disagrees with the idea that the $1,000 windfall is immoral.

World Inequality

While the AIDIS provides micro-level data for evaluating changes in wealth inequality in India in the more recent years, the WID provides essential time-series data that allows us to analyze the evolution of inequality. Since 1981, the WID figures show that the top 10% and top 1% have amassed a disproportionately larger percentage of the nation's wealth, while the bottom 50% have seen their steadily erode. More than 60% of India's wealth has been amassed in the past decade by the richest 10% of the population. This is in stark contrast to the poorest half of the population, who only own 6% of the total wealth, indicating that wealth disparity in India has grown considerably over the previous 40 years.

Figure 1: Wealth inequality in India (1961-2021)

India Debt and Investment Survey Data

Although the AIDIS reports are included in the WID data (with the exception of the most recent round), it is still useful to consult the original report for evaluating the evolution of India's wealth gap. In 2012 and 2018, the percentage of households in the upper, medium, and lower income brackets in terms of net assets is shown below. (Lakner 2022) The percentage of total net worth held by the middle 40% and the bottom 50% has increased from 33% and 4%, respectively. Relative to the bottom 90%, the top 10% now possess 55% of all net assets, indicating that wealth disparity has narrowed. (Meyer 2015)

Figure 2: Annual growth of net assets by decile group (2012-2018)

Recent years have shown diverging patterns in India's wealth gap. Longitudinal data from the World Disparity Database (WID) shows that wealth inequality has risen dramatically over the past four decades, which is not typical of industrialized and comparable nations. However, between 2014 and 2019, the AIDIS data show that inequality among Indian families has been decreasing, as assessed by both gross and net assets. Note that the AIDIS survey is used by the WID wealth data to estimate agricultural land by households in 2012, and that these estimates are then extrapolated for 2013–2020 by assuming the same proportion of agricultural land to national income as in 2012. (Roy 2022)

Income Inequality

The percentage of the national GDP owned by different economic categories fluctuated somewhat between 1951 and 1991. However, since 1990, the top 10% and top 1% have continuously taken a larger percentage of the nation's income while the bottom 50% have taken a smaller part, indicating a rising income inequality.

Figure 3: Income inequality in India (1951-2021)

Indicative of the magnitude of the shift in economic production, the growth rate of income is a key indicator of the state of the economy. (Virmani 2020) one fundamental reason for this fixation is the belief that the benefits of a thriving economy would eventually reach those at the bottom of the economic ladder. There is evidence to show, however, that low-income groups' income growth is slower than that of high-income groups. Using each group's percentage of India's total national income, we can calculate their individual income growth rates since the middle of the twentieth century. (World Bank 2000)

Consumption Inequality

This decade has seen a fall in consumption inequality, According to NSSO's analysis of data from the National Sample Survey, the gap between rich and poor Indians narrowed between 2011 and 2017. Percentage of monthly income spent on consumption by high, medium, and low income households in India in 2011 and 2017. Between 2011 and 2017, the wealthiest 5% and top 10% of earners spent less of their income on consumer goods, while the lowest 50% of earners spent more.

Figure 4: Annual growth of monthly per capita consumption expenditure (2011-2017)

Ghatak & Muralidharan (2019) provides a comprehensive criticism of all poverty figures for India, both official and non-official. The poverty rate in that year was 27.0%, while the official poverty level was Rs.328/-. She said that this amount is insufficient since it would allow a person to ingest just 1890 calories, which is more than 500 calories less than the recommended daily intake (RDA). Accordingly, she has doubts about the accuracy of the government's poverty assessment.

Karadja Mollerstrom (2017) she has critiqued a recent study on Indian food and nutrition, claiming that it is flawed because it fails to account for both direct and indirect cereal consumption when examining the correlation between cereal intake and income, and that it is erroneous to assume that falling cereal consumption is indicative of an increase in dietary variety. Objections raised about 'direct poverty lines' are unwarranted. She has stated that the authors' claim that grain consumption declines as income rises is not supported by the data. Her approach to estimating India's poverty rate, though, is fascinating to see. If we use her methods, the typical rural Indian's calorie consumption is just 2149, which is below the Recommended Dietary Allowance (RDA) of 2400. She has, however, used this strategy in other MPCE courses, arriving at figures for poverty in India that place the rural poverty rate at 74.5 percent and the urban poverty rate at 44.6 percent, respectively.

Curtis & Andersen (2015) mistakenly compared the 50th round MRP to the 55th round and found it lacking. They stated that poverty had diminished significantly during the 1990s. But new calculations suggest an even smaller yearly cut than in the '80s. The results here significantly diverge from official projections. That's why they concluded the 55th round's recall periods were to blame for its inflated estimates of consumer spending. By the 55th round, after adjusting for pollution and adjusting for inflation, India's rural poverty estimates had risen to 28%, while the urban poverty estimates had risen from 23% to 25%. There has been an improvement in poverty rates, as seen by the fact that the 55th round 'food adjusted' counts are lower than the 50th round MRP. That's why the authors only expect a 2.8% drop in poverty between the 50th and 55th iterations. The two teams' results were in conflict.

Panagariya and Mukim (2013) considered that poverty has decreased in every respect between the two time periods (1993–1994) and 2009–2010. Poverty reduction rates have also accelerated between 2004-05 and 2009-10, a period of rapid economic expansion. Over time, the poverty rate disparity between lower- and higher-caste groups has shrunk. In India, there is little connection between income disparity and poverty.

Himanshu (2010) there is a disparity between rural and urban areas in these estimations, but they are consistent with utilizing CPIAL/CPIIW for commodity groupings without unit values to project forward-looking poverty thresholds for each state or industry. They counted on info from the 61st round.

When it comes to gathering consumption statistics, the National Statistical Organization has tried out essentially three distinct approaches (recall periods). NSS gathered all consumption data before the 1983 consumer expenditure survey using a 30-day recall basis the Uniform Recall Period method. The 365-day recall period was instituted in 1983 for three products. Clothing, bedding, footwear, institutional medication, school supplies, and long-lasting items were all covered in the 1993–1994 Mixed Recall Period (MRP) (such as automobiles). Perishable produce purchases made by consumers were given a 7-day recall window in the 1999-2000 CES survey (MMRP).

Average consumption estimates are much more accurate when MMRP is used. This "minor" change in data collection results in a 12.6% and 10.8% rise in projected national average per capita consumption in 2009-10 and 2011-12, respectively, and a 12.3% and 10.9% drop in estimated poverty. There was a mismatch of around ten to twelve percentage points between the poverty estimate provided by the URP and the MMRP, according to two separate surveys conducted during the years 2009–2010 (during a drought) and 2011–2012 (with regular rainfall). That's the same as a difference of 125 million people in the estimated number of poor, assuming the poverty line stays the same. India has adopted the MMRP as its official poverty measurement tool.

In India, explicit approaches have been created to quantify poverty in the years between large-scale surveys due to the high cost and low frequency of such surveys. This gap is now estimated to be roughly five years. Using the rise in Private Final Consumption Expenditure (PFCE) as indicated by national accounts data is the most popular, well-known, and recognized method for updating nominal per capita consumption. Following the 2011–12 survey, the NSS formally adopted the MMRP technique for estimating the distribution of consumption. Despite these arguments, In order to assess the level of poverty in India, the World Bank continues to make use of the antiquated uniform recall method. It is regrettable, given that estimates of poverty made by the World Bank are often considered to be credible. In accordance with our dedication to openness, we will provide reports based on both the URP and MMRP methods. Albeit we will make it very obvious that the former is no longer the recommended course of action.

·        Not using NSS 2017-18 information in poverty and consumption estimates

·        International data on Survey Capture

·        Poverty estimation when there are no available surveys

Over the course of the last two decades, the increase in national accounts expenditures in India has followed a pattern that is very consistent with the increase in survey and administrative data indicating an increasing trend. Therefore, the aforementioned technique is a credible way for estimating poverty levels.

Poverty and Growth in India 2004-2020

From 2004 through 2020, we project both growth and poverty rates (in logarithmic form). The poverty statistics were derived using conventional techniques, with food aid not included in.

Table 1 macro data provides a link to Table 2 poverty projections. Information is provided for the years 2004-2011, 2011-2014, 2011-2017, 2017-2019, and 2014-2019. Several phenomena related to the Indian economy as a whole are depicted by this time series data. Growth in gross domestic product the benchmark for traditional back-of-the-envelope projections of poverty trajectories peaked between 2004 and 2011 at 6.4% annually and has since slowed to 5.4%.

Table 1: India's Economic Development and Price Increase Patterns

In Table 2, we see a range of poverty projections for the years 2004-2020. The most significant point is that the rise of extreme poverty in India in 2019 was projected to be anywhere from 1.4% (official MMRP approach to PFCE) to 5.4% (all other methodologies) of state GDP.

Table 2: Individuation of Gini Index and Percentage of People Living Below the Poverty Line in India, Using Conventional Methods

Food Subsidy, Consumption Expenditures, and Inequality

For the past fifty years or more, the Indian government has prioritized policies that provide direct measurements in the form of in-kind consumption assistance, as opposed to financial support, which factors more indirectly into estimates of consumption and, by extension, poverty. Subsidies for food production such as fertilisers and subsidies or transfers for infrastructure such as power and housing as well as pay increases via the MGNREGA employment programme have been the primary focuses of the plan. The provision of subsidised food for the consumption of those who are economically disadvantaged has been the most important and consistent programme.

Wheat and rice consumption has been very stable over the past 18 years, with a total of about 10 kgs consumed (PDS plus market purchases) per person annually. In 2011–12, this figure was 9.73 kg, with a standard variation of only 0.51 kg. Approximately 58% of the total portion is made up of rice, while 42% is made up of wheat.

Table 3: Use and Waste in the PDS

An increasingly effective tool for fighting poverty, food transfers and subsidies have grown to cover a larger share of the food budgets of the poorest two-thirds of the population. Consumer spending projections must account for these subsidies (in rupees). An illustration of the magnitude of the change so brought about is presented below. A family of four may save thirty rupees by purchasing ten kilogram’s of rice from the Public Distribution System at the subsidized price of three rupees per kilograms throughout the course of the aforementioned study. To put this in perspective, an affluent family of four would spend $300 on 10 kilos of rice (at Rs. 30/kg) if they did not participate in PDS. In spite of the fact that the "actual" rupee expenditures are the same for each and every PDS user, the survey-recorded expenditures are distinct and much lower for the PDS beneficiary.

Implications of Food Subsidy and Poverty Results

Table 4 provides food subsidy estimates and related statistics for a number of years between 2004-2005 and 2020-2021. The percentage of subsidies to the poverty level increases dramatically in the 2020-21 fiscal year. Table 4 very last row provides an estimate of the food subsidy's impact on lowering poverty for individuals whose consumption was at or below the poverty line in the year prior to the study.

Table 4:  Food Programs and the Federal Poverty Level

This research considers two distinct poverty levels (PPP$1.9 and PPP$3.2), and Table 5 illustrates the impact of food subsidies on each of these measures of deprivation. To put the significance of food subsidies in a clearer light, they have played a significant role in lowering poverty and widening income gaps. Let's start with poverty; throughout the previous three years, including the year of the pandemic, it has been less than or equal to 1.1% of the population. Furthermore, contrary to what was seen in most other economies, the number of people living in severe poverty (PPP$ 1.9) did not grow throughout the year of the epidemic.

Table 5: India's Poverty and Inequality

The reform process has been accompanied by a rise in general inequality, thus it's not clear if the changes have helped reduce poverty and inequality in India's economy. The decline in the labor absorption rate, along with the fast expansion of the FIRE industry, has contributed to this increase in inequality. In the absence of an official Consumption Expenditure Survey, it is vital for public policy making to estimate levels of poverty. Since the pandemic shock is primarily an income shock, it can be partially mitigated by short-term fiscal policy initiatives. The distribution of household consumption from 2011 to 2020, based on consumption levels in 2011 and 2012, this is accomplished by making use of projections based on the typical increase in nominal per capita PFCE. We calculate the average rupee transfer of food subsidy to each person from 2004–05 to 2020–21 by looking at the frequency of PDS food subsidies. Because poverty levels would be overestimated if based only on reported consumption, this practice is necessary. With the inclusion of the data on subsidies, we are able to come to the conclusion that the anti-pandemic assistance measures taken by the government of India were essential in averting an increase in the number of people living in severe poverty. Food subsidy increase in India served as a social safety net that helped mitigate the effects of the epidemic. The programme insured the poor and halted the spread of severe poverty in India.