Beyond Consumption Expenditure: Income Inequality and Its Sources in India

Abstract

A considerable body of research on inequality in India has focused on consumption inequality. This article compares inequality in consumption expenditure and income, using two waves of the India Human Development Survey. We find that while income inequality increased marginally, expenditure inequality remained stable. The article also undertakes the decomposition of income inequality by sources and finds that wage and agricultural incomes contribute most to inequality in rural areas whereas wage and business incomes are the major contributors in urban areas. Wages and government transfers arse found to be inequality-decreasing sources of income, and agricultural income is found to be inequality-increasing. While government transfers benefit low-income households, there is potential for increasing their efficacy and for attaining a more egalitarian distribution of income by better targeting. Further, we examine how expenditure and income are associated with the ownership of household assets. Our findings suggest that low consumption is a better indicator of material well-being than low income.