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Global Development Institute

Beyond Piketty: a new perspective on poverty and inequality in India

Varsha S Kulkarni, and Raghav Gaiha

Abstract 

So far most of the literature on poverty and inequality has focused on how overall inequality in income distribution (frequently measured by the Gini coefficient) undermines the ‘trickle down’ effect. In other words, the higher the inequality in the income distribution, the lower the growth elasticity of poverty. However, with the publication of Piketty’s magnum opus in 2014, and a subsequent 2017 study by Chancel and Piketty of evolution of income inequality in India since 1922, the focus has shifted to the income disparity between the richest 1% (or 0.01 %) and the bottom 50%. Their central argument is that the rapid growth of income at the top end of millionaires and billionaires is a byproduct of growth. This study extends this argument by linking it to poverty indices in India. Using the India Human Development Survey 2005–12 – a nationwide panel survey – we examine the links between poverty and income inequality, especially in the upper tail relative to the bottom 50%, state affluence (measured in per capita income) and their interaction or their joint effect. We also analyse their effects on the FGT class of poverty indices. The results are similar in as much as direction of causality is concerned but the elasticities vary with the poverty index. The growth elasticities are negative and significant for all poverty indices. In all three cases, the disparity between the income share of the top 1% and the share of the bottom 50% is associated with greater poverty. These elasticities are much higher than the (absolute) income elasticities, except in the case of the poverty gap. The largest increase occurs in the poverty gap squared: a 1% greater income disparity is associated with a 1.24% higher value of this index. Thus the consequences of even a small increase in income disparity are alarming for the poorest.

Keywords 

Income inequality, Piketty’s measure, FGT class of poverty indices, inequality and poverty, India

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