Individual income inequality fell during FY 2014 – 2022

  • January 9, 2024
  • Posted by: OptimizeIAS Team
  • Category: DPN Topics
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Individual income inequality fell during FY 2014 – 2022

Subject : Economy

Section: Indian  Economy

The economic research department of the State Bank of India (SBI) has reported a significant decline in individual income inequality in India from fiscal year 2014 to fiscal year 2022. The decline is attributed to a “great migration” at the bottom of the income pyramid.

The Gini coefficient, a measure of income inequality, decreased from 0.472 to 0.402 during this period, based on Income Tax Return (ITR) data.

  1. Income Growth: The weighted mean income of individuals increased from ₹3.1 lakh to ₹11.6 lakh during FY14-FY21.
  2. Individual ITR Filers: About 36.3% of individual ITR filers in the lowest income group in FY14 moved upward, resulting in a 21.1% increase in their income during FY14-FY21.
  3. Income Disparity: The income disparity for individuals earning less than ₹3.5 lakh decreased from 31.8% to 15.8% during FY14-FY21, indicating an increased share of this income group in total income.
  4. Top 2.5% Taxpayers: The contribution of the top 2.5% of taxpayers to total income declined from 2.81% to 2.28% during FY14-FY21.
  5. MSMEs and Income Patterns: MSMEs (Micro, Small, and Medium Enterprises) showed a change in income patterns, with about 19.5% transitioning to larger categories.
  6. Savings and Financial Assets: Post-pandemic, there was a shift from savings channeled into physical assets to financial assets, in line with global trends.
  7. Recovery Theory: The report challenges the notion of a K-shaped recovery post-pandemic, emphasizing the complexity of income dynamics.

The following terms refer to different shapes that represent the trajectory of economic recovery over time.

  1. Z-Shaped Recovery:
    • In a Z-shaped recovery, the economy experiences a sharp decline followed by a quick and robust recovery.
    • The term suggests that the recovery is so strong that the economy surpasses its previous peak.
  2. V-Shaped Recovery:
    • A V-shaped recovery indicates a rapid and robust rebound after a sharp economic decline.
    • The economy bounces back quickly, resembling the upward slope of the letter “V.”
  3. U-Shaped Recovery:
    • In a U-shaped recovery, the economy experiences a more gradual decline, followed by a slow and steady recovery.
    • The bottom of the “U” represents a period of stagnation before improvement begins.
  4. Elongated U-Shaped Recovery:
    • Similar to a U-shaped recovery, an elongated U-shaped recovery implies a more extended period of economic downturn before a gradual upturn.
  5. W-Shaped Recovery:
    • A W-shaped recovery, also known as a double-dip recovery, involves a sharp economic decline, a temporary recovery, another decline, and then a final recovery.
    • The pattern resembles the letter “W.”
  6. L-Shaped Recovery:
    • An L-shaped recovery suggests a sharp economic decline followed by a prolonged period of stagnation or slow growth.
    • Unlike a U-shaped recovery, there is no significant upward trajectory, and the economy remains at a lower level.
  7. K-Shaped Recovery:
    • A K-shaped recovery refers to divergent paths for different sectors or segments of the economy.
    • While some sectors or groups experience rapid recovery and growth (the upward branch of the “K”), others may continue to decline or stagnate (the downward branch of the “K”).

These recovery shapes are conceptual models used by economists and analysts to describe and predict the overall trajectory of an economy in response to various events or shocks. The actual shape of the recovery depends on factors such as government policies, consumer behavior, global economic conditions, and the nature of the initial shock.

About Lorenz Curve and Gini Coefficient

The Lorenz Curve and Gini Coefficient are tools used to analyse and measure income distribution and inequality within an economy.

  1. Lorenz Curve:
    • Developed by Max Lorenz in 1906, the Lorenz Curve is a graphical representation of the distribution of income or wealth in a population.
    • The 45º diagonal line on the graph represents perfect equality, where each segment of the population earns an equal share of the total income. The Lorenz Curve depicts the actual distribution of income, which may deviate from perfect equality.
  2. Gini Coefficient:
    • The Gini Coefficient is derived from the Lorenz Curve and quantifies the level of income inequality within a population.
    • It is a single numerical measure that ranges from 0 to 1, where 0 represents perfect equality (everyone has the same income) and 1 represents perfect inequality (one individual has all the income).
    • A lower Gini Coefficient indicates a more equal distribution of income, while a higher coefficient suggests greater income inequality.

In summary, the Lorenz Curve visually represents the distribution of income, while the Gini Coefficient provides a numerical measure of income inequality based on the Lorenz Curve.

economy Individual income inequality fell during FY 2014 – 2022