Income tax return statistics were recently used by some commentators to suggest that India’s income inequality worsened between 2013-14 & 2021-22, & that gross income of lowest 25% of taxpayers actually declined. This is inaccurate interpretation of the data on several counts.

At onset, note that dataset relates to tax payers, not a survey of general population; extrapolating to income distribution is tricky. Rising pool of high-income taxpayers, for instance, reflects many factors from better compliance to middle-class moving up; both good things.

If such data must be used for income inequality, better to plot & look at shape of the curve. As can be seen clearly, there was bunching of incomes at bottom rung in 2013-14 with a long tail. By 2021-22, the bunching is in the middle. Many in the bottom rung moved into middle.

Shapes of curves don’t change if converted to constant prices. The middle slabs clearly spike by 2021-22. This means that middle segment grew. How? By drawing in people from lower segments. This is upward mobility and not rise in income inequality.

Worldviews based on static social structures have difficulty understanding upward mobility. Also, the numbers at all tax-paying levels rise suggesting better compliance. Only lowest slabs declines, but that merely reflects increase in initial deduction.

(This article has been compiled from the tweet thread posted by @sanjeevsanyal on October 26, 2023, with minor edits to improve readability and conform to HinduPost style guide)