In this research seminar, Prof. Anand Sahasranaman, Krea University and Nishanth K, Dvara Research discuss the evolution of incomes and the dynamics of inequality and poverty in India over time. Using data from the Consumer Pyramids Household Survey (CPHS) released by the Centre for Monitoring Indian Economy (CMIE), they construct the income distribution in India for the period between 2014-19.
The primary results of this analysis suggest that while income inequality remains largely consistent over this time, the lower end of the income distribution has experienced significant losses. Households that populate the bottom ventile (5 percentile bin) shows not only a decline in the income share of 38%, but also negative real average income growth of -4.6% per annum. They also study the features of the income distributions across rural and urban sectors as well as the occupational profile of households across the income distribution. The bottom ventile of the consolidated Indian income distribution is composed primarily of rural incomes, and therefore the decline in real incomes is essentially a rural phenomenon. Studying occupation data of households, they find that the bottom decile of the rural distribution correlates strongly with occupations of small or marginal farmers and agricultural labour, highlighting the increasing economic fragility of such occupations.
Finally, they also explore a novel methodology to estimate the nature of reallocation of incomes in India using the Geometric Brownian Motion with Reallocation (RGBM) model. The results suggest that reallocation has been decreasing from 2015 and even turned negative in 2018, which is in keeping with empirical evidence of real income declines at the bottom of the distribution and heralds the risk that persistent negative reallocation in the future could result in a regressive redistribution of resources from the poor to the rich.
The seminar is based on a working paper which can be found here.
