Income inequality has declined in India : SBI

Income inequality has declined in India with a higher tax base and a shift in taxpayers from lower income to higher income tax bracket, the Economic Research Department of the State Bank of India said in a report released Monday. Terming the claims of K-shaped recovery as “prejudiced” and “ill-concocted”, the report also cited the transition of small firms into larger firms and consumption trends such as the rising trend of ordering from food ordering platforms such as Zomato of being indicative of “vanishing inequality”.

About 36.3 per cent of taxpayers have moved from lower income to higher income tax bracket resulting in 21.3 per cent additional income, the report said adding that the top 2.5 per cent of taxpayers’ contribution in income declined from 2.81 per cent in FY14 to 2.28 per cent in FY21. The income-tax returns (ITRs) filed by individual taxpayers earning between Rs 5 lakh and Rs 10 lakh, climbed by 295 per cent between the assessment years (AY) 2013–14 and AY 2021–22, showing a positive trend of migration to a higher range of gross total income, the report said.

On the share of top taxpayers in income, the report said that in FY14, the combined income of 23 individuals with income of more than Rs 100 crore was 1.64 per cent of the total income of FY14. Even though the number of such individuals increased to 136 in FY21, the share of their combined income fell to 0.77 per cent.

Also, 19.5 per cent of small firms have transitioned into larger fis through MSME value chain integration and consumption of the bottom 90 per cent of the population has increased by Rs 8.2 lakh crore post pandemic, the report said

Growth is seen in all income classes but its skewedness has been decreasing with convergence of income towards the middle from both top as well as bottom,” the report said.

The report said the claim of K-shaped recovery, which implies divergent rate of recovery with one section recovering positively and other section declining, seems “at best flawed, prejudiced, ill-concocted and fanning interests of select quarters to whom India’s remarkable ascendance, signalling more the renaissance of the new global south, is quite unpalatable”.

“Income inequality captured through the Gini coefficient (one of the most widely used measures of income inequality) of taxable income has declined significantly from 0.472 to 0.402 during FY14-FY22,” it said.

The report also talks about the decline in sale of two-wheelers, stating that it is “foolhardy to claim that declining two-wheeler sales is a proxy for distress in the rural economy” and people are substituting two-wheelers with four-wheelers

The number of ITRs filed by people earning between Rs 10 lakh and Rs 25 lakh increased by 291 per cent while the total number of persons filing income tax increased to 7.4 crore in AY23 from 7 crore in AY22. For AY24, 8.2 crore ITRs have been filed by December 31, 2023.

About 36.3 per cent of individual ITR filers belonging to an income group of less than Rs 3.5 lakhs in AY15 (FY14) have left the lowest income group and shifted upwards. 15.3 per cent have shifted each in the income group of Rs 3.5 lakhs to 5 lakhs, and Rs 5 lakhs to 10 lakhs, 4.2 per cent people shifted in the income group of Rs 10 lakhs to Rs 20 lakhs and the rest further upwards, the report said.