Decile Class Distribution Analysis: Inter Class Inequality

We understand the inter class inequality by analysing the decile class distribution. The households are classified into decile classes as per the distribution of MPCE. While the decile classes of expenditure would be obviously different for every new round of consumer expenditure survey, the distribution across decile classes offer insights as to whether expenditure inequality is narrowing or widening between surveys and over the years in a comparative static sense. We have used this decile class distribution analysis mainly in the post reform period from 1993-94 to 2009-10.
We note that the real MPCE in rural areas for the lowest 10 per cent decile class increased from Rs 116 to Rs 377 between 1993-94 and 2009-10, at a compounded annual growth

However, the lowest 10% urban decile class is marginally better off than its counterpart in rural areas as its MPCE had increased from Rs 154 in 1993-94 to Rs 521 in 2009-10. The upper 10% decile class in urban areas spent Rs 5673 in 2009-10 which is almost ten and a half times that of the lower 10% decile class. As against this, in 1993-94, the top decile class was spending Rs 1283 on an average per month which was just below eight times that of the lower 10%. We have made an attempt to understand the inter class inequality with help of the relationship between the income size class and the percentage share of each class in reference to two time periods 1993-94 and 2009-10 at both the rural and urban areas. In rural areas it is seen that in both the reference time periods as the size class increases, the percentage share of each class in total MPCE is also increasing (see Figure 4.2). In 1993-94, 10% of the population in rural areas had an MPCE of less than Rs 116 where as 20% of the population had an MPCE less than Rs. 153. Whereas in urban areas for 1993-94 it is witnessed that 10% of the population had an MPCE of less than Rs 154. A similar trend was seen in 2009-10. In rural areas 10% of the population had an MPCE less than the minimum amount of Rs 377 where in urban areas 20% of the population had an MPCE of less than Rs 722 as shown in the above

Overall, while the poverty level might have declined due to faster growth in consumer spending, inequality at the same time has been widening. In process of analysing the interclass inequality it is seen that there is a direct relationship between the size classes and the percentage of that class in the total MPCE. The interclass disparity has significantly increased in the urban areas as compared to the rural areas. It could be understood that consumption class is the best indicator as it is reflection of the monthly income of the household and the decile class is a surrogate of the income