Why in News?

• According to the Economic Research Department of the State Bank of India (SBI), income inequality has declined in India with a higher tax base and a shift in taxpayers from lower income to higher income tax bracket.
• Terming the claims of K-shaped recovery as “prejudiced” and “ill-concocted”, the report also cited the transition of small firms into larger firms and consumption trends being indicative of “vanishing inequality”.

What’s in Today’s Article?

• What is K-Shaped Recovery?
• Income inequality in India: Highlights of the UNDP Report
• Highlights of the SBI Report
• Conclusion Drawn by the SBI Report

What is K-Shaped Recovery?

• A K-shaped recovery occurs when, following a recession, different parts of the economy recover at different rates, times, or magnitudes.
• Because the path of different parts of the economy when charted together may diverge, resembling the two arms of the Roman letter “K”, this type of recovery is called K-shaped.
• A K-shaped recovery leads to changes in the structure of the economy or the broader society as economic outcomes and relations are fundamentally changed before and after the recession.
• Causes of a K-shaped recovery:
  • A K-shaped recovery can reflect creative destruction in an economy, which occurs when new technologies and industries replace older ones over the course of a recession.
  • It can reflect the public policy response to a recession in terms of monetary and fiscal policy, which can benefit some segments of the economy more than others – leading to income inequality.
  • It can simply reflect the differential impact that the initial recession had on different parts of the economy.

Income inequality in India: Highlights of the UNDP Report:

• According to the report (“Making our Future: New Directions for Human Development in Asia and the Pacific”), amidst rapid growth but persistent disparity, the income distribution has become more skewed in India.
• The top 10% of the population get 57% of national income and the top 1% get 22% – one of the most unequal income distributions.
• There are similar gaps in wealth: the top 10% of the population controls 65% of the nation’s total wealth.
• There is growing evidence of a strong rise in wealth inequality, mainly in the post-2000 period.

Highlights of the SBI Report:

• Between the assessment years 2013–14 and 2021–22, about 36.3% of taxpayers have moved from lower income to higher income tax bracket resulting in 21.3% additional income.
• The income-tax returns (ITRs) filed by individual taxpayers earning between Rs 5 – 10 lakh, climbed by 295%, showing a positive trend of migration to a higher range of gross total income.
  • The number of ITRs filed by people earning between Rs 10 – 25 lakh increased by 291% while the total number of persons filing income tax increased to 7.4 crore in AY23 from 7 crore in AY22.
  • Female tax filers are around 15%of the individual tax filers with certain states such as Kerala, Tamil Nadu, Punjab and West Bengal having higher share of female tax filers.
• On the share of top taxpayers in income, the report said that in FY14, the combined income of 23 individuals with income of more than Rs 100 crore was 1.64% of the total income of FY14.
  • Even though the number of such individuals increased to 136 in FY21, the share of their combined income fell to 0.77%.
• Also, 19.5% of small firms have transitioned into larger firms through MSME value chain integration and consumption of the bottom 90% of the population has increased by Rs 8.2 lakh crore post pandemic.
  • It also cited consumption numbers from food ordering platforms such as Zomato, calling it as the perfect example of case study to refute the claim that people are facing distress.
• The report also talks about the decline in sales of two-wheelers, and people are substituting two-wheelers with four-wheelers.

Conclusion Drawn by the SBI Report:

• Growth is seen in all income classes but its skewness has been decreasing with convergence of income towards the middle from both top as well as bottom.
• The report said the claim of K-shaped recovery seems flawed, prejudiced, ill-concocted and fanning interests of select quarters to whom India’s remarkable ascendance is quite unpalatable.
• Income inequality captured through the Gini coefficient (one of the most widely used measures of income inequality) of taxable income has declined significantly from 0.472 to 0.402 during FY14-FY22.