The Spatial Organization of Consumption Inequality in India: Evidence from Annual Decompositions 2014-2024
Article Sidebar
Main Article Content
Abstract
India's federal redistribution targets state averages. But most consumption inequality in India sits inside states, not between them. This paper measures exactly how much, and whether that split moves over time. We use the Consumer Pyramids Household Survey (CPHS), which includes 16.8 million household-year observations across 28 states from 2014 to 2024. Inequality is measured using the Theil index GE (1). It decomposes without residual into within-state and between-state parts. A nested version separates within-state inequality into rural dispersion, urban dispersion, and rural-urban gaps. The NSS 75th Round validates results. Three results stand out. First: within-state inequality accounts for 79.1 percent of total inequality, averaged over 2014-2024. Between-state differences explain only 20.9 percent. This holds every year — no exceptions across 28 states. Second: the spatial structure barely moves. Its coefficient of variation is 0.043. Total inequality fluctuates by a factor of 3 (CV = 0.133). Demonetization, GST, COVID-19 — none shifted the 79 21 split. Third, rural-urban mean gaps account for only 17.6 percent of within-state inequality. Within-rural and within-urban dispersion each contribute 41.2 percent. Inequality is generated within sectors, not between them. These facts change how India's redistribution problem should be framed. Finance Commission transfers reduce the 21 percent that is interstate. They leave the 79 percent inside states largely untouched. Addressing that requires stronger state-level fiscal tools, expanded urban social protection, and redistribution aimed at households rather than state governments. JEL Codes: D31, D63, H77, O15, R12
Downloads
Article Details
Section
How to Cite
References
Abraham, R., & Shrivastava, A. (2022). How comparable are India's labour market surveys? The Indian Journal of Labour Economics, 65(2), 321–346. DOI: https://doi.org/10.1007/s41027-022-00381-x
Agarwal, A., Kapur, D., & Tewari, S. (2021). Migration and labour market integration in India. World Development, 142, 105454. DOI: https://doi.org/10.1016/j.worlddev.2021.105454
Lessmann, C., & Seidel, A. (2017). Regional inequality, convergence, and its determinants – a view from outer space. European Economic Review, 92, 165–189. DOI: https://doi.org/10.1016/j.euroecorev.2017.01.005. DOI: https://doi.org/10.1007/s001680200108
Chancel, L., Piketty, T., Saez, E., & Zucman, G. (2022). World Inequality Report 2022. World Inequality Lab / Harvard University Press. https://wir2022.wid.world/. DOI: https://doi.org/10.4159/9780674287013
Cerqueira, P. A., & Martins, R. (2023). Measuring the determinants of income convergence and divergence across Brazilian states. Regional Studies, 57(4), 697–710.
DOI:https://doi.org/10.1080/00343404.2022.2084215. DOI: https://doi.org/10.1007/s001680000038
Bharti, N. K., Chancel, L., Piketty, T., & Somanchi, A. (2024). Income and wealth inequality in India, 1922–2023: The rise of the Billionaire Raj. World Inequality Lab Working Paper 2024/09. URL: https://wid.world/document/income-and-wealth-inequality-in-india-1922-2023-the-rise-of-the-billionaire-raj/
Blanchet, T., Saez, E., & Zucman, G. (2022). Real-time inequality. AEA Papers and Proceedings, 112, 1–6. DOI: https://doi.org/10.1257/pandp.20221037
Boadway, R., & Shah, A. (2007). Intergovernmental fiscal transfers: Principles and practice. World Bank Publications.
URL: https://openknowledge.worldbank.org/handle/10986/7171
Boadway, R., & Shah, A. (2009). Fiscal federalism: Principles and practice of multiorder governance. Cambridge University Press. DOI: https://doi.org/10.1017/CBO9780511626883
Centre for Monitoring Indian Economy. (2024). Consumer Pyramids Household Survey (CPHS).
URL: https://consumerpyramidsdx.cmie.com/
Chakraborty, P. (2015). Financing local governments in India. Economic and Political Weekly, 50(40), 52–60.
URL: https://www.epw.in/journal/2015/40/special-articles/financing-local-governments-india.html
Chamarbagwala, R. (2010). Regional returns to education, child labour and schooling in India. Journal of Development Economics, 92(2), 178–192. DOI: https://doi.org/10.1016/j.jdeveco.2009.03.002
Chancel, L., & Piketty, T. (2019). Indian income inequality, 1922–2015. Review of Income and Wealth, 65(S1), S33–S62. DOI: https://doi.org/10.1111/roiw.12439
Deaton, A., & Drèze, J. (2002). Poverty and inequality in India: A re-examination. Economic and Political Weekly, 37(36), 3729–3748. URL: https://www.epw.in/journal/2002/36/special-articles/poverty-and-inequality-india-re-examination.html
Drèze, J., & Somanchi, A. (2024). Weighty evidence? Poverty estimation with missing data. Studies in Microeconomics, 12(1), 93–106. DOI: https://doi.org/10.1177/23210222241238846
Ferreira, F. H. G., Chen, S., & Ravallion, M. (2013). Global inequality dynamics: New findings from WDI. American Economic Review: Papers & Proceedings, 103(3), 1–7. DOI: https://doi.org/10.1257/aer.103.3.1
Finance Commission of India. (2021). Report of the Fifteenth Finance Commission (2021–26). Government of India. DOI: https://fincomindia.nic.in/
Ghani, E., Goswami, A. G., & Kerr, W. R. (2016). Is India's manufacturing sector moving away from cities? Journal of Economic Geography, 16(4), 917–952. DOI: https://doi.org/10.1093/jeg/lbv025
Government of India. (2024). Household Consumption Expenditure Survey 2022–23. Ministry of Statistics and Programme Implementation. URL: https://mospi.gov.in/household-consumption-expenditure-survey-2022-23
Hill, H., Resosudarmo, B. P., & Vidyattama, Y. (2008). Indonesia's changing economic geography. Bulletin of Indonesian Economic Studies, 44(3), 407–435. DOI: https://doi.org/10.1080/00074910802395932
Himanshu, Lanjouw, P., Murgai, R., & Stern, N. (2018). Non-farm diversification and rural poverty decline. Economic and Political Weekly, 53(21), 35–43.
Iamsiraroj, S. (2021). Regional income convergence in India. Journal of Asian Economics, 74, 101312.
DOI: https://doi.org/10.1016/j.asieco.2020.101312
International Labour Organization. (2021). World Social Protection Report 2020–22: Social protection at the crossroads—in pursuit of a better future. ILO. URL: https://www.ilo.org/wcmsp5/groups/public/---dgreports/---dcomm/documents/publication/wcms_817572.pdf
Kanbur, R., & Venables, A. J. (Eds.). (2005). Spatial inequality and development. Oxford University Press. DOI: https://doi.org/10.1093/0199278636.001.0001
Kanbur, R., & Zhang, X. (2005). Fifty years of regional inequality in China. Review of Development Economics, 9(1), 87–106. DOI: https://doi.org/10.1111/j.1467-9361.2005.00265.x
Kanbur, R., Wang, S., & Zhang, X. (2017). The great Chinese inequality turnaround. Journal of Comparative Economics, 45(4), 844–869. DOI: https://doi.org/10.1016/j.jce.2017.04.003
Kundu, A. (2011). Urbanisation and inequalities in a globalising world: Interrogating the processes of exclusionary growth. Economic and Political Weekly, 46(10), 55–59. URL: https://www.epw.in/journal/2011/10/special-articles/urbanisation-and-inequalities-globalising-world.html
Lall, S. V., Henderson, J. V., & Venables, A. J. (2017). Africa's cities: Opening doors to the world. World Bank. DOI https://doi.org/10.1596/978-1-4648-1044-2
Lockwood, B. (2006). The political economy of decentralization. In E. Ahmad & G. Brosio (Eds.), Handbook of fiscal federalism (pp. 33–60). Edward Elgar. DOI: https://doi.org/10.4337/9781847201515
Mohanty, P. K., Misra, B. M., Goyal, R., & Ballo, P. S. (2007). Municipal finance in India: An assessment (Development Research Group Study No. 26). Reserve Bank of India.
URL: https://rbidocs.rbi.org.in/rdocs/Publications/PDFs/73398.pdf
Munshi, K., & Rosenzweig, M. (2016). Networks and misallocation: Insurance, migration, and the rural–urban wage gap. American Economic Review, 106(1), 46–98. DOI: https://doi.org/10.1257/aer.20131365
Musgrave, R. A. (1959). The theory of public finance: A study in public economy. McGraw-Hill. [Foundational text; no DOI available]
Oates, W. E. (1972). Fiscal federalism. Harcourt Brace Jovanovich. [Foundational text; no DOI available]
Rao, M. G., & Singh, N. (2005). The political economy of India's fiscal federal system and its reform. Oxford University Press. DOI: https://doi.org/10.1093/0195665988.001.0001
Ravallion, M. (2014). The economics of poverty: History, measurement, and policy. Oxford University Press. DOI: https://doi.org/10.1093/acprof:oso/9780190212711.001.0001
Reserve Bank of India. (2023). State finances: A study of budgets 2022–23. RBI. URL:
Rodden, J. (2003). Reviving Leviathan: Fiscal federalism and the growth of government. International Organization, 57(4), 695–729. DOI: https://doi.org/10.1017/S0020818303574021
Rodden, J. (2019). Why cities lose: The deep roots of the urban-rural political divide. Basic Books.
URL: https://www.basicbooks.com/titles/jonathan-a-rodden/why-cities-lose/9781541644250/
Saha, J., & Iqubal, Z. (2024). Recent
trends in regional disparity in India:
A state-level club convergence study using night-time light data. Environment and Planning B: Urban Analytics and City Science. DOI: https://doi.org/10.1177/23998083241302128
Schluter, C., & Trede, M. (2024). Income mobility and the dynamics of earnings inequality in Germany. Journal of Economic Geography, 24(1), 1–28. DOI: https://doi.org/10.1093/jeg/lbad033
Shorrocks, A. F. (1980). The class of additively decomposable inequality measures. Econometrica, 48(3), 613–625.
DOI: https://doi.org/10.2307/1913126
Shorrocks, A. F., & Wan, G. (2005). Spatial decomposition of inequality. Journal of Economic Geography, 5(1), 59–81. DOI: https://doi.org/10.1093/jeg/lbh056
Tiwari, C., Bhattacharjee, S., & Chakrabarti, D. (2020). Investigating regional inequalities in India: Are Indian districts converging? Journal of International Development, 32(5), 684–716.
DOI: https://doi.org/10.1002/jid.3469
World Bank. (2009). World Development Report 2009: Reshaping economic geography. World Bank. DOI: https://doi.org/10.1596/978-0-8213-7607-2
World Bank. (2016). World Development Report 2016: Digital dividends. World Bank. DOI: https://doi.org/10.1596/978-1-4648-0671-1