Inequality Adjusted Per Capita Income of Indian States in 2004-05 and 2011-12

Abstract

As a measure of social well-being, per capita real income has a serious limitation as it reflects only the average level of income in the society disregarding whether the total income is distributed with high or low inequality among the members of the society. To address this limitation, present paper has made an attempt to calculate an inequality adjusted per capita income in India, which may be a better reflector of general wellbeing in the society. The basic methodology for calculating the inequality adjusted per capita income has been developed in line with the UNDP’s inequality adjusted human development index. The household income data of India Human Development Survey-I and II enable us to compute the inequality in per capita income in the different states of India for the two years of 2004-05 and 2011-12. For the present exercise, the inequality in per capita incomes has been captured by calculating Atkinson’s measures of inequality of the observed disparities in per capita income in the states. The purpose of the exercise is to see whether ranking of states change dramatically from their ranking by per capita income after the states are penalized because of inequality in their distributions of income. The exercise does not indicate any systematic relation between per capita income and inequality in the states of India. But the fact that some states have been able to achieve high per capita income levels while reducing their inequality implies that it is not necessary to sacrifice equity for higher growth. With adoption of naturally distributing growth patterns, it is possible to achieve higher growth with reduced inequalities.