SBI reports unveils a more granular picture of Income inequality and economic growth

Amidst the din of K-shaped recovery narratives and concerns about widening inequality, a recent SBI report paints a different, and arguably more nuanced, picture of India’s economic ascent. The report, based on Income Tax Return (ITR) data, throws light on a “great migration” at the bottom of the income pyramid, suggesting a significant decline in individual income inequality between FY14 and FY22.

Great Migration: Leaving Income Inequality Behind

The Gini coefficient, a measure of income inequality ranging from 0 (perfect equality) to 1 (absolute inequality), reveals a remarkable drop from 0.472 to 0.402 over the eight-year period. This translates to a tangible improvement, with 36.3% of individuals in the lowest income bracket in FY14 escaping it and experiencing a 21.1% jump in income by FY21. Additionally, the income disparity amongst those earning less than ₹3.5 lakh has shrunk from 31.8% to 15.8%, indicating a 16% increase in their share of total income relative to their population size.

SBI reports

These figures paint a compelling picture of economic mobility, where individuals are ascending the income ladder at the grassroots. This trend extends beyond individual taxpayers, with 19.5% of micro-sized MSMEs experiencing upward income transitions. Nearly 5% transitioned into small firms, 6% into medium-sized firms, and a remarkable 9.3% reached the large-sized category. This indicates a robust MSME sector undergoing integration into larger value chains, fueled by initiatives like PLI (productivity linked incentive).

Weighted Mean Income: A Nuanced Perspective on Growth

The report goes beyond simple averages to introduce the concept of weighted mean income. This metric factors in the contribution of each income bracket to overall income growth, providing a more granular understanding of individual income changes. Based on current trends, SBI’s ERD predicts the FY22 weighted mean income to fall within the range of ₹12.5 lakh to ₹13 lakh. This underscores the importance of looking beyond simple averages, which can obscure nuanced intra-group shifts in income and contribution to overall growth.

Challenging the K-Shaped Narrative: A Renaissance of the New Global South

In light of these findings, SBI’s Group Chief Economic Adviser, Soumya Kanti Ghosh, emphatically critiques the often-touted K-shaped recovery narrative as “flawed, prejudiced, ill-concocted, and fanning interests of select quarters.” He argues that this narrative fails to capture the broader, positive trends emanating from income, savings, consumption, and policy measures aimed at empowering the masses.

Ghosh highlights the robustness of various enablers, ranging from food security and DBT schemes to welfare initiatives like Ujjwala Yojana, Ayushman Bharat, Awas Yojana, and maternal/neo-natal welfare programs. These, he argues, paint a starkly different picture than outdated proxies like 2-wheeler sales or fragmented land holdings, which often fail to capture the dynamic realities of a transforming India.

Shifting Sands: Consumption Patterns and Beyond

Ghosh acknowledges the post-pandemic shifts in consumption patterns, including households potentially reconfiguring their savings towards physical assets like real estate, and a segment opting for used or entry-level cars instead of new two-wheelers. However, he also points to robust tractor sales, a strong indicator of rural resilience, and suggests that the 2-wheeler market might be witnessing both inter-group and intra-group transitions. On the one hand, individuals are opting for higher-end motorcycles and cars, while on the other, some might be considering two-wheelers as “giffen goods” and substituting them for cars as income rises.

Finally, Ghosh acknowledges the two-way flow of savings between financial and physical assets, mirroring the global trend of capitalizing on lower interest rates. However, he notes a recent shift back towards financial assets in India since 2023, suggesting a potentially maturing and diversifying investment landscape.

SBI Conclusion: India’s Story Beyond the Headlines

SBI’s report offers a crucial counterpoint to narratives of economic polarization in India. By delving deeper into income data and employing nuanced metrics like weighted mean income, it showcases a more intricate picture of a nation experiencing significant upward mobility at the individual and MSME levels. While challenges remain, the report underscores the efficacy of government initiatives and the dynamism of the Indian economy, highlighting a potential “renaissance of the new global south” rather than a K-shaped divergence. As India continues its economic ascent, focusing on these granular indicators and eschewing outdated proxies will be critical to understanding the true scope and nature of its progress.

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