Income Inequality Declines, Challenges K-Shaped Recovery Claims: SBI Research

Income inequality in India has diminished owing to a broadened tax base and a shift of taxpayers from lower to higher income brackets, stated the Economic Research Department of the State Bank of India in a recent report. The report dismissed the notion of a K-shaped recovery as biased and poorly concocted, pointing to indicators such as the growth of small firms into larger entities and changing consumption patterns exemplified by the surge in food orders through platforms like Zomato as signs of decreasing inequality.

According to the report, around 36.3 per cent of taxpayers have moved up from lower income to higher income brackets, resulting in a 21.3 per cent increase in income. The contribution to income by the top 2.5 per cent of taxpayers decreased from 2.81 per cent in FY14 to 2.28 per cent in FY21. Moreover, the report highlighted a 295 per cent rise in income tax returns filed by individuals earning between Rs 5 lakh and Rs 10 lakh from the assessment year 2013–14 to 2021–22, signifying a positive trend toward higher income brackets.

Regarding the share of top taxpayers in income, the report revealed that although the number of individuals earning over Rs 100 crore increased from 23 in FY14 to 136 in FY21, their combined income share declined from 1.64 per cent to 0.77 per cent.

The report also noted the transition of 19.5 per cent of small firms into larger entities through MSME value chain integration. Additionally, it highlighted an increase of Rs 8.2 lakh crore in consumption among the bottom 90 per cent of the population post-pandemic.

The report emphasised a trend of income convergence from both the top and bottom income classes towards the middle, indicating growth across all income brackets while reducing the skewness.

Regarding the decline in two-wheeler sales, the report challenged the assumption that this reflected rural economic distress, attributing it instead to a preference shift towards four-wheelers. It suggested a move towards physical assets like real estate and a shift in some buyers towards used or entry-level cars post-pandemic.

Highlighting gender representation in tax filers, the report mentioned that female tax filers constituted approximately 15 per cent of individual tax filers, with certain states showing higher participation that requires further examination for broader inclusivity.

Discussing consumption patterns, the report highlighted that 47 per cent of the population lives below USD 3.65 per day, with only 8.5 per cent of the population contributing to 61 per cent of the private final consumption expenditure.

Lastly, the report pointed to consumption figures from platforms like Zomato as evidence of rising income groups, showcasing around 0.44 crore active users from semi-urban regions.

The number of ITRs filed by individuals earning between Rs 10 lakh and Rs 25 lakh increased by 291 per cent, while the total number of persons filing income tax rose to 7.4 crore in AY23 from 7 crore in AY22. The report also highlighted shifts of individuals across income groups, with many moving upwards from lower income brackets.