DP4632 | Top Indian Incomes, 1922-2000

Publication Date

23/09/2004

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Abstract

This Paper presents data on the evolution of top incomes and wages from 1922 to 2000 in India using individual tax returns data. Our data shows that the shares of the top 0.01%, the top 0.1% and the top 1% in total income shrank substantially from the 1950s until the early-to-mid 1980s but then went back up again, so that today these shares are only slightly below what they were in the 1920s-1930s. We argue that this U-shaped pattern is broadly consistent with the evolution of economic policy in India: The period from the 1950s to the early-to-mid 1980s was also the period of ?socialist? policies in India, while the subsequent period, starting with the rise of Rajiv Gandhi, saw a gradual shift towards more pro-business policies. Although the initial share of this group was small, the fact that the rich were getting richer had a non-trivial impact on the overall income distribution. In particular, its impact is not large enough to fully explain the gap observed during the 1990s between average consumption growth in survey-based NSS data and the National accounts based NAS data, but is sufficiently large to explain a non-negligible part of it (between 20% and 40%).