Context:
A paper studying national accounts and sampling asset disclosures by Lok Sabha MPs found rich Indians are likely under-reporting their income, raising the possibility that income inequality in India is starker than previous studies may have indicated. The paper by Delhi School of Economics director Ram Singh finds that “the wealthier a household is, the smaller the income it reports relative to its wealth”.
Key Findings
- Inverse Relationship Between Wealth and Reported Income
- The study reveals a systematic under-reporting of income among India’s affluent households.
- For every 1% rise in wealth, there’s an estimated 0.6% drop in the reported income-to-wealth ratio.
- Disparities Amplify Among the Ultra-Rich
- India’s richest households (e.g., those listed in Forbes 2021) report incomes as low as 1/12th of their total wealth.
- This raises strong indicators of income concealment to minimize tax liabilities.
- Asset Type Matters
- Equity ownership shows a positive correlation between wealth and income.
- Agricultural land and commercial property ownership show anomalous trends — with declining income-wealth ratios, despite these typically yielding higher returns.
- Points to potential under-reporting of rental and farm incomes and exploitation of agriculture income tax exemptions.
Taxation and Policy Implications
- The findings expose a regressive tax regime in India:
- As individual wealth rises, effective income tax rates decline.
- Calls attention to structural tax loopholes, especially around agricultural income and property-based revenue.
Political Disclosures as a Microcosm
- Lok Sabha MP affidavits were examined for cross-verification.
- Wealthy candidates showed similar trends of income under-reporting.
- Notably, candidates with higher vote shares disclosed more accurate income-wealth ratios, suggesting that media and public scrutiny improve financial transparency.
Recommendations
- The study challenges conventional assessments of inequality by highlighting severe under-reporting among the elite.
- Recommends:
- Stronger enforcement of income disclosure norms
- Policy reforms targeting asset-based income streams
- Greater transparency and audits for high-wealth individuals
- Rethinking agricultural income exemptions to curb misuse
India’s real income inequality may be substantially greater than current data suggests. To bridge this gap, policymakers must target systemic income under-reporting and implement robust tax and disclosure frameworks that reflect the nation’s evolving economic realities.
