• Income distribution refers to the spread of country’s

income percentage throughout its population and yields

a ratio between income of the richest in the county and
the poorest. When income is not proportionally
distributed , it is called income inequality.

• A great portion of India’s population is a victim of rising

monetary deficits, most of which has crossed well under
the poverty threshold. While the top 10% of India’s
population enjoys 31.1% of the country’s income, the
lowest 10% suffers with merely 3.6%.
Vertical Inequality
• It refers to the difference between the
rich and the poor.
Horizontal Inequality
• It refers to the differences in income
among people from similar background,
status, qualifications, etc.
• Unemployment:
The main reason for low level of income of the majority of
Indian people is unemployment and underemployment and
the consequent low productivity of labour. Since sufficient
employment could not be created through the process of
planned economic development, it was not possible to
increase the income levels of most people.
• Inflation:
Another cause of inequality is inflation. During inflation, few
profit earners gain and most wage earners lose. Since wages
have lagged behind prices, profits have increased. This has
created more and more inequality. Moreover, during inflation,
money income increases no doubt but real income falls. And
this leads to a fall in the standard of living of the poor people
since their purchasing power falls.
• Tax Evasion:
In India, the personal income tax rates are very
high. High tax rates encourage evasion and
avoidance and give birth to a parallel economy.
Here, the unofficial economy is as strong as the
official economy. High tax rates are responsible
for inequality in the distribution of income and
wealth. This is due to undue concentration of
incomes in a few hands caused by large scale tax
evasion.
• Regressive Tax:
The indirect taxes give maximum revenue to the
government. But they are regressive in nature.
Such taxes have also created more and more
inequality over the years due to growing
dependence of the Government on such taxes.
 Gini Index

Hoover Index

Theil Index

Basically, Gini Index or Gini Coefficient is best model

to measure Income Inequality.
• Gini index (also known as Gini coefficient or
Gini ratio) is a measure of statistical dispersion
developed by Corrado Gini.
• It measures the inequality among values of a
frequency distribution.
• It is the most common used model to measure
inequality of income or wealth.
• It is always a number between 0 to 1.
• If it is 0, it represents perfectly equal income, where
all the households have same income.
• If it is 1, it represents perfectly unequal income,
where one family has all the income while other has
none.
• Payment of Bonus:
Firstly, the payment of bonus (called annual
payment) has been made compulsory in every
industry.

• Ceiling on Land Holding:

Secondly, a ceiling on landholdings has been imposed
in the rural areas. Each household is allowed to hold
a certain amount of land. Any surplus above this is
taken over by the Government and is redistributed
among the landless workers and marginal farmers.
• Self-Employment Projects:
Moreover, various self-
employment projects have been
taken both in rural and urban
areas to solve the growing
unemployment problem.

• Transfer Payments:
Finally, various types of transfer
payments (such as unemploy-
ment, compensation, soft loans,
pensions to freedom fighters,
concessions to senior citizens,
etc.) have been made for
improving the welfare of certain
weaker sections of the society.