phenomenon.<sup>16</sup> Indeed, there is no statistically significant trend increase in consumption inequality in India up to the early 1990s (Bruno et al., 1998).<sup>17</sup> Perceptions “on the ground” that inequality is rising markedly in India do not appear to sit easily with the impression given by figure 5. Popular opinion can be mistaken, but nor are the data perfect. As we have noted, the survey-based numbers may well understate the relative gains to the rich, and that is consistent with the evidence from tax returns. The visible changes in consumption patterns and lifestyles that the rich have achieved may well not be reflected properly in the survey-based inequality measures. Also, and possibly more importantly, the perception of sharply rising inequality in India may well also reflect rising absolute inequality, as reflected in the absolute gaps between the rich and the poor, as distinct form the proportionate gaps. There is evidence that many people view inequality in absolute terms rather than relative terms (Amiel and Cowell, 1999).<sup>18</sup>

# **The sectoral and geographic unevenness of growth has contributed to rising inequality**

Since both countries started their reform periods with sizeable rural–urban gaps in mean living standards, the unevenness of the subsequent growth process, in which urban incomes increased faster than rural incomes, is likely to have put upward pressure on aggregate inequality. The time series data and regressions presented in Ravallion and Chen (2006) provide direct evidence of this for China. Controlling for growth in rural and urban incomes, the rising urban population share has had no significant effect on aggregate inequality, and the periods when the urban–rural disparity in mean income rose (fell) were the periods when overall inequality rose (fell). But it would also seem that the rising urban–rural gap now has a salience in popular and governmental circles that far exceeds its likely contribution to a conventional inequality or poverty metric. This appears to stem in part from the (plausible) belief that the urban–rural divergence reflects (in part at least) urban biases in the reform processes and complementary public spending choices. This is reinforced by actual or perceived abuses of local political powers at the expense of poor farmers or the landless rural poor (the recurrent land disputes of land contracts and land-use conversions in rural China are examples).

Similarly, regional inequality concerns loom large in both countries, although the quantitative importance of increasing disparities across regions (provinces and states) appears to be greater in India. While these between-group inequalities have carried weight in policy discussions, it is important to note that growing inequality within both urban and rural areas have been a major component of the increase in overall inequality; for China rising inequality within

> 16 Note that longer term comparisons are only possible using the uniform recall period data, using the Deaton method of correcting for the comparability problem in the 1999/00 data. 17 At the time of writing, the 61<sup>st</sup> round of the NSS, for 2004/5, has not yet been released. This will give a (keenly awaited) indication of whether the signs of rising inequality in the 1990s have been sustained. Only preliminary tabulated results were available to us at the time of writing, but they suggest that the increase in inequality in India since the early 1990s that is evident in figure 6.5 has continued through to 2005, and may well have accelerated, although this should be investigated more thoroughly when the micro data become available. 18

For further discussion of the implications of the absolute-inequality concept for assessments of economic growth and reform see Ravallion (2004a) and Atkinson and Brandolini (2004).

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