World Inequality Report 2018

In 2016, the share of the top 10 per cent of earners in their country’s income was 37 per cent in Europe, 41 per cent in China, 46 per cent in Russia, 47 per cent in US and Canada, and around 55 per cent in sub-Saharan Africa, Brazil and India. In the Middle East, the world’s most unequal region according to the report’s estimates, the top 10 per cent earners captured 61 per cent of the national income.

The share of the world’s top 1 per cent rose from about 16 per cent of global income in 1980 to more than 22 per cent in 2007, on the eve of the global financial crisis. It came down only slightly to 20.4 per cent in 2016.

Wealth is substantially more concentrated than income. In China, Europe and the United States, the top 10 per cent owned more than 70 per cent of the total wealth and the bottom 50 per cent owned less than 2 per cent, while the middle 40 per cent (‘the global wealth middle class’) owned less than 30 per cent. 

In India, nationalisation, strong market regulation and high tax progressivity, from Independence to the late 1970s, constrained incomes. Between 1965 and 1973, top marginal income tax rates rose from 27 per cent to almost 98 per cent. The impact on income inequality was substantial, as the top 1 per cent’s share decreased from 21 per cent before the Second World War to approximately 10-12 per cent in the 1950s and 1960s and fell further to 6 per cent in the early 1980s.

In 1983, the share of India’s national income accruing to its top earners was the lowest since the compliation of tax records began in 1922 – the top 1 per cent captured approximately 6 per cent of the national income; the top 10 per cent earned 30 per cent of the national income; the bottom 50 per cent earned approximately 24 per cent of the national income; and the middle 40 per cent, just over 46 per cent. 

Thereafter, the income share of the top 10 per cent in India grew. From 30 per cent in 1983 it went to 34 per cent by 1990. The shares of both, the middle 40 per cent and bottom 50 per cent, fell by 2 percentage points to around 44 per cent and 22 per cent, respectively.

The economic reforms implemented in India from 1991-2000 placed the promotion of the private sector at the heart of economic policies through denationalisation, disinvestment of the public sector, and deregulation. This skewed the economy substantially in favour of capital over labour.

These reforms were accompanied by a dramatic rise in Indian income inequality by 2000. The top 10 per cent had increased its share of national income to 40 per cent, roughly the same as that of the middle 40 per cent. And the share of the bottom 50 per cent had fallen to around 20 per cent. 

These pro-market reforms were prolonged after 2000, and by 2014, the richest 10 per cent of the adult population earned around 56 per cent of  national income. This left the middle 40 per cent with 32 per cent of total income. The share of the bottom 50 per cent languished at just over 16 per cent.

The income share of India’s top 1 per cent rose from approximately 6 per cent in 1982–1983 to above 10 per cent a decade after, then to 15 per cent by 2000, and further still to around 23 per cent by 2014.

By 2014, the national income share of the bottom 50 per cent (approximately 390 million adults) was just two-thirds of the share of the top 1 per cent (7.8 million).

An even greater increase in the share of national income was experienced by the top 0.1 per cent and top 0.01 per cent of earners, whose shares grew from 2 per cent and 0.5 per cent in 1983 to almost 10 per cent and 5 per cent by 2014. In other words, their shares grew fivefold and tenfold, respectively.

The annual real incomes of the bottom 50 per cent grew at a faster rate than the countrywide average during the 1960s and 1970s, when socialist central planning dominated the Indian economy. Indeed, they saw a notably higher pace of growth than that experienced by those in the top 10 per cent and top 1 per cent of earners. However, this dynamic changed dramatically during the 1980s and has remained as such ever since.

During the 2000s, the annual real income growth of the top 1 per cent was close to 8.5 per cent, followed by the top 10 per cent at around 7 per cent. The same figure was less than 2.5 per cent for the bottom 50 per cent. India’s countrywide average annual income growth was 4.5 per cent over the decade.