Individual income inequality significantly declined during FY14-FY22: SBI report

The Economic Research Department of SBI presented a report suggesting a decline in income inequality in India, asserting that over a third of taxpayers have ascended to higher income tax brackets. This counters the notion of a K-shaped post-pandemic recovery, a concept referencing a divide in economic growth.

The report dismissed the K-shaped recovery theory as "flawed" and suggested that India's progress is a testament to the emerging global south's renaissance, contradicting opinions of a divided recovery.

Income inequality, measured by the Gini coefficient, revealed a substantial drop from 0.472 to 0.402 between FY14 and FY22. Around 36.3% of taxpayers shifted to higher income groups, contributing to a 21.3% increase in income. However, the top 2.5% taxpayers' share declined from 2.81% to 2.28% during FY14-FY21.

The study indicated positive shifts in various sectors: 19.5% small firms grew larger, and post-pandemic, consumption by the bottom 90% rose by Rs 8.2 trillion. The rise in rural income led to an inclination towards four-wheelers, while two-wheelers were replaced. Additionally, 15% of Indian taxpayers are women, and 2 crore family members in semi-urban areas use Zomato for meals.

By analyzing publicly available income tax data, the report assessed income inequality trends, showing a significant shift towards higher income brackets. The number of individual taxpayers earning between Rs 5 lakh and Rs 10 lakh increased by 295% between AY 2013-14 and AY 2021-22.

The Gini coefficient projection suggests further decline to 0.402 in AY23. Shifting trends in income groups reveal a positive migration towards higher income brackets, indicating reduced income disparity among individuals.

The report also highlighted a decline in income disparity for earners below Rs 3.5 lakhs, showcasing a 31.8% to 15.8% decrease during FY14-21. Furthermore, the share of top taxpayers' combined income declined despite an increase in their numbers.

Post-pandemic, households are redirecting savings towards physical assets like real estate, as per the report's observations.