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The rupee today rose 34 paise to 69.43 against the US dollar. Photo: Mint
The rupee today rose 34 paise to 69.43 against the US dollar. Photo: Mint

Who is more unequal: China or India?

Using income and consumption to measure inequality gives different results. So, researchers set out to answer the question through a “hybrid” model

In most societies, including India, inequality in incomes is typically greater than inequality in expenditure patterns. But China presents a peculiar case: both income and expenditure have similar distribution among its population, shows a recent paper.

Using national survey data from India and China, researchers Carlos Gradín and Binbin Wu show that China’s income inequality is just 2% higher than its expenditure inequality, but this difference is 38% for India.

This defies usual logic. In general, most households do not cut spending during low-income periods. They either have savings to tap into, or can hope for future earnings. This means households are expected to have more inequality in incomes than in spending.

Given China’s trend, the choice of whether to use income or consumption to measure inequality becomes controversial. China's expenditure inequality is higher than India's, but its income inequality is lower. Which of the two rival countries, then, is more unequal?

To answer the question, the authors adopt “hybrid measures"—a combination of both methods.

Hybrid measures show a higher level of inequality in India than in China. This shows how dominant income inequality is in India. The authors find that the richest 5% in India have 29% of the country’s income, but this share is 19% in China.

These results reflect underlying differences between the two societies. China has a bigger urban-rural income gap, but overall, greater urbanization than India has an equalizing effect. Smaller households, especially in rural areas, have a similar effect.

Educational disparity worsens income inequality in India. Families whose heads went to college earn more than three times than those whose heads got just primary education.

Surprisingly, the higher level of industrialisation in China turns out to have a relatively smaller impact on its income inequality, the authors find.

Also read: Income and consumption inequality in China: A comparative approach with India

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