The Nature of Indian Inequality Increase After Liberalization (Report‪)‬

Abstract This paper looks at the implications of the liberalization process for the magnitude and nature of inequality in India. It is seen that liberalization has contributed to an accentuation of intra-state rural and urban inequalities. This accentuation did not start immediately after the liberalization process but around 1999, eight years after what is formally acknowledged as the start of the liberalization process in India. Surprisingly, there was no further accentuation of the high urban biases that characterized India even before liberalization. However, the gaps among the poorest and the richer states did increase with liberalization. A positive development though was that states in the upper half of the inter-state income distribution did come closer. Another important finding of this paper is that the impact of liberalization on consumption inequality overstates inequality in the income space for India as liberalization has increased the marginal propensities to consume of rich states and rich individuals. Thus, while liberalization has led to acceleration in the increase in inequality of consumption expenditure, the opposite is true of income.