Income inequality in India at highest level since 1922: Economists Piketty and Chancel

Renowned economists Lucas Chancel and Thomas Piketty have claimed that India is now seeing its highest income inequality since 1922 - the year the Income Tax Act was passed.

In their report titled, "Indian income inequality, 1922-2014, from British Raj to Billionaire Raj?", they state that the top 1 percent of the income earners contribute 22 percent of the total economy's income as against the earlier 6 percent in the early 1980s period.

Income inequality is defined as the tax amount being paid by the top 1 percent of the highest income earners, or 'billionaires'.

The report was written after conducting household surveys and tracking national accounts. The inequality trend in the report has been captured for the period between 1922 and 2014.

The authors observed that the top 1 percent of the billionaires accounted for 29 percent of the economy's growth, out of which the 0.1 percent of the 1 percent accounted for 12 percent.

According to the report, the bottom 50 percent, which accounted for 28 percent of economic growth in the 1951-1980 period, now accounts for only 11 percent of growth.

The report says, "the trend was reversed in the mid-1980s, when pro-business, market deregulation policies were implemented. The share of fiscal held of the top 1% doubled from approximately 5% to 10% in 2000."

The income tax levied on individuals holds a major share in the government revenue and the economy's Gross Domestic Product (GDP) growth.

The fact that billionaires are now contributing a major chunk of the economy's growth suggests that India is turning towards a trickle-down like growth.

Trickle-down economics, one of the most debatable theories of the subject, suggests that growth will trickle down from the billionaires to the poorest sections of the economy. This means that if the rich keep progressing, resulting in an overall growth of the economy, the bottom chunk of the population - middle-income earners and low-income earners - will benefit.

Trickle-up economics is the opposite of the trickle-down theory, where the economy pulls up the economy by first looking after the poorer sections of the economy resulting in an overall growth.

The two theories fired up a debate in 2011, where Economist Amartya Sen was for trickle-up theory and Economist Jagdish Bhagwati supported the trickle-down theory.

The report suggests that India can promote more inclusive growth, thus suggesting more of a trickle-up like growth. Inclusive growth is when the economy is creating employment and reducing poverty.

Other suggestions pointed out by the authors is that there should be "more democratic transparency" so that the recorded tax statistics are available to concerned parties. The concerned parties will then be able to track long term evolution in inequality, which can later guide the economy to take the necessary steps and then have an informed debate on such issues.