Income inequality is one of the most significant socio-economic challenges confronting India, with potentially long-lasting implications for the future of its democracy and society. In this work, we explore income inequality in India, without assumptions of equilibrium, and illustrate the nature and direction of re-distribution within the income distributionin a dynamic sense. Given that both mean income and income inequality show a rising trend post the Industrial Revolution, we argue that such a process is appropriately modeled using Geometric Brownian Motion (GBM). Specifically, we use the mechanism of GBM with a reallocation parameter (which indicates the nature of re-distribution occurring in the income distribution) proposed by Berman et al. We find that since the mid-1990s, reallocation is negative, meaning that incomes are exponentially diverging , indicating that there is a perverse re-distribution of resources from the poor to the rich. It has been well known that static inequality is rising in India  , but the assumption has been that while the rich may be benefiting more than proportionally from economic growth, the poor are also better off than before. The surprising finding from our work is that the nature of income inequality is such that we have moved from a regime of progressive to regressive re-distribution. Essentially, continued impoverishment of the poor is directly spurring multiplicative income growth of the rich.  We characterize these findings in the context of increasing informality of the workforce in the formal manufacturing and service sectors, as well as the possible evolution of negative net incomes of the agriculture workforce in India. Significant structural changes may be required to address this phenomenon.
We investigate the nature and extent of reallocation occurring within the Indian income distribution, with a particular focus on the dynamics of the bottom of the distribution. We argue that income evolution is appropriately modelled using Geometric Brownian Motion (GBM). Specifically, we use the mechanism of GBM with a reallocation parameter that quantifies the extent and direction of reallocation in the distribution, as proposed by Berman et al. We find that since the early 2000s reallocation is negative, meaning that incomes are exponentially diverging and that there is a perverse redistribution of resources from the poor to the rich. It is well known that inequality has been rising in India in the recent past , but the assumption has been that while the rich benefit more than proportionally from economic growth, the poor are also better off than before. Our work refutes this as we find that India has moved from a regime of progressive to regressive redistribution, where continued impoverishment of the poor is directly spurring multiplicative income growth of the rich. Outcomes from the model suggest that income shares of the bottom decile (~1\%) and bottom percentile (~0.03\%) are at historic lows. We characterize these findings in the context of increasing informalization of the workforce in the formal manufacturing and service sectors, as well as the growing economic insecurity of the agricultural workforce in India. Significant structural changes will be required to address this phenomenon.
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Income inequality is one of
We investigate the nature and extent of reallocation occurring within the Indian income distribution, with a particular focus on the dynamics of
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most significant socio-economic challenges confronting India, with potentially long-lasting implications for the future of its democracy and society. In this work, we explore income inequality in India, without assumptions of equilibrium, and illustrate the nature and direction of re-distribution within the income distributionin a dynamic sense. Given that both mean income and income inequality show a rising trend post the Industrial Revolution, we argue that such a process is appropriately modeled
bottom of the distribution. We argue that income evolution is appropriately modelled
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(which indicates the nature of re-distribution occurring in the income distribution)
that quantifies the extent and direction of reallocation in the distribution, as
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mid-1990s,
early 2000s
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, indicating
and
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re-distribution
redistribution
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has been
is
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static inequality is
inequality has been
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in the recent past
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may be benefiting
benefit
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The surprising finding from our work is that the nature of income inequality is such that we have
Our work refutes this as we find that India has
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re-distribution. Essentially,
redistribution, where
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Outcomes from the model suggest that income shares of the bottom decile (~1\%) and bottom percentile (~0.03\%) are at historic lows.
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informality
informalization
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possible evolution of negative net incomes of the agriculture
growing economic insecurity of the agricultural
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may
will