SBI Research Report Says Income Inequality Shrinks, Mobility on the Rise

In a recent study conducted by SBI Research, a notable decline in income inequality has been identified, signaling an upward trend in income and the growing prominence of the Indian middle class.

Income Tax Base Expansion

Referring to CBDT data, the report highlights the widening of the Income Tax base, with the number of individuals filing Income Tax Returns increasing from 70 million in AY 2021-22 to 74 million in AY 2022-23. Impressively, the current AY 2023-24 has witnessed a substantial surge, with 82 million Income Tax Returns filed by December 31, 2023.

Positive Migration Trends

The study notes a significant positive trend in migration to higher income brackets. ITRs filed by individuals earning between Rs 5 lakh and Rs 10 lakh surged by 295% from AY 2013-14 to AY 2021-22. Similarly, those earning between Rs 10 lakh and Rs 25 lakh saw a nearly threefold increase (291%) during the same period.

Decline in Gini Coefficient

The Gini Coefficient, a widely used measure of income inequality, has decreased from 0.472 in AY 2014-15 to 0.402 for AY 2022-23. This reflects a positive shift toward a more equitable distribution of income.

Changing Dynamics in Top-Tier Taxpayer Shares

Notably, the share of top 2.5% taxpayers with income exceeding Rs 10 crores has decreased from 2.81% in 2013-14 to 2.28% in 2020-21. The share of the top 1% taxpayers with income surpassing Rs 100 crores has witnessed a significant drop from 1.64% to 0.77% during the same period.

Drivers of Income Equality

The report attributes the decline in income inequality to a substantial migration at the bottom of the pyramid. An impressive 36.3% of individual ITR filers from the lowest income bracket in FY14 have transitioned upward, resulting in a remarkable 21.1% increase in income for these individuals during FY14-FY21.

Beyond Income Inequality: Other Observations

The SBI Research Report sheds light on additional positive indicators in India’s economic landscape:

  • Rising Female Labour Force Participation: The report underscores a notable increase in the participation of females in the labor force.
  • MSME Income Growth: Positive highlights in income levels of Micro, Small, and Medium Enterprises (MSMEs) contribute to a robust economic recovery.
  • Changing Consumption Patterns: Post the Covid-19 pandemic, shifts in consumption patterns are evident, including a transition from two-wheelers to four-wheelers and increased sales of tractors.

In conclusion, the SBI Research Report challenges the notion of a ‘K’-shaped growth and paints a picture of a dynamic and inclusive economic recovery for India.

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