SBI Research: Decline in Income Inequality Reflects Upward Migration in India

• 10 Jan 2024

A recent study by SBI Research reveals a reduction in income inequality, indicating a positive trend of upward migration and the growth of the Indian middle class.

• The widening Income Tax base, according to CBDT data, substantiates this trend, with a notable increase in the number of individuals filing Income Tax Returns.

Key Points

• Widening Tax Base and Increased Filings: Income Tax Returns surge to 74 million in AY 2022-23, up from 70 million in AY 2021-22.
• 82 million Income Tax Returns filed by December 31, 2023, for AY 2023-24.
• Migration to Higher Income Brackets: ITR filings for individuals earning between Rs 5 lakh and Rs 10 lakh show a 295% increase from AY 2013-14 to 2021-22.
• ITRs for those earning between Rs 10 lakh and Rs 25 lakh tripled (291%) during the same period.
• Gini Coefficient Decline: Gini Coefficient drops from 0.472 in AY 2014-15 to 0.402 in AY 2022-23, indicating a reduction in income inequality.
• Decline in Share of High-Income Tax Payers: Share of Top 2.5% taxpayers (income > Rs 10 crores) decreases from 2.81% in 2013-14 to 2.28% in 2020-21.
• Share of Top 1% taxpayers (income > Rs 100 crores) falls from 1.64% to 0.77% during the same period.
• Reasons behind Income Inequality Decline: Report attributes decline to significant migration at the bottom of the income pyramid.
• 36.3% of low-income ITR filers in FY14 move upward, resulting in a 21.1% increase in income during FY14-FY21.
• Additional Positive Economic Indicators: Rising female labour force participation.
• MSMEs witness increased income levels.
• Post-COVID, changing consumption patterns, such as a shift from two-wheelers to four-wheelers and increased tractor sales, indicate robust economic recovery.