# **(1) Introduction**

The increasing inequality in income distribution at a time of considerable economic growth during the last couple of decades has rekindled interests in intergenerational mobility in both developed and developing countries.<sup>2</sup> Following wide ranging economic liberalization in the early 1990s, India experienced sustained high economic growth; per capita GDP grew at a 4 percent rate over the two decades after liberalization. The evidence indicates that while growth led to a significant poverty reduction, it was also associated with a rise in inequality (World Bank (2011)).<sup>3</sup> There is increasing concern that the benefits of economic growth were not shared broadly, and remained especially concentrated in urban areas, thus widening the rural-urban gap (Bardhan (2007, 2010), Dreze and Sen (2011), Basu (2008), Prasad (2012)).<sup>4</sup> The estimates of top incomes by Banerjee and Piketty (2005) show that the share of top 0.01, 0.1, and 1 percent in total income has increased substantially from a trough in the mid1980s, and this increase coincided with the move away from ̳Socialist‘ to more market oriented economic policies. According to their estimates, in 1999-2000, per capita income gap between the 99<sup>th</sup> and 99.5<sup>th</sup> percentiles was four times as large as the gap between the median and the 95<sup>th</sup> percentile. Another recent study finds that between 1996 and 2008, the wealth holding of the Indian billionaires increased from 0.8 percent of GDP to 23 percent, before declining to 14 percent in 2010 (Walton (2010)).<sup>5</sup>

> 2 Among the developing countries, China and India are two prominent examples where impressive economic growth has been accompanied by an increase in inequality. For a discussion on rising inequality in Asia, see Jushong and Kanbur (2012). The recent decline in intergenerational mobility in USA and UK has also attracted a lot of attention; see, for example, Deparle in New York Times (January 4, 2012) and Mazumder (2012) on USA, and Dearden et al. (1997) and Blanden et al. (2005) on UK.

> 3 For evidence on rising inequality in India after 1991, see Ravallion (2000), Deaton and Dreze (2002), Sen and Himanshu (2004). A recent survey of the available evidence shows that consumption inequality has increased slightly, but the income inequality in India is much higher than what is usually thought of (close to Brazil) (World Bank (2011)). It is now widely appreciated that the available estimates of consumption and income inequality may be significantly biased downward, because the household surveys fail to cover the top income households.

> 4 Dreze and Sen (2011) argue that Indian economic reform has been an ―unprecedented success‖ in terms of economic growth, but an ―extraordinary failure‖ in terms of improvements in the living standards of general people and social indicators.

> 5The volatility in the wealth of billionaires reflects the volatility in the stock market. The common perception about a significant increase in inequality is reinforced by spectacular conspicuous consumption by the super-rich: Mukesh Ambani, the chairman of Reliance Industries in India owns and lives in the first billion dollar house in the world (Woolsey, M, Forbes.com, April 30, 2008), and in the mega wedding of two sons of Subrata Roy, the  ̳chief

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