Indicus Analytics: Bridging the wealth gap

The disparity in wealth and income across India has been widely discussed in growth and development debates using various estimates. The District Level Household Survey data captures the distribution of population through a wealth index derived by combining household amenities, assets and durable goods at the national level. Households are categorised from the poorest to the richest groups corresponding to the lowest to the highest quintiles at the national level.

Though 55.3 per cent of urban households lie in the highest wealth quintile, the share of rural households is a mere 9.9 per cent. Not surprisingly, 24.9 per cent of rural households lie in the lowest wealth quintile and the corresponding proportion in the urban segment is a mere 2.7 per cent. Between 2002-04 and 2007-08 there has been an increase in the proportion of households in the highest wealth quintile and a decline in the proportion in the lowest wealth quintiles in rural and urban areas.The wide variation in the proportion of households in the highest wealth quintile across states exemplifies the magnitude of inequality across the country. The proportion ranges from five per cent in Bihar to 89.3 per cent in Chandigarh. Delhi and Chandigarh are the top two states with more than 75 per cent of households in the highest wealth quintile group. In at least seven states and Union Territories – Puducherry, Daman & Diu, Punjab, Lakshadweep, Goa, Delhi and Chandigarh – more than 50 per cent of households are in the highest wealth quintile group. (Click here for graph)

On the other hand, Orissa appears at the top of the poorest states, with 48.5 per cent of households in the lowest wealth quintile. Jharkhand is not far behind with 43.4 per cent of households in the poorest group. In all the states that were declared Bimaru – Bihar, Madhya Pradesh and Rajasthan and Uttar Pradesh – more than 20 per cent of households are in the lowest wealth quintile group. The exception in the group is Uttarakhand where just 3.9 per cent of households lie in the poorest quintile. West Bengal and Manipur also show high shares of more than 20 per cent of households in the lowest wealth quintile. At the other end, Mizoram, Haryana, Goa, Sikkim, Himachal Pradesh, Punjab and Kerala have less than two per cent of households in the poorest quintile.

The gap between the lowest and highest wealth quintile is the narrowest in Meghalaya, Assam, Tripura and Arunchal Pradesh. The low proportion of households in the two extreme quintile groups in these states is an indication of lower inequality since a larger proportion of households are concentrated in the middle quintile group. In fact, more than 30 per cent of households in Meghalaya and Tripura lie in the middle quintile. Sikkim and Himachal Pradesh stand out with more than 40 per cent of households in the second-highest wealth quintile.

There is no doubt that the growing middle class is a prominent component of Indian society. But with most health and education parameters correlated to the household wealth index, the stark inequality across many states in rural and urban segments makes inclusive growth a real challenge.