Decline in Inequality: Is it a Good Thing? – Debroy’s Insights

Decline in Inequality: Is it a Good Thing? – Debroy’s Insights

Sub: Economy

Sec: National Income and Indian economy

Key Points:

• Review of Poverty Line:
  • Bibek Debroy, the Chairman of the Prime Minister’s Economic Advisory Council (PMEAC), suggests a need to revisit India’s official poverty line.
  • The current poverty line, based on the Tendulkar Committee’s 2009 recommendations, is considered outdated. The expenditure threshold is set at ₹33 a day in urban areas and ₹27 a day in rural areas.
  • The Rangarajan Committee’s 2014 revisions were not officially accepted, and the Niti Aayog’s Multidimensional Poverty Index (MDPI) is not recognized as a poverty line.

• Inequality Debate:
  • Debroy raises the question of whether the decline in inequality, as indicated by the latest Household Consumption Expenditure Survey (HCES), is necessarily a good thing.
  • He highlights the common debate on the gap between survey findings and national income accounts, terming it “sterile.”
  • Inequality as measured by the distribution of consumption expenditure may differ from that measured by personal incomes, which India does not officially track.
• Data Utility:
  • Household expenditure surveys provide inputs for various analyses beyond inequality and poverty.
  • Despite some standard perennial issues, such as the gap between aggregate consumption expenditure and national income accounts, these surveys remain crucial.
• Consideration of Gini Coefficient:
  • Debroy questions whether a decline in the Gini coefficient, a measure of economic inequality, is always positive.
  • He points out that inequality often increases as economies grow and prosper.
  • Additionally, he suggests examining Gini coefficients separately for different states to get a more nuanced understanding of inequality across regions.

Implications:

• For Policymakers:
  • Revisiting the poverty line could provide a more accurate measure of poverty in India, leading to better-targeted policies.
  • Understanding the implications of inequality trends is crucial for designing policies that balance growth and equity.
• For Economists and Researchers:
  • The debate over measurement methodologies highlights the need for robust and comprehensive data collection and analysis.
  • Analyzing inequality at both national and state levels can provide deeper insights into regional disparities.
• For the General Public:
  • A clearer understanding of poverty and inequality metrics can inform public discourse and expectations regarding economic policies.
  • Awareness of regional inequalities might drive demand for more localized policy interventions.

Conclusion:

Bibek Debroy’s call to revisit India’s poverty line and his questions on the implications of declining inequality open important discussions on economic measurement and policy. By addressing these issues, India can better tailor its economic policies to foster both growth and equitable development.