World Bank Report 2025 Findings on Inequality in India

Context: India’s inequality debate reignited after a 2025 World Bank report claimed a significant decline in poverty and consumption inequality, prompting both praise and scepticism about data validity and broader interpretations.

About Inequality

• It is an unfair situation in society when some people have more opportunities than others people.
• The United Nations describes it even more simply as “the state of not being equal, especially in status, rights and opportunities”.
• Gini coefficient is a typical measure of income inequality.

2025 World Bank Report Findings on Inequality in India

• India has nearly eradicated extreme poverty, pulling around 27 crore people out of poverty between 2011 and 2023.
• Consumption inequality has declined, with the Gini coefficient falling from 8 (2011-12) to 25.5 (2022-23).
• The bottom 20% of the population has shown notable dietary and asset improvements, even excluding free food and cash transfers.
• India now ranks among the top four least unequal countries globally in consumption terms.
• The findings are based on HCES 2022-23, which used the Modified Mixed Reference Period (MMRP) — a method aligned with international best practices.

Issues with the World Bank Report Findings

• HCES does not fully capture elite/top 5% consumption, which may underestimate actual inequality.
• Consumption inequality ≠ Income inequality; income data is lacking, and comparisons can be misleading.
• World Inequality Lab (WIL) estimates of income inequality are based on implausible assumptions, such as most households spending more than they earn.
  • Eg., WIL estimates suggest that 70–80% of households spend more than they earn, year after year — a logically inconsistent assumption.
• WIL uses pre-tax income, ignoring India’s substantial welfare transfers and tax redistribution, skewing perceived inequality.
  • Eg., In AY 2023-24, the top 1% of taxpayers paid 72.77% of total taxes, but this isn’t reflected in WIL’s pre-tax inequality figures.
• Media often misrepresents inequality by overemphasising the top 1% shares without acknowledging data flaws or post-tax realities.

Way Forward

• Develop official, robust income surveys to track income distribution directly.
• Incorporate post-tax and post-transfer effects in inequality measurement.
• Improve data collection on high-income households and elite consumption.
• Distinguish clearly between income and consumption-based inequality in public discourse.
• Focus policy on equal access to quality education, healthcare, and employment to address structural inequalities.
• Recognise and celebrate progress while staying vigilant about remaining gaps.

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