Why location matters in gauging the precise trends of social and economic inequality

Rajesh Shukla    February 3, 2024

OPINION I The Economic Times

In a growing economy, for every cluster of households that is rising up the income ladder and contributing to economic growth, many get left behind, unable to pull themselves out of financial distress. Until recently, the urban-rural divide has often been considered to be the sole reason for this inequitable growth of prosperity. However, such a simplistic explanation doesn’t cut it anymore. Be it urban or rural India, we need to look at a wide spectrum of locations, spanning the continuum from metro cities to left-behind rural areas, to realistically assess current trends and emerging indicators on the inequality front.

Geographically speaking, there is evidence of vast inequality. Metros, which are home to nearly 8 percent of the population, are far ahead of the left-behind rural (LBR) - that accounts for 34 percent of the population - on a variety of social and economic indicators. The LBR is the bottom half of the rural districts that are mostly located in BIMARU states. The average household income in metros is about four times that of those in LBR. While urban poverty is by no means a minor issue, the greatest concentration of the poor in India is still in remote rural areas. Nearly 53 percent of India’s poor households (annual household income of less than Rs 1.25 lakh) are located in LBR. On the other hand, a much smaller proportion of such households are to be found in metros or boom towns. At the other end of the income spectrum, half of the super-rich (annual household income of more than Rs 2 crore) live in metros whereas there are only 1 percent of super-rich households in LBR.

Location matters. The inequality that exists across location sub-categories is cumulative in nature. On a range of parameters, metros and boom towns are way ahead while LBR areas are the laggards. There is an interesting anomaly in an otherwise regularly downward-sloping gradient of economic performance and service provision. Every indicator falls as one moves along the sub-categories from Metro (over 5 million population) through Boom Town (2-5 million population), Niche City (1-2 million population) to LBR. While inequality is more evident in rural locations, there is however an exception: prosperity and access to services have spiked in Developed Rural (DR) areas. This sub-category (top 25 percent of rural districts) has experienced explosive improvement.

Consider the access to two significant parameters - namely tap water and cooking gas - which are currently regarded as essential amenities for households. Both these are availed by 80 percent and 97 percent of households in metros whereas in LBR the percentages of such households are 56 percent and 67 percent respectively.  In both cases, the poor households in LBR and Emerging Rural (ER, middle 25% rural districts) are exposed to the lowest levels of service provision. The same pattern of inequality is repeated with other kinds of services. Cable/TV access and mobile phone ownership are at the lowest levels within the same districts and income classes. These are also the locations that are at a great distance from hospitals and clinics. Therefore, in multiple ways, these people and these locations continue to be under-served.

When we turn our attention to income-earning capacities, the geography of inequality is again reinforced. Earning a regular salary is an important aspect of financial security and is regarded by some as an identifier of middle-class status. The greater the share of regular salary earners in any social group, the greater its ability to overcome financial instability. PRICE’s ICE 360 survey finds that across income classes, people in LBR are much less likely to have salaried jobs. Those in metros are more than nine times as likely to have economic security through this route compared to those living in LBR. The geography of earning patterns further reinforces the disparities in the provision of services. The worst-off in terms of earnings are, once again, poor and aspirers in both LBR and ER areas.

Calamitous combination of factors. The geography of educational attainment casts an identical shadow. The poor households in LBR, hit by a lack of access to services and poor employment prospects, also are the worst affected in terms of educational achievements. The combination of all these factors makes for a low economic scenario for those living in LBR.

Now let us consider expenditures on food and healthcare. The poor households in rural areas spend more than half of their incomes on food. Those in boom towns and niche cities spend even more on food. It is a myth that the rural poor survive on home production of staples. Most need to earn a cash income to buy the food their families need. The same is true for the bottom half of urban areas. Both need better earning opportunities and better preparation going forward. Also, poor households spend a greater share of their incomes on healthcare compared to the rich in India. Within each location type, the share of income spent on healthcare is highest for the poor. This falls as income increases and is lowest for the rich. For example, the poor and rich in developed rural areas spend 9.1 percent and 2.4 percent of their income on healthcare which is a considerable difference.

The share of income spent on healthcare is greater in rural areas, 5.7 percent in LBR districts as compared to 4.3 percent in metros. Thus, in addition to socio-economic status, location matters. Notably, the numbers reported here relate to out-of-pocket expenditure. When these numbers grow, they become catastrophic, and ruin families financially, resulting in chronic poverty. Such high rates of out-of-pocket expenses are one reason why vulnerability, especially among the bottom of the pyramid households and those in rural areas, is high in India compared to other countries.

As the economy grows, there is a need for government initiatives to be undertaken to ensure that the benefit of this growth becomes accessible to households across different income groups as well as those that are spread out in the more remote urban and rural areas. Transmission of unequal economic and social opportunities has the potential to create social conflict and insecurity which can be avoided with some careful public policy planning.