What is Gini coefficient? Discuss the factors that led to rise in Gini coefficient in country over last few decades.

According to a recent paper written by well-known economists Lucas Chancel and Thomas Piketty, India’s income inequality has been at its highest level since the time when Indian Income Tax Act was introduced in 1922. In the recent time, there has been a wide increase in the income inequality owing to the two prime reasons first being the huge shocks of demonetisation which has hit the economy and second being the impact of GST. After closely observing the previous readings it is estimated that the Gini Coefficient for the country is expected to be near about 0.50, which would be an all-time high rate.
Gini Coefficient is a popularly known as a statistical measure which is used to gauge the income or wealth distribution of a nation’s residents, and is the most commonly used measure of inequality. It can also be used to compare income distribution of a country over time as well. Its value varies anywhere from zero to 1, while on one hand, zero expresses perfect equality, where all values are the same i.e., where everyone has the same income, on the other hand coefficient of 1 reflects the maximal inequality among values i.e., when considering large number of people, only one person has all the income or consumption, while all others have none.
Some of the major factors which led to rise in Gini coefficient in country are-

• Age is one of the important factor which plays a vital role in the income disparity. It is seen that Gini coefficients varies inversely with the median age of the population meaning that the older populations are less unequal (i.e, having a lower Gini) than younger ones.
• High GDP growth and the percentage of the population engaged in the agriculture sector are negatively related to the Gini Coefficient meaning that countries with higher economic growth or a greater the share of its workers engaged in agriculture have less inequality.
• Some environmental forces and normal human tendency also plays an important role in income disparity which cannot be easily done away with short term policies.

Topics: GS-III: Indian Economy Issues Relating to Planning