INCOME INEQUALITY IN INDIA

Made By:- Prateek Kapoor Khushboo Malhotra Ankit SharmaINCOME INEQUALITY IN INDIA

Inequality: IntroductionEconomic inequality(also known asthe gap between rich and poor,income inequality,wealth disparity, orwealth and income differences).The term typically refers to inequality among individuals and groups within a society, but can also refer toinequality among countries.The concept of inequality is distinct from that of poverty andfairness.

IntroductionIncome distribution refers to the spread of a country's income percentage throughout its population and yields a ratio between income of the richest in a country to the poorest. When income is not proportionally distributed, it is called income inequality.

In most cases, income inequality plays a big role in the amount of crime a country has because "as the rich get richer and the poor get poorer" which promotes unhappiness.

A great portion of India's population is a victim of rising monetary deficits, most of which has crossed well under the poverty threshold. While the top 10% of Indias population enjoys 31.1% of the countrys income, the lowest 10% suffers with merely 3.6%

Inequality: Types

Inequality: Incomes

Inequality: IncomesVertical Inequality

Difference between the rich and the poor

Horizontal Inequality

Where people of similar background, status, qualifications, etc. have differencesin incomes

COMMON INCOME INEQUALITY METRICES

Gini index

Hoover index

Theil index

Basically, Gini Index or Gini Coefficeint is best metrices/model to measure Income Inequality.How to measure: Gini CoefficientTheGini coefficient(also known as theGini indexorGini ratio) is ameasure of statistical dispersiondeveloped by Corrado Gini.

The Gini coefficient measures the inequality among values of afrequency distribution(for example levels of income).

Gini coefficient is commonly used as a measure of inequality ofincomeorwealth.

It is shown through Lorenz Curve.How to measure: Gini CoefficientThe Lorenz Curve is employed to illustrate the calculation of Gini Coefficient. Suppose there is a hundred families. These families are arranged in ascending income. The Lorenz curve is constructed by plotting the cumulative share of household on the horizontal axis (i.e, x-axis) and cumulative share of household income on the vertical axis (i.e, y-axis).

Gini Index is equals to Area A divided by Area A and B i.e, __A__ . A+B

How to measure: Gini Coefficient A number between zero and one One. Represents perfectly unequal income, where one family has all income, while the other has none.

Zero. Represents perfectly equal income, where all households has the same income.

How to measure: Gini Coefficient(2010) in %

FACTSCurrent Gini coefficient value for India is 0.38, which is low as compare to china, Brazil, US etc.(but now large section of people in India are in working force, so value is alarming.) It's going to be testing time for India, if value crosses 50 then there would be heavy treat on internal security of the nation.

In India, top 10% of people earns 12 times higher than the lower 10% of the people. Even though middle class earn only 0.4 times higher than the lower class people. The gap between rich and poor keeps on widening in India compare to 1990 level.

FACTS (7/12/2011)

Causes of InequalityThere are many reasons for income inequality within societies. "The single most important driver has been greater inequality in wages and salaries(OECD 2011-12-05). These causes are often inter-related. Acknowledged factors that impact income inequality include:

Labor marketGlobalizationGap between rich and poorLaw of inheritance:The unequal and unjust land holdings in agriculture is an important reason for rural inequality of income. Rich farmers have big land holdings while some farmers have uneconomic land holdings.

Lack of futuristic policy from government which keeps society equal.

Enormous concentration of a particular profitable sector and lack of intention in major workforce sector(ex;- IT sector shares 7.1% of GDP and no intention in Agriculture sector accounts 50% of the workforce.)

An important factor for inequality in these countries is the high share of employment in the informal sector. Informal workers generally have low-paid, low-productivity jobs and, in most cases, are excluded from formal social protection schemes.

Other important factors affecting inequality emerging economies are, for example, disparities between different ethnic groups or regions, rural and urban populations and migrants and non-migrant workers.

Impact of Inequality Increase in Crime Rate

Population health

Economic incentives

Aspirational consumption and household risks Utility, economic welfare, and distributive efficiency

How to reduce Income Inequality?Social, labor-market and fiscal policies play a major role in redistributing income. On average, cash transfers and income taxes reduce inequality by one third and reduce poverty by about 60% in OECD countries. But the redistributive impact of the tax and transfer system on inequality and poverty has fallen in many countries in the past ten years.

Within current budgets, policies to address the causes of growing inequality could be made more efficient, for example, by making more use of in-work benefits which encourage people to take up work and give additional income support to low-income households.

Another important policy challenge is to improve equal access and quality of education and training which will enable workers to take up better-paid jobs and thus reduce inequality.

Redistributive policies are more difficult to implement in emerging economies due to their large informal sectors. Therefore, targeted benefit programmes, such as conditional cash transfers, may be more effective in reducing inequality while at the same time serving other objectives, such as increasing the use of health and education services.

In the medium term, however, the most effective route to reducing poverty and inequality is to promote the creation of better jobs in the formal sector and increase the coverage of social protection systems. Policies to improve the business environment may not be expensive for governments but can support the creation and expansion of firms, and thus jobs, in the formal sector.