Understanding India’s Consumption Inequality: Reconciling World Bank Findings, HCES Methodology, and the Ongoing Debate on Data Credibility

Recently, the World Bank published its findings on household consumption patterns, which were derived from decades of rigorous international survey work. The findings painted a nuanced picture of economic progress and persistent challenges in poverty management. At the core of its methodology are massive national household consumption or expenditure surveys, which sample thousands to 1 lakh households in each member country meticulously, excluding institutional and transient populations to focus on “ordinary households”.

Illustration by The Geostrata

In the latest World Bank analysis (2025), India’s Gini Index is 25.5, making it the 4th most equal country in terms of consumption globally.

The article will try to explore the ongoing debate regarding indicators adopted by the World Bank; why measures like consumption instead of income have led to confusion and debate, especially when the statistics diverge sharply.

A CLOSER EXAMINATION OF WORLD BANK METHODOLOGY

The Household Consumption Expenditure Survey (HCES) is the primary tool for gathering information on household spending and consumption. Data from here is important for setting poverty lines, understanding living standards, calculating consumer price indices, and influencing major economic and social policies.

Let's understand it through an example of India:- The latest HCES method regarding data in India (2023-24) included 2,61,953 households, in which 1,54,357 were from rural areas and 1,07,596 were from urban areas.

The sample is also divided by regions and socio-economic groups in order to provide better coverage. Few places, like inaccessible villages, institutional populations, and a small number of remote areas, are not part of the survey. Various data collection instruments are used. 

First, four primary survey domains are used:

Food Items, Consumables and Services, Durable Goods and Household Characteristics, and Demographic Details. 

Second, sampling method: A two-staged sampling method design is used. First-stage units included villages or urban blocks chosen randomly, and the ultimate stage units included households (selected randomly within the blocks and villages). Then, to improve accuracy, different recall periods are used for various categories (weekly, monthly, annual, as needed). All reported expenditures are annualized and aligned with common international reference points.

They are adjusted for inflation and mapped to global classification systems (COICOP), enabling various comparisons across countries and over time.

The World Bank’s approach aims to emphasise “shared prosperity”, not only how economies grow but also how this growth improves everyone’s quality of life, especially for those who are worse off. This method offers a clearer view of real welfare and social progress, rather than just the fluctuations of unstable incomes or the uneven distribution of development. The World Bank’s work draws a sharp line between consumption and income inequality: India’s consumption gap has narrowed, but income (especially wealth) inequality remains much higher, as confirmed by many independent sources.

CONSUMPTION VS WEALTH: THE REAL DIVIDE

The World Bank’s approach to measuring inequality through “household consumption” is different from most traditional measures, which focus on income or wealth data. Consumption inequality is usually lower than income inequality. Many households, especially those with lower incomes, try to maintain their consumption levels, even when incomes are uncertain or seasonal.

Various things like savings, borrowing, or relying on informal support keep basic living standards intact. Unlike income, which can vary due to various events like job loss or investment gains, consumption shows an ongoing picture of material well-being – indicating how much people eat, wear, and use day by day.

While income-based indices typically categorise many countries as having “moderately low” to “moderate” inequality, even if income measures suggest otherwise. India’s income inequality is strikingly different from the low consumption inequality figures reported by the World Bank.

India’s income Gini Index is around 61, showing major disparities wherein the wealthiest earn substantially more than the poorest, where consumption-based Gini Index is 25.5.

This difference exists because consumption measures – focusing on what people actually spend – tend to smooth out the volatility in income, especially in the informal sector, where government aid and informal support help maintain consumption.

DECODING THE CONTRADICTIONS AND WAY AHEAD

This discussion about India’s seemingly low consumption inequality compared to its higher income inequality comes from key differences in what these measures show and the realities of life in India. The major differences between consumption inequality and income-wealth inequality have been discussed. Consumption surveys and wealthiest groups because their spending patterns are harder to capture, leading to a miscalculation of consumption inequality. 

Consumption metrics are important for assessing immediate living standards (because each survey round only captures what's happening at the moment of collection of data, which is influenced by short-term factors like changing food prices, subsidies, seasonal earnings, etc) and the effectiveness of poverty reduction efforts, whereas income inequality reveals deeper economic divides and social stratification, affecting long-term opportunity and fairness. The gap drives policymakers and researchers to take a broad view that combines data on consumption, income, and wealth. 

The World Bank numbers suggest a relatively even distribution of household consumption, pointing to significant progress in living standards and decreasing poverty.

For example, In India, the percentage of people surviving on less than $2.5 a day (previous international extreme poverty line) – reduced drastically from 16.2% in 2011-12 to  2.3% in 2022-23.

Even with the World Bank’s new poverty line of $3.00 per day, the poverty rate climbs to only 5.3%, depicting significant efforts to reduce poverty. India’s national statistics show a profile of deep existing income inequality, even as the country has made significant reductions in poverty. According to the People Research on India’s Consumer Economy (PRICE), based on household income surveys, India's income Gini Coefficient was 0.410 in 2022-23. Wealth concentration in India is more extreme and uneven.

By 2022-23, the top 1% of Indians controlled 22.6% of total national earnings and 40.1% of national wealth ( World Inequality Lab). The top 10% of earners took home about 57.7% of India's national income, while the bottom 50% received only 15%. Oxfam International and other sources estimated that the top 10% own 77% of India’s wealth, while the bottom 50% possess just 3%. The Urban-Rural gap remains unpronounced. The PRICE report notes rural India’s income Gini coefficient was 0.405, and urban was 0.382 in 2023, figures that have remained flat or increased since the 1950s. 

Thus, we can conclude that consumption data may often overlook the elite’s spending habits and understate differences among the richest. Income surveys show a different picture of the concentration of advantage. Relying only on consumption inequality can create a false narrative of social progress. It emphasizes short-term progress in living standards, like those from subsidies, redistribution, or household adjustments. However, it excludes long-term barriers to mobility and deep-rooted social divides based on income and wealth differences.

Experts pointed out that both are equally important measures for future opportunities and policy decisions. Consumption shows immediate well-being, while income and wealth measures reveal the underlying distribution of economic power and help identify opportunity gaps. 

Reducing inequality, especially for the bottom 50% population of India needs significant policy formulation and execution to achieve tangible outcomes.

Firstly, the minimum wage should be increased to raise the earnings of low-income workers. This can directly increase income for the lower half of the population without negatively impacting employment or economic growth. Secondly, to ensure income, job opportunities, and economic security for the working class, the government can expand and improve the Earned Income Tax Credit (EITC) or similar wage subsidies.

Thirdly, investment in education and skill development from childhood has no substitute. Because education gaps contribute to ongoing inequality. Ensuring not just equal opportunity (universal access to education) but also equitable opportunity (taking affirmative action by equitable distribution of extra social support and resources to disadvantaged sections). Better access to quality education fosters upward mobility.

The government should encourage social protection and universal basic services like healthcare, housing, and unemployment benefits. These safeguards can protect vulnerable groups from economic shocks and improve their living conditions. 

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BY RITIKA

TEAM GEOSTRATA

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