Himanshu: Don't misread World Bank estimates to show low inequality in India
The PIB is right on the rank of India among all 177 countries for which Gini data is available on the Bank's Poverty and Inequality Platform (PIP). But what the PIB did not mention was that the Bank itself cautions against comparing Gini numbers from consumption surveys with those from income surveys. The PIP's Gini of 104 countries is based on consumption surveys, but for the other 73, it is based on income surveys. Anyone looking at cross-country (or even within-country) comparisons of inequality should know that the two are not comparable.
Also Read: Himanshu: The World Bank's revision of its poverty estimates is befuddling
Typically, a consumption inequality Gini is 7-14 percentage points lower than the same population's income inequality Gini on a scale of 0-100, where 100 represents complete inequality (one person or home consumes or earns everything). While we have no comparable data available in India from official income surveys, income inequality estimates for comparable years from India Human Development Surveys (IHDS) suggest a Gini that's at least 20 percentage points greater than consumption inequality.
The latest World Bank report also presents income inequality estimates from the World Inequality Database, which shows India's income inequality rising sharply from a Gini of 52 in 2004 to 62 in 2023. This actually places India as the second most unequal country after South Africa.
The primary reason for consumption inequality being lower is that unlike income, it is a smoothed variable and does not include savings, which are likely to be substantial for households in the upper half of the distribution. Most countries in the PIP database that report consumption inequality are low-income or low middle-income countries, whereas the reported Gini for most upper- and high-income countries is based on income.
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But, even if we look only at consumption inequality, the World Bank reports India's consumption Gini at 25.5, which is 4 percentage points lower than the consumption Gini for India at 29.5 found by the National Statistics Office for 2022-23. Based on this data, India ranks 18th among countries with comparable consumption inequality and 29th among all countries. India's consumption Gini at 29.5 is similar to those of Bhutan (28.5), Pakistan (29.6), Nepal (30) and China (30.4).
But why did the Bank adjust India's consumption inequality to 25.5? It included imputed food transfers and also free textbooks, uniforms and footwear given away to the poor, but excluded the expenditure on durables and other big-ticket purchases (such as of jewellery) of better-off households. It also excluded hospitalization costs and rental payments. The net impact has been a significant lowering of the expenditure of richer households along with an increase in that of the poor. This adjustment is new and had not been attempted for India in all the previous times that the Bank used Indian consumption expenditure data.
Riding piggyback on World Bank estimates to show India as a low-inequality country goes against the data evidence, which suggests not only high income-inequality, but also a significant proportion of the population in a precarious condition. It also goes against NSO estimates. Rather than stand by its official statistics and question the Bank's arbitrary adjustments, the government has endorsed them, exposing its data handouts to criticism.
Also Read: Mint Quick Edit | Poverty isn't widespread but prosperity needs to be
For the World Bank, these adjustments without wider consultations raise questions on the credibility of its PIP database. Even though it notes that the Household Consumption Expenditure Survey 2022-23 is not comparable, it uses it in its PIP database.
Further, making these adjustments only for India affects inter-country comparisons. It has been under a cloud of doubt ever since Paul Romer, a Nobel Prize winner and former chief economist of the World Bank, resigned in protest against political manipulation to suit national governments with its Ease of Doing Business rankings. While this may not be the case here, its moves do not help restore confidence in its data for international comparisons.
The author is associate professor at Jawaharlal Nehru University and visiting fellow at the Centre de Sciences Humaines, New Delhi.
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