Analysis on Economic Inequality in India

Abstract

The paper examines income inequality in India from 1951 to 2022, highlighting trends and nonlinear patterns in the top 10% and bottom 50% income shares of national income, as well as the gap between these shares. The analysis employs semi-log and double log regression models, the HP filter model, the Hamilton regression filter model, and the ARIMA (p, d, q) forecast model. The findings indicate that the top 10% income share increased steadily, while the bottom 50% share decreased monotonically. The gap between these shares narrowed until the 1980s, after which it widened. All trends are cyclical, with identifiable peaks and troughs. GDP has less influence than GDP per capita on the top 10% income share increase, while the reverse is true for the bottom 50%. The nature of the gap is U-shaped, with a 1% annual increase in GDP and GDP per capita leading to a 0.33% and 0.45% increase in the gap, respectively. The ARIMA (2,1,2) forecast model for the income share gap in 2050 suggests a convergence towards equilibrium in a stable manner, although it remains nonstationary due to an insignificant Moving Average process. This implies that inequality will not completely disappear by 2050. Policy recommendations are proposed for future discussions.