Gini coefficient

Also called: Gini index · Topic: Poverty and Inequality: Measurement and Policy · NCERT: Beyond NCERT

Meaning

The Gini coefficient (also called the Gini index) is a single number that shows how unequally income, consumption or wealth is shared in a society. It runs from 0 (perfect equality: everyone has the same) to 1 (perfect inequality: one person has everything).

Formula: G = A / (A + B), where:

• A = the area between the 45° line of perfect equality and the Lorenz curve
• B = the area under the Lorenz curve

The whole triangle under the 45° line has area ½, so A + B = ½. This gives G = 2A = 1 − 2B.

It matters because the World Bank, MoSPI and most countries use it as the main single-number measure of inequality. India's recent "among the most equal countries" headline is a Gini figure.

Explanation

How it works: built from the Lorenz curve

• Start with the Lorenz curve (Max Lorenz, 1905). This graph shows how income is spread across the population.
• x-axis: the cumulative share of the population, poorest first.
• y-axis: the cumulative share of income (or consumption or wealth) held by that population.

• The 45° line = perfect equality. On it, the poorest 20% hold 20% of income, the poorest 40% hold 40%, and so on.

• Measure the gap. The more the curve sags below the 45° line, the bigger area A becomes, and the higher the Gini.

• Curve lies on the 45° line → A = 0 → G = 0

• Curve hugs the x-axis and shoots up only at the end → A = ½ → G = 1

• Scale: the Gini is often written on a 0–100 scale. For example, 0.255 is written as 25.5.

• Origin: proposed by Corrado Gini, 1912.

Worked example: same average, very different Gini

Two countries each have 5 citizens and the same average monthly income of ₹10,000 (Class 10 NCERT, Development, Table 1.2).

Country	Incomes (₹)
A	9,500 · 9,800 · 10,000 · 10,200 · 10,500
B	500 · 500 · 500 · 500 · 48,000

• Step 1: find the cumulative income shares. Split the population into 5 strips, each 0.2 wide.
• Country B: 0, 0.01, 0.02, 0.03, 0.04, 1.0

• Country A: 0.19, 0.386, 0.586, 0.79, 1.0

• Step 2: find B (the area under the Lorenz curve) using trapezoids. A trapezoid is a strip with two parallel sides; its area is width × the average of the two heights.

• Country B: 0.2 × [(0+0.01)/2 + (0.01+0.02)/2 + (0.02+0.03)/2 + (0.03+0.04)/2 + (0.04+1.0)/2] = 0.2 × 0.60 = 0.12

• Country A: B ≈ 0.490

• Step 3: G = 1 − 2B.

• Country B: 1 − 2(0.12) = 0.76 (very unequal)

• Country A: 1 − 2(0.490) ≈ 0.02 (almost equal)

• Lesson: the averages are the same, but the Ginis are 0.02 vs 0.76. An average hides how income is shared. The Gini shows it.

What makes the Gini rise or fall

• It falls when income moves from richer to poorer people, or when the bottom grows faster than the top.

• Example: welfare transfers raise spending by poor households → the bottom of the Lorenz curve lifts → area A shrinks → the Gini falls.

• It rises when the top gains faster than the rest, even if everyone gains.

• This is why poverty can fall while inequality rises. Fewer people fall below the poverty line, but the gap between top and bottom widens.

• What is being measured changes the result:

• Consumption Gini < income Gini < wealth Gini, as a rule.
• Consumption is more equal because of consumption smoothing: people borrow or use savings in bad years. Also, the rich save a large part of their income instead of spending it.
• Wealth is the most unequal because of inheritance and compounding (returns on assets are reinvested, so wealth grows on itself).

Limitations

• Same Gini, different shapes: two very different Lorenz curves can give the same Gini, so one number can hide different stories.
• Most sensitive to the middle of the distribution. It reacts less to changes at the very top or the very bottom.
• Crossing Lorenz curves: if one society treats its poorest better and another treats its middle class better, their Lorenz curves cross. The Gini still gives each a number, but ranking them needs a value judgement.
• Not cleanly decomposable: the Gini cannot be neatly split into "inequality within groups + inequality between groups". The Theil index can.

In India

• Official data are consumption-based. They come from MoSPI's Household Consumption Expenditure Survey (HCES). India has no regular official income survey.
• HCES 2023-24: consumption Gini [1]

Consumption Gini	2022-23	2023-24
Rural	0.266	0.237
Urban	0.314	0.284

• The Gini fell in almost all major states, in both rural and urban areas, from 2022-23 to 2023-24 [1].
• The fastest growth in average MPCE (Monthly Per Capita Consumption Expenditure, i.e. average spending per person per month) was among the bottom 5–10% of the population, in both rural and urban areas [2].

• Economic Survey 2024-25: government welfare schemes raised consumption in low-income households and helped reduce inequality [6].

• World Bank Gini (consumption): 25.5 in 2022-23, down from 28.8 in 2011-12 [4].

• On this measure, India is the 4th most equal country in the world, after the Slovak Republic, Slovenia and Belarus [3].

• Over the same period, the share of Indians living on less than US$2.15 a day fell from 16.2% (2011-12) to 2.3% (2022-23) [4][3]. So on consumption, poverty and inequality both fell.

• The caveat:

• The World Bank brief itself says inequality may be understated because of data limitations [4].
• The same brief cites the World Inequality Database, which shows India's income Gini rising from 52 (2005) to 61 (2023) [4].
• So: consumption inequality is falling, but income inequality appears to be rising.

Don't confuse with

• Lorenz curve: a graph of the whole distribution. The Gini is a single number calculated from that graph (G = A/(A+B)).
• Palma ratio: = income share of the top 10% ÷ income share of the bottom 40%. It looks only at the extremes and ignores the middle. The Gini covers the whole distribution and is most sensitive to the middle.
• Theil index: an entropy-based measure (it borrows the idea of "disorder" from information theory). It is decomposable into within-group and between-group inequality. The Gini is not cleanly decomposable.
• Poverty headcount ratio: counts the share of people below a threshold (the poverty line). The Gini measures the spread across everyone. Poverty can fall while the Gini rises.

Prelims Hooks

• Gini = A/(A+B) = 2A = 1 − 2B. It ranges from 0 (perfect equality) to 1 (perfect inequality) and is often written on a 0–100 scale.
• Lorenz curve axes: cumulative % of population (poorest first) on the x-axis; cumulative % of income on the y-axis. The 45° line = perfect equality. The larger the area between the curve and this line, the higher the Gini.
• Trap: India's World Bank Gini of 25.5 (2022-23) is consumption-based, not income-based. India ranks 4th most equal, after the Slovak Republic, Slovenia and Belarus [3][4].
• HCES 2023-24 consumption Gini: rural 0.237, urban 0.284, down from 0.266 and 0.314 in 2022-23 [1].
• Which measure is decomposable into within-group + between-group inequality? The Theil index, not the Gini.
• Two different Lorenz curves can give the same Gini. So the Gini alone cannot tell you the shape of inequality.

Mains Points

• Which Gini shows India's inequality correctly?
• Consumption data show India as highly equal: Gini 25.5 in 2022-23 [4].
• Income estimates show high and rising inequality: WID income Gini 52 → 61, 2005–2023, as cited by the World Bank [4].
• Consumption understates inequality, because the rich save much of their income and do not spend it.

• Way forward: a regular official income and wealth survey, so that policy does not miss how concentrated incomes are at the top.

• A falling Gini and welfare policy:

• Welfare transfers raised consumption of low-income households (Economic Survey 2024-25) [6], and the fastest MPCE growth came in the bottom 5–10% [2].

• The trade-off: transfers lower consumption inequality in the short run. Lowering wealth inequality needs longer-term tools: land and asset access, education, and progressive taxation.

• The Gini alone is not enough for inclusive growth:

• It is one number and can hide what happens at the extremes.
• Pair it with the Palma ratio (to check whether the rich are pulling away from the poor) and bottom-40% growth tracking (SDG target 10.1: income growth of the bottom 40% should be higher than the national average) [5].
• This helps check that rising average income actually reaches all sections.

Related concepts

• Income inequality
• Wealth inequality
• Lorenz curve
• Palma ratio
• Theil index
• Atkinson index

Read more

• Inequality: concepts and measures