The Household Consumption Expenditure Survey (HCES) 2022-23 found that there was less inequality in consumption
- Under-coverage of the Super-Rich: NSSO surveys are based on random sampling, a method that is statistically unlikely to capture a sufficient number of ultra-high-net-worth individuals. These individuals are not only few but are also more likely to refuse participation or provide incomplete information, a phenomenon known as “non-response bias.” This leads to a truncation at the top end of the distribution, effectively hiding the vast concentration of wealth and income among the top 1%.
- Exclusion of the Most Vulnerable: At the other end of the spectrum, official surveys often fail to adequately capture the most marginalized populations, such as the homeless, seasonal migrant workers without a fixed abode, and those in remote or conflict-affected areas. Their exclusion artificially raises the bottom floor of the income distribution, making poverty and deprivation appear less severe.
- Reliance on Consumption over Income: Traditionally, India has measured inequality using consumption expenditure, not income. While consumption data is more stable, it masks true inequality because the wealthy save a significantly larger proportion of their income. A billionaire’s consumption may be a few hundred times that of a poor person, but their income could be millions of times higher. This reliance on consumption data drastically flattens the inequality curve.
- Under-reporting and Valuation Issues: Income and wealth are often deliberately under-reported to avoid taxation. Furthermore, valuing assets like unlisted equity, real estate, and offshore holdings is a complex task that surveys are ill-equipped to handle, leading to a massive underestimation of wealth concentration.
- Flawed Policy Formulation: If policymakers believe inequality is at a manageable level, they are less likely to pursue robust redistributive policies such as higher wealth taxes, inheritance taxes, or more progressive income tax structures. Social welfare programs may be underfunded or poorly targeted.
- Erosion of Public Trust: When citizens witness growing ostentatious wealth alongside persistent poverty, while official data suggests moderation, it creates a trust deficit in state institutions. This disconnect can fuel social unrest and political instability.
- Inaccurate Economic Narrative: The understatement of inequality supports a narrative that the benefits of economic growth are being shared more widely than they are. This masks the reality of ‘crony capitalism’ and structural barriers that prevent equitable opportunity.
- Misleading Global Comparisons: India’s standing on global inequality indices may appear better than it is, preventing necessary international and domestic pressure for policy reforms.
- Integrate Administrative and Survey Data: The most effective solution is to triangulate survey data with administrative data. Tax records from the Central Board of Direct Taxes (CBDT), GST data, and corporate filings can provide a much clearer picture of the top end of the income distribution, as pioneered by economists like Thomas Piketty.
- Conduct Dedicated Wealth Surveys: Regular, targeted wealth surveys, similar to those in many developed countries, are needed to properly assess the concentration of assets, including financial and non-financial holdings.
- Methodological Overhaul: Survey designs should be updated to include ‘oversampling’ of high-income households. Furthermore, the Consumption Expenditure Survey must be conducted regularly, and its findings released promptly to provide timely data.
- Expand the Scope of Measurement: Inequality is multidimensional. Data collection must systematically capture disparities in access to quality healthcare, education, digital infrastructure, and social security, moving beyond purely monetary metrics.
