World Development Vol. xx, No. x, pp. xxx–xxx, 2011 ! 2011 Elsevier Ltd. All rights reserved. 0305-750X/$ - see front matter www.elsevier.com/locate/worlddev

doi:10.1016/j.worlddev.2011.04.026

Caste Stratification and Wealth Inequality in India AJIT ZACHARIAS Levy Economics Institute of Bard College, NY, USA

and VAMSI VAKULABHARANAM * University of Hyderabad, India Summary. — We analyze the relationship between wealth inequality and caste divisions in India using nationally representative surveys on household wealth conducted during 1991–92 and 2002–03. According to our findings, the groups in India that are generally considered disadvantaged (known as Scheduled Castes or Scheduled Tribes) have, as one would expect, substantially lower wealth than the “forward” caste groups, while the Other Backward Classes and non-Hindus occupy positions in the middle. Using the ANOGI decomposition technique, we estimate that between-caste inequality accounted for about 13% of overall wealth inequality in 2002–03. The stratification parameters indicate that the forward caste Hindus overlap little with the other caste groups, while the latter have significantly higher degrees of overlap with one another and with the overall population. Using this method, we are also able to comment on the emergence and strengthening of a “creamy layer,” or relatively well-off group, among the disadvantaged groups, especially the Scheduled Tribes. ! 2011 Elsevier Ltd. All rights reserved. Key words — caste, inequality, stratification, distribution of wealth

1. INTRODUCTION

Kijima showed that both lower endowments of physical and human capital possessed by disadvantaged groups, as well as different structures of income generation, contribute equally to the disparities among caste groups. What is remarkable across these studies is the persistence of systematic disparities among households across different caste groups over long periods of time. Thirdly, there is a growing literature that has delved into the mechanisms and belief systems that perpetuate and are perpetuated by discrimination and unequal caste relations in diverse institutional spaces, such as labor market, schools, and the institution of marriage (e.g., Banerjee, Duflo, Ghatak, and Lafortune (2009) and Hoff and Pandey (2006)). Similarly, Thorat and Newman (2009) show, through an interesting field experiment, that the underprivileged caste groups and Muslims with the same qualifications as their privileged caste counterparts are discriminated against in hiring/screening practices—a legacy of social exclusion. Our paper contributes to this literature by analyzing the relationship between overall wealth inequality and caste divisions 1 in India. There have been very few studies (see Subramanian and Jayaraj (2006)) on wealth disparities (as opposed to consumption or income disparities) within and among caste groups and how these disparities contribute to the overall inequality in India. Wealth inequality is an integral aspect of economic inequality among persons at a given point in time, as well as across generations. Disparities in wealth can also translate into disparities in economic security. For a substantial portion of the Indian population that is dependent on agriculture, land is the major source of livelihood. Inequalities in the quantity and fertility of land among households are a

Caste is a persistent determinant of power, economic inequality, and poverty in contemporary India. Traditionally, mainly non-economists (anthropologists, sociologists, and historians) made substantial contributions to the literature on caste relations in India (e.g., Be´teille (2007), Gupta (2000), and Srinivas (2000)). However, this trend has changed with economists contributing to this literature in the recent times, especially over the last decade or so. As better data sources have become available, many of these studies have combined results from large surveys as well as from field surveys to produce new insights into the working of caste relations in India. The studies of caste in the economics literature can be divided into three broad categories. First, there are studies that have used either large surveys (mainly National Sample Surveys [NSS] and National Family Health Surveys [NFHS]) or fieldwork-based small sample surveys to investigate caste differentials in consumption, income, education, occupations, and development indices (e.g., see Deshpande (2001), Hasan and Mehta (2006), Madheswaran and Attewell (2007), Mehrotra (2006), Mohanty (2006), Munshi and Rosenzweig (2006), Srinivasan and Mohanty (2004), and Sundaram (2006)). The near consensus in these studies is that the less privileged caste groups tend to be worse off than the others on the measured indicators across the country, although there are regional differences. The second category of studies have employed the Blinder-Oaxaca decomposition (or its variants) to separate the structural differences (e.g., geographical, discriminationbased) among households from the differences in endowments (physical and human) that create caste disparities (e.g., see Borooah (2005) and Kijima (2006)). Borooah (2005), for instance, using the National Council for Applied Economic Research (NCAER) survey showed that about a third of the income differentials in India could be attributed to discrimination in the market place. Using the NSS consumption surveys,

* The authors acknowledge the useful comments of the participants at the July 2007 ECINEQ conference and the URPE/ASSA meetings in January 2008. We are also grateful to the comments and suggestions of the referees. Final revision accepted: February 3, 2011. 1

Please cite this article in press as: Zacharias, A., & Vakulabharanam, V. Caste Stratification and Wealth Inequality in India, World Development (2011), doi:10.1016/j.worlddev.2011.04.026

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WORLD DEVELOPMENT

significant determinant of economic inequality. Quality and quantity of schooling accessible to the children in urban and semiurban areas can vary positively with household wealth. In addition to these considerations that point toward the intrinsic importance of wealth as an index of economic status, it also turns out that, in general, the distribution of wealth and consumption (the most widely used index of economic status in India) among households differs considerably. 2 Thus, the available evidence on caste disparities based on other indicators (such as consumption) can be enriched by the results on wealth disparities that we analyze here to obtain a fuller picture of the distribution of economic status in India. The relationship between overall wealth inequality and caste is analyzed in this study using the Yitzhaki decomposition or ANOGI (Yitzhaki, 1994; Frick, Goebel, Schechtman, Wagner, & Yitzhaki, 2004). 3 This allows us to separate the overall inequality into within-group and between-group components, rather than obtaining conditional average effects of social divisions via regression-based decomposition methods such as the Oaxaca-Blinder method. Furthermore, the overlapping parameters estimated using our chosen method permits the distinction between caste-stratification and caste-inequality. This is especially important in the context of ongoing debates in Indian political economy about the questions of affirmative action and the so-called “creamy layer.” 4 2. DATA AND DEFINITIONS The data used in this paper are from the two rounds of the All India Debt and Investment Survey (AIDIS) conducted in 1991–92 and 2002–03. Wealth is computed as the value of total household assets net of indebtedness. Household assets are defined as “physical assets like land, buildings, livestock, agricultural machinery and implements, non-farm business equipment, all transport equipment, durable household goods, and financial assets like dues receivable on loans advanced in cash or in kind, shares in companies, and cooperative societies, banks, etc., national saving certificates and the like, deposits in companies, banks, post offices, and with individuals” (NSS, 2005, p. 5). Debt is defined as cash loans payable. In the absence of a better deflator, the Consumer Price Index for agricultural workers is used to make the 1991 and 2002 rural wealth values comparable across time. Similarly, the Consumer Price Index for industrial workers is used to make urban wealth values comparable across time. The unit of analysis is the household adjusted for its size. That is, the household weight is multiplied by the household size to obtain a distribution among persons. We use per capita wealth—household wealth divided by household size—as the measure of wealth. The implicit equivalence scale assumed here is that there are no “economies of scale” associated with wealth. (For the relative advantages and disadvantages of using this method for Indian wealth data, see Jayadev, Motiram, and Vakulabharanam (2007).) The definitions of caste groups are completely dictated by the data and do not adequately reflect the complex and layered reality of caste in India. Both the AIDIS rounds allow for the classification of the entire population into three groups, viz., the Scheduled Castes or the “Dalits” (SC), Scheduled Tribes or the “Adivasis” (ST), and everyone else whom we call Other Communities (OC). We term this classification “Scheme I.” The 2002–03 survey also enumerated membership in Other Backward Classes (OBC) 5 and religious affiliation. Cross-tabulating caste and religion allows for the separation of OC into three distinct groups: OBC; Hindus who are not SC, ST, or

OBC whom we call Hindu forward castes (FC); and, non-Hindus who are not SC, ST, or OBC whom we call non-Hindus (NH). The 2002–03 survey, therefore, allows for the classification of the population into five caste groups. We term this classification “Scheme II.” It should be noted that the OBC, SC, and ST individuals might belong to any religion. A brief note is in order regarding the category of caste. Caste in India is defined differently along the “Varna” and the “Jati” schemes. The Varna scheme has four broad groups—Brahmins, Kshatriyas, Vaishya, Sudras—and those people outside the Varna scheme, ranked in a descending order of ritual status. Brahmins were traditionally associated with the priestly and scholarly community. Kshatriyas were the ruling groups. Vaishyas were identified as groups associated with trading, moneylending, and retailing. Sudras were the peasants and artisans. Among those outside the Varna scheme, the so-called “untouchables” (the present day Dalits) were mostly associated with the rural, landless laboring community and the tribal groups (the present day Adivasis) were associated with those living on the fringes of or outside the settled agricultural society. It is generally agreed upon that this is a textual scheme defined by the Brahmins. The Jati scheme is very different. There are thousands of Jati groups that vary spatially and temporally in terms of their ritual rankings, socioeconomic status, and occupations. It is also important to recognize that the caste system functions on the ground along different Jati orderings, thus creating a bewildering variety of them, as well as a system that varies greatly across space and time (see Dumont (1970), Chatterjee (1993), and Gupta (2000)). Similarly, while certain occupations are traditionally associated with certain Jati groups, this relation is subject to significant flux over time. However, it has generally been the case that those outside the Varna scheme and those in the lower rungs of the Jati system have generally suffered from relatively low socioeconomic status and tended to be concentrated in the menial occupations. The categories we have constructed (Schemes I and II), based on the limited information available in the surveys, are neither Varna-based nor Jati-based; yet, they reflect some elements of both and can serve, albeit with limitations, to assess the persistence of entrenched social hierarchies in contemporary India. The problems associated with the wealth data in the surveys deserve a brief recapitulation (see, e.g., Subramanian and Jayaraj (2006) and Jayadev et al. (2007)). First, wealth distributions tend to be concentrated at the very top end. Unless a special effort is made to oversample the very wealthy, the concentration of wealth tends to be understated. This will artificially reduce the overall measured inequality. Second, there is a tendency among people of all wealth groups to underreport liability or debt. This tendency is exacerbated as wealth holdings rise. This will widen the gap between those with close to no wealth and those that have some wealth. Third, the reported assets may not be correctly valued. It has been found that the reported values of even recent transactions tend to be lower than the market values in India. Fourth, there is a tendency to hide illegitimate wealth that will lead to undercounting of the assets owned by the wealthy. These problems add up to a state in which households in the wealthier groups (more prevalent among the non-SC/ST population) appear to hold lower wealth than they actually have and the less wealthy groups (especially the SC/ST groups) report higher wealth than they have. This will certainly reduce the overall measured inequality, but it will also reduce the between-caste component of overall inequality. These problems might be reflected in our findings.

Please cite this article in press as: Zacharias, A., & Vakulabharanam, V. Caste Stratification and Wealth Inequality in India, World Development (2011), doi:10.1016/j.worlddev.2011.04.026

CASTE STRATIFICATION AND WEALTH INEQUALITY IN INDIA

3. CASTE DISPARITIES IN WEALTH We begin with a consideration of the gaps in median and mean values of wealth between the caste groups in the urban and rural areas (Table 1). 6 In 2002, the ranking of the ten groups (Scheme II) in terms of median wealth follows a pattern that one might expect a priori: the Hindu forward castes (FC) are at the top (urban, followed by rural). Immediately below them are the OBC groups and urban non-Hindus who have quite similar levels of median wealth. At the bottom, we have the most disadvantaged SC and ST groups (urban, followed by rural). The rural non-Hindus occupy a place immediately above the most disadvantaged and below everyone else. If we were to use the mean values to rank the groups, the pattern shifts somewhat. The top group—urban, Hindu FC—still maintains their lead and the rural SCs and STs held their status as the worst-off. Rural Hindu FC slips to the third place and the second place is now taken by the urban, nonHindus. Rural non-Hindus occupy the fourth place, followed by the urban OBC, urban ST, rural OBC, and then urban SC. 7 The reranking of the groups is an indication of the extent to which within-group inequalities differ, as we shall see later. Table 2 presents the average values of the three most important components of wealth, viz., land, buildings, and durable goods according to Scheme II in 2002. It is clear that in all the three components of wealth presented there, the bottom

3

place is occupied by rural SCs and STs. Historically, SCs were considered the most landless in rural areas, and this trend continues into 2002. It is interesting, however, that, in the urban areas, the distance between the urban Hindu FCs and SCs is the lowest in durables, consistent with the general perception that the relatively poor have also attempted to acquire consumer durables (e.g., TVs) during the reform period along with the relatively affluent groups. But the same pattern was not visible in the case of productive assets such as land. Comparisons between the 2 years are possible only with the three-group schema (ST, SC, and OC), differentiated by their rural versus urban location. Between 1991 and 2002, the relatively disadvantaged groups (SC and ST) experienced higher rates of growth in average wealth than the OC group in both the urban and rural areas. However, the medians tell a different story, especially for the ST. 8 The wealth of the average person in that group rose only 7% in the urban areas (as compared to 42% for the urban OC) and 21% in the rural areas (vs. 25% increase for the rural OC). In contrast, the average SC person experienced a robust increase in wealth of approximately 40% over the same period in both the urban and rural areas. In spite of the increases that did occur between the 2 years, the average SC/ST person still had a considerable wealth disadvantage in 2002 (see Table 1, panel B). Comparison of within-group distributions reveals that caste divisions and the urban-rural divide act as distinct, yet

Table 1. Wealth by caste groups 1991 Mean

Median

2002 Share in population

A. Mean and median values (in thousands of 2006 Rs.) Urban ST 38.5 19.5 0.7 Urban SC 31.1 16.1 3.1 Urban OC 88.4 33.1 20.6 OBC Hindu FC Non-Hindus Rural ST 24.6 15.8 8.0 Rural SC 23.3 13.0 15.3 Rural OC 58.8 31.1 52.2 OBC Hindu FC Non-Hindus All 55.7 24.9 100.0 1991

B. Ratios Urban ST Urban SC Urban OC OBC Hindu FC Non-Hindus Rural ST Rural SC Rural OC OBC Hindu FC Non-Hindus All

Percent change

Mean

Median

Share in population

Mean

Median

67.1 46.0 123.4 85.5 169.3 109.5 34.1 30.9 77.6 62.0 105.4 93.9 75.3

20.8 22.6 47.1 34.8 77.7 34.5 19.0 18.0 38.9 34.2 60.1 25.9 32.0

0.7 3.8 20.9 9.0 8.4 3.4 7.3 15.9 51.4 31.3 14.1 6.0 100.0

74% 48% 40%

6% 40% 42%

39% 33% 32%

21% 39% 25%

35% 2002

28%

Mean

Median

Mean

Median

0.69 0.56 1.59

0.78 0.65 1.33

0.44 0.42 1.06

0.63 0.52 1.25

1.00

1.00

0.89 0.61 1.64 1.14 2.25 1.45 0.45 0.41 1.03 0.82 1.40 1.25 1.00

0.65 0.71 1.47 1.09 2.43 1.08 0.59 0.56 1.22 1.07 1.88 0.81 1.00

Source: Authors’ calculations from the All India Debt and Investment Survey (AIDIS). Key: ST = Scheduled Tribes; SC = Scheduled Castes; OC = Other Communities; OBC = Other Backward Communities; FC = Forward Castes. Note: In 2006, the PPP exchange rate (Rupee per international dollar) was 15 according to the World Development Indicators database (series name: PPP conversion factor, GDP (LCU per international $) of the World Bank (http://databank.worldbank.org/: Accessed January 28, 2011).

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WORLD DEVELOPMENT Table 2. Principal assets by caste, 2002 Mean values 2006 Rs. Urban ST Urban SC Urban OBC Urban Hindu FC Urban Non-Hindus Rural ST Rural SC Rural OBC Rural Hindu FC Rural Non-Hindus All

Percent of overall average

Land

Buildings

Durables

Land

Buildings

Durables

24,718 17,139 36,849 64,442 42,095 21,438 17,397 39,709 70,836 65,977 41,747

23,314 19,065 30,663 66,635 45,208 8,322 10,115 15,571 23,026 18,307 22,271

6,943 4,370 8,018 14,231 8,417 1,698 1,987 3,467 5,298 4,019 4,942

59.2 41.1 88.3 154.4 100.8 51.4 41.7 95.1 169.7 158.0 100.0

104.7 85.6 137.7 299.2 203.0 37.4 45.4 69.9 103.4 82.2 100.0

140.5 88.4 162.2 288.0 170.3 34.4 40.2 70.1 107.2 81.3 100.0

Source: Authors’ calculations from the All India Debt and Investment Survey (AIDIS).

interrelated, influences on the overall wealth distribution (Table 3). The differences between the distributions of the individual groups are plotted on the vertical axis in Figure 1 as (pij ! pi), which expresses the deviation between the percentile value of the jth group (pij) from the overall percentile value (pi) at the ith percentile. Strikingly, only the Hindu FC stay in the positive territory throughout the distribution, while the SC and ST groups stay in the negative territory throughout the distribution. The values for the former became increasingly higher than the overall values (most markedly for the urban, forward caste Hindus), while for the latter they became increasingly lower as we move to higher echelons of the wealth distribution. This suggests that the richest of the forward castes are richer, on the average, than the richest of any other group while the richest of the SC and ST groups are, on the average, less rich than the richest of the other groups. The OBC and non-Hindus display more complex patterns. Lower portions of the urban OBC and non-Hindus distributions have percentile values that are below the values for the overall distribution, but the higher portions have values that are higher, especially for the non-Hindus. The rural segments of these communities diverge from one another markedly. While the

bottom 60% of rural OBC enjoy higher than overall values, the top 40% in their distribution have values that are increasingly lower. The opposite pattern can be observed for the rural non-Hindus. This is suggestive of a much higher degree of inequality and polarization among the rural non-Hindus. The direction and amount of the urban-rural disparity within caste groups varies across the distribution. This can be illustrated by defining the following statistic for group j at percentile i: puij ! prij gij ¼ ; ð1Þ prij where the urban-rural gap in wealth is expressed as a percentage of the percentile values (p) in the rural area for each caste group (the superscripts u and r represent, respectively, the urban and rural areas). Estimates of the urban-rural gaps are shown in Figure 2 for selected percentiles, with the bold horizontal reference line representing a situation of zero urban-rural disparity. The wealth gap is in favor of rural individuals at the bottom of the distribution, irrespective of their caste group. This is a reflection of the incidence of land ownership (however meager

Table 3. Percentiles by caste group, 2002 (in thousands of 2006 Rs.) Percentile 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95

Urban ST

Urban SC

Urban OBC

Urban FC

Urban NH

Rural ST

Rural SC

Rural OBC

Rural FC

Rural NH

All

0.8 1.8 3.3 5.2 7.0 9.8 12.0 14.7 18.2 20.8 23.6 28.9 38.0 49.0 61.4 77.3 102.9 144.9 220.6

0.7 2.0 3.7 5.6 7.9 10.6 13.4 16.3 19.4 22.6 27.2 31.0 35.1 41.1 50.4 63.6 81.8 109.8 168.8

1.1 3.1 5.8 8.8 12.3 16.1 20.1 24.2 29.0 34.8 41.4 49.0 58.4 70.5 83.9 106.9 143.2 192.3 313.1

2.5 6.0 11.0 17.3 24.5 33.1 42.2 52.8 64.6 77.7 93.1 111.7 131.7 155.5 191.8 235.0 290.9 379.3 562.9

1.0 2.1 4.7 8.3 11.2 14.5 18.0 22.8 27.9 34.5 42.0 52.1 65.3 84.5 107.7 139.1 189.9 273.9 429.0

2.7 4.8 6.3 7.7 9.3 11.0 12.6 14.7 16.6 19.0 21.6 24.7 28.5 32.0 37.3 43.8 52.8 71.6 110.4

2.1 4.0 5.5 7.0 8.6 10.1 11.9 13.6 15.8 18.0 20.3 23.3 26.6 31.0 36.2 43.2 52.2 66.5 98.3

3.4 6.6 9.5 12.3 15.2 18.3 21.6 25.6 29.7 34.2 39.1 45.0 51.3 60.1 70.8 83.9 102.8 136.1 205.9

6.1 12.0 18.1 22.8 27.7 33.0 39.2 45.5 52.5 60.1 68.9 78.9 89.9 104.2 122.4 145.3 181.2 230.5 331.0

2.4 4.5 5.9 7.3 9.5 11.8 14.8 17.9 21.4 25.9 31.0 38.1 46.8 59.0 76.7 104.1 145.1 220.8 402.3

2.4 5.1 7.6 10.2 12.9 16.0 19.3 23.0 27.3 32.0 37.6 44.4 52.3 62.8 76.3 94.5 122.2 170.1 272.3

Source: Authors’ calculations from the All India Debt and Investment Survey (AIDIS).

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Thousands of Rs

CASTE STRATIFICATION AND WEALTH INEQUALITY IN INDIA 325 300 275 250 225 200 175 150 125 100 75 50 25 0 -25 -50 -75 -100 -125 -150 -175 -200

5

Urban ST Urban SC Urban OBC Urban FC Urban NH Rural ST Rural SC Rural OBC Rural FC Rural NH

5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 Percentiles

Figure 1. Deviation from overall percentile values by caste at selected percentiles, 2002 (in thousands of 2006 Rs.). Source: Authors’ calculations from the All India Debt and Investment Survey (AIDIS).

120% 100%

Urban-Rural Gap

80% 60%

ST

40%

SC

20%

OBC FC

0% -20%

5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95

NH

-40% -60% -80% Percentile

Figure 2. Urban-rural wealth gap (as a percent of rural wealth) by caste at selected percentiles. Source: Authors’ calculations from the All India Debt and Investment Survey (AIDIS).

the size of the holding might be) in the rural areas among the poor, in contrast to the greater presence of propertyless individuals among the urban poor, irrespective of their caste group. Notable differences exist among the castes in the percentile point at which the wealth gap turns in favor of the urban residents (i.e., the point at which their respective curves cross above the zero line). At one extreme are the non-Hindus, for whom the switch favoring the urban residents occurs at the 20th percentile; at the other extreme, the switch occurs only at the 50th percentile for the OBC. The variation in the amount of urban-rural disparity among the castes appears to be much smaller at any given percentile point below the zero-line, that is, when the disparity is in favor of the rural individuals. Above the zero-line, when the disparity turns in favor of the urban persons, the amount of disparity (at any given percentile point) among the castes appears to vary much more. Clearly, the evidence suggests that the wealth advantage enjoyed by the urban individuals within every caste becomes higher at the higher percentiles, indicating the concentration of wealth in urban India. As we shall see later, this would be reflected in the higher levels of inequality in the urban areas. The nonHindus stand out as a clear exception to this rule because the disparity in favor of the urban individuals in this group declines after the 70th percentile. This appears to be driven to a large extent by the presence of very wealthy rural Sikhs in the upper rungs of the wealth distribution. As is well-known, the

degree of private capital accumulation in rural Punjab generally exceeds that found in other parts of rural India, partly related to the historical advantage enjoyed by this area in the so-called Green Revolution. The urban wealth gap rises steeply within the ST group in the top portions of the distributions, a result consistent with the well-known fact that the rural tribal areas fall among the most economically backward areas in India. We now revert to Scheme I in order to examine whether any significant differences could be found among the groups in terms of the changes in wealth that occurred between 1991 and 2002 across the entire distributions ( Figure 3). Urban ST is the only group in which some of the percentile cutoffs in 2002 are roughly the same as, or lower than, their 1991 levels. In contrast, the bottom half of the urban SC group generally saw a much higher boost in their wealth levels than their counterparts in the other groups. For the upper-middle portion (roughly from the 50th to 80th percentile), the urban OC group experienced much faster growth than their counterparts in other groups. The sharpest increase in wealth between 1991 and 2002 among the top 20% occurred for the urban SC/ ST groups. A negative correlation between the initial amount of wealth and the subsequent gain could be found in the bottom half of the urban SC and OC groups, as well as the rural ST and SC groups. In fact, the schedule for the rural SC group slopes downward to the right almost throughout

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WORLD DEVELOPMENT

Figure 3. Percent change in wealth at selected percentiles by caste, 1991–2002. Source: Authors’ calculations from the All India Debt and Investment Survey (AIDIS).

the distribution. Finally, the rural OC group displays the most stable pattern: their schedule remained largely flat for most of the distribution. The overall picture of changes across the distributions suggests a pattern of wealth accumulation that is not heavily biased in favor of those at the top within each caste group, with the exception of the urban ST. Gaps in consumption and wealth between individual states and occupational groups/social classes have tended to widen after 1991. Focusing on the major states, the range in per capita wealth among states was very wide (Table 4). We find that in Punjab, the wealthiest state, per capita wealth was Rs. 77,051 in 2002, which is about four times higher than Bihar, the least wealthy state, with a per capita wealth of Rs. 19,718. The growth rates among states have been substantially different. Bihar, for example, experienced a growth rate of about 0.9% per annum in per capita wealth, while Kerala has seen the fastest growth rate at about 4.9% per annum. In terms of the rich, middle, and poor states, the numbers tell a stark story, with the middle-income and rich states experiencing much faster asset growth rates annually than the poor states. It is also interesting to note that growth in wealth has been fastest in the urban areas of the middle-income states, regions which include dynamic urban centers such as Hyderabad and Bangalore. We used a seven group-schema to examine wealth gaps across social classes. The categories were: urban elites, urban lower service workers, urban manual workers, rural elites, rural middle groups, rural workers, and rural nonagricultural groups (Table 5). 9 As one would expect, the urban and rural elites are considerably wealthier than the other groups. The urban groups as a whole have seen more rapid growth in wealth accumulation. If one looks at mean values, the two elite categories continue to dominate in absolute terms but the growth rates tell a more complex story. In the urban areas, there were very little intergroup differences in growth rates, and, therefore, the disparities among them in terms of mean values remained roughly constant between 1991 and 2002. However, in terms of median values, the urban elites increased their distance from the other urban groups. In rural areas, the rural elite and the rural non-agricultural groups have seen their wealth grow most rapidly, consistent with the notion of a divergence in that sector. This is true in terms of medians as well. As such, although the interpersonal wealth distribution does not show substantial acceleration in intergroup disparities, both class and caste groups convey a similar picture regarding the underlying dynamics of wealth distribution and the divergence between elite groups and others.

4. WEALTH INEQUALITY AND STRATIFICATION (a) Yitzhaki decomposition The picture of caste disparities in India sketched out so far can be made richer by relating them to an analysis of overall wealth inequality. The tools of decomposition analysis allow us to analyze the within-group and between-group inequalities. Further, it would allow us to develop summary measures that would express how stratified, in terms of its wealth, a group is from another group or from the total population. The method of Gini decomposition developed originally by Shlomo Yitzhaki offers a unified framework for addressing these issues. 10 Let G be the Gini coefficient of wealth. The Yitzhaki decomposition allows us to separate G into intergroup inequality (Ib) and a remainder (Ir) that can be interpreted as intragroup inequality (Yitzhaki, 1994): G ¼ Ib þ Ir

The amount of intergroup inequality is:

Ib ¼

2covðli ; F oi ðyÞÞ ; l

ð2Þ ð3Þ

where y is wealth, l is mean wealth for all persons, li is mean wealth for group i, and F oi ðyÞ is the mean rank of group i, that is, the average position of the members of a group in the overall wealth distribution. 11 Thus, the amount of intergroup inequality is twice the covariance between the mean amounts of wealth and mean ranks of groups divided by the mean wealth for all individuals. 12 The remainder term is calculated as: X Ir ¼ s i Gi Oi ; ð4Þ i

where si is the share of group i in aggregate wealth, Gi is the Gini coefficient of the wealth distribution within group i, and Oi is the overlapping index for group i. The Yitzhaki decomposition provides group-specific measures of overlapping, unlike the standard decomposition of the Gini where only a summary measure of overlapping by all groups can be obtained. The index of overlapping proposed by Yitzhaki is a measure of the degree to which the range of wealth in each group overlaps with the range of wealth for all persons. Overlapping can thus be seen as the opposite of stratification: the higher the amount of overlap between a group and the population, the less stratified they are as a group in terms of wealth

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CASTE STRATIFICATION AND WEALTH INEQUALITY IN INDIA

7

Table 4. Average wealth by state and sector, 1991 and 2002 (in 2006 Rs.) States Andamans Andhra Arunachal Prades Assam Bihar Chandigarh Chattisgarh Dadra/Nagar Hav Daman/Diu Delhi Goa Gujarat Haryana Himachal Pradesh J&K Jharkand Karnataka Kerala Lakshadweep Madhya Pradesh Maharashtra Manipur Meghalaya Mizoram Nagaland Orissa Pondicherry Punjab Rajasthan Sikkim Tamil Nadu Tripura Uttar Pradesh Uttaranchal West Bengal Addendum: Poor Middle Rich

1991

2002

Implied annual growth rate

Overall

Rural

Urban

Overall

Rural

Urban

Overall

Rural

Urban

15,693 14,511 12,196 11,866 17,698 30,897

15,041 12,727 13,030 10,830 17,509 17,134

17,184 20,152 6,096 24,161 18,943 32,986

7.90% 5.50% 6.10% 1.50% 3.30% 7.10%

25,340 35,593 68,339 51,728 31,345 32,090 41,530 42,674

7.00% !3.10% !1.90% 1.20% 4.10% 2.50% 6.80% 7.30%

7.20% !6.10% !9.20% !0.20% 5.00% 1.90% 7.10% 6.60%

5.30% 0.70% !0.80% 2.60% 2.70% 6.00% 3.30% 7.50%

20,489 37,133 64,376 18,098 23,587 16,932 13,973 10,667 16,564 9,564 25,147 55,510 28,695 25,826 18,844 12,287 24,826

18,843 35,108 50,605 16,834 17,972 16,335 10,471 7,794 14,350 8,701 16,106 56,905 27,612 26,839 13,975 10,654 23,860

24,672 43,652 76,155 22,816 33,344 18,593 30,702 20,248 20,441 16,489 30,306 52,410 32,617 16,932 27,739 32,805 28,716

3.30% 4.70% !0.60% 3.50% 3.00% 2.90% 7.80% 10.80% 14.90% 2.30% 3.40% 2.90% 1.70% 0.00% 3.60% 0.70% 1.40%

2.70% 4.50% 0.00% 2.80% 3.60% 1.20% 8.00% 6.20% 17.60% 1.80% 4.00% 3.80% 1.30% !1.30% 4.70% !0.10% 1.70%

4.20% 5.20% !1.30% 4.90% 1.90% 6.10% 8.10% 11.20% 9.50% 3.40% 3.20% 0.30% 2.60% 9.70% 2.70% !0.10% 0.10%

14,258

11,494

22,450

39,816 36,394 11,662 28,338 27,091 70,476 27,206 44,658 38,507 62,872 68,722 42,154 60,645 59,178 94,486 23,532 38,851 76,356 65,826 38,570 41,092 35,479 72,137 64,977 55,587 23,878 42,703 54,230 43,445 46,875 37,033 32,446 29,077 44,035 33,801

7.10% 2.00% 0.10% 2.70% 0.50% 6.80%

13,484 33,888 75,593 49,108 18,890 57,057 25,389 26,584

32,060 15,757 13,118 14,568 18,569 35,299 18,613 28,859 16,960 26,214 47,855 32,310 69,895 54,064 53,723 15,452 25,219 56,929 50,812 22,816 26,594 18,721 24,487 15,136 85,387 10,556 24,705 85,599 31,936 23,195 23,241 10,559 28,801 39,990 15,926

7.40% 3.50% 0.50% 2.70% 0.90% 7.40%

14,285 34,323 69,078 50,227 22,974 51,477 26,530 28,683

34,551 21,253 12,938 15,883 19,450 67,792 19,800 30,084 24,301 56,079 57,316 35,711 67,517 54,542 62,239 17,000 29,315 61,847 60,499 26,547 32,607 23,234 31,789 33,040 76,641 12,307 36,258 75,645 34,437 25,756 27,748 13,235 28,860 40,757 19,993

3.10%

3.00%

3.80%

21,054 18,670 29,256

20,022 16,569 27,818

25,745 24,879 32,273

25,384 27,699 42,958

23,826 22,968 42,499

32,132 41,220 43,927

1.70% 3.70% 3.60%

1.60% 3.00% 3.90%

2.00% 4.70% 2.80%

Source: Authors’ calculations from the All India Debt and Investment Survey (AIDIS).

Table 5. Wealth by status group, 1991 and 2002 (in 2006 Rs.) Status category

Mean 1991

2002

65,397 31,477 18,612 64,727 30,529 9,807 l 21,583

186,328 91,943 53,232 190,512 75,136 25,118 66,277

Urban total

30,505

Rural total

20,352

Urban elite Urban middle Urban manual Rural elite Rural middle Rural lower Rural non agricultural

Median Ratio (2002 to 1991)

1991

2002

Ratio (2002 to 1991)

2.85 2.92 2.86 2.94 2.46 2.56 3.07

32,149 17,075 9,501 51,328 23,775 6,726 13,893

91,010 45,692 25,120 147,529 58,359 16,567 35,924

2.83 2.68 2.64 2.87 2.45 2.46 2.59

92,908

3.05

14,363

36,672

2.55

53,501

2.63

12,599

26,039

2.07

Source: Authors’ calculations from the All India Debt and Investment Survey (AIDIS).

(Yitzhaki, 1994, p. 148–149). This feature of the decomposition is crucial for us since our objective is to ascertain the

extent to which castes occupy or do not occupy different segments of the wealth distribution.

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The amount to which group i overlaps with the overall distribution is defined as: Oi ¼

covi ðy; F oi ðyÞÞ ; covi ðy; F i ðyÞÞ

(b) Within-group versus between-group inequality

ð5Þ

where Foi(y) is the function that assigns to the members of group i their ranks in the overall distribution, Fi is the function that assigns to the members of group i their ranks in the wealth distribution within that group, and covi indicates that the covariance is according to the distribution within group i . 13 The minimum value of Oi is given by the share of group i in the population and its maximum value is equal to 2. When the index equals the minimum possible value, it suggests that the group in question is a perfect stratum, that is, it occupies an exclusive segment of the overall wealth distribution. If a particular group has a range of wealth that coincides with the range of wealth of the population, then the index will be equal to 1. Finally, if the index is >1, the distribution of wealth within the group is much more polarized than in the overall distribution. This can happen if the members of the group constitute two strata, one that has much higher and the other that has much lower wealth than l, the average wealth of all individuals in all groups (Milanovic & Yitzhaki, 2002, p. 162–163). The index of overlapping defined in Eqn. (5) is constructed from indexes that indicate the amount by which a group overlaps with each of the other groups: X pj Oji ð6Þ Oi ¼ p i þ j–i

where pi is the share of group i in the total population and Oji is the index of overlapping of group j by group i. Since the overlapping of a group by itself is equal to 1 by definition, its contribution to Oi is equal to its relative size. The index of overlapping of the overall distribution by a group is the weighted sum of overlapping of each of the other groups by that group, with the relative size of each group serving as the weights. In turn, the group-by-group overlapping indexes are calculated as: Oji ¼

bers of group i produced by Fi and Fji are identical (Yitzhaki, 1994, p. 150–152).

covi ðy; F ji ðyÞÞ ; covi ðy; F i ðyÞÞ

ð7Þ

where Fji is the function that assigns members of group i their ranks in the wealth distribution of group j. The index Oji indicates the extent to which the wealth of individuals in group j falls in the range of wealth of individuals in group i; the higher the fraction of group j that falls in the range of group i, the higher will be the value of Oji. For a given fraction of group j that falls in the range of group i, the closer the wealth of the individuals in that fraction are to the mean wealth of group i, the higher will be the value of Oji. The index can take values between 0 (no overlap) and 2. Perfect overlap occurs when the index equals 1, indicating that the rankings of mem-

We now turn to the results of the Yitzhaki decomposition for our data. 14 It is useful to begin with the estimates of within-group and between-group caste inequality (Table 6). Overall wealth inequality shows very little change between 1991 and 2002. The share of within-group and between-group inequality in overall inequality also remains roughly the same between the 2 years. The within-group inequality (the Ir term in Eqn. (2)) accounts for the bulk of overall inequality in both years. The domination of the within-group term indicates there are other wide variations in the characteristics of household members that are also expected to contribute to wealth differentials within castes—occupation, age, education, industry of employment, and number of earners in the household, to mention a few. Additionally, we would expect product mix and fertility, among other things, to also have effects on the wealth of farmer households. In 2002, we found that the share of withingroup inequality is somewhat lower (87%) under the more elaborate Scheme II (ten groups as compared to six in Scheme I). In general, increasing the number of groups is likely to increase the share of between-group inequality. Since the subgroups included in the OC group are themselves quite different from each another in terms of their average wealth and average rank, the modest increase in the share of between-group inequality under Scheme II is not out of line with our expectations. 15 (iii) Within-caste inequality and overlapping The results from decomposing the remainder term along caste lines are shown in Table 7. We also plot the Gaussian kernel density estimates of wealth distribution by group in Figure 4. 16 In both the years, within-group inequality was generally higher among the urban groups than among their rural counterparts (Table 7), consistent with our findings on the urban-rural gaps in percentile values discussed earlier. The higher inequality in the urban areas is mainly due to the fact that the principal assets in the Indian context, land and buildings, are more unequally distributed in the urban areas. 17 In 2002, the Gini of land and buildings were, respectively, 0.80 and 0.73 in the urban areas, and 0.71 and 0.58 in the rural areas. In turn, the greater urban inequality in the distribution of these assets stems from the lower ownership rates and higher inequality among the owners. 18 The higher inequality among the building owners in urban areas is quite consistent with the well-known fact that urban real estate markets are far more developed and feature much costlier dwellings. The only groups that showed a notable increase in inequality between 1991 and 2002 were the ST groups. This is especially true for the urban ST and is consistent with our earlier finding about the big increases between the years in the

Table 6. Within-group and between-group inequality, 1991 and 2002 Gini points 1991 Overall Gini Within group Between group

0.648 0.595 0.053

Percentage shares 2002

1991

Scheme I

Scheme II

0.655 0.599 0.056

0.655 0.572 0.083

100.0 91.9 8.1

2002 Scheme I

Scheme II

100.0 91.4 8.6

100.0 87.4 12.6

Source: Authors’ calculations from the All India Debt and Investment Survey (AIDIS).

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CASTE STRATIFICATION AND WEALTH INEQUALITY IN INDIA

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Table 7. Within-group inequality and overlapping, 1991 and 2002 1991 Urban ST Urban SC Urban OC Urban OBC Urban FC Urban NH Rural ST Rural SC Rural OC Rural OBC Rural FC Rural NH All

2002

Population Share

Wealth Share

Gini

Overlap

Population Share

Wealth Share

Gini

Overlap

0.007 0.031 0.206

0.005 0.017 0.327

0.628 0.627 0.700

1.049 1.056 0.993

0.080 0.153 0.522

0.035 0.064 0.551

0.526 0.573 0.595

0.913 0.973 0.918

1

1

0.648

1

0.007 0.038 0.209 0.090 0.085 0.034 0.073 0.159 0.514 0.313 0.141 0.060 1

0.006 0.023 0.342 0.102 0.190 0.050 0.033 0.065 0.530 0.258 0.197 0.075 1

0.725 0.632 0.683 0.677 0.648 0.713 0.568 0.557 0.609 0.580 0.563 0.734 0.655

1.137 1.051 0.966 1.016 0.840 1.054 0.969 0.947 0.929 0.932 0.791 1.095 1

Source: Authors’ calculations from the All India Debt and Investment Survey (AIDIS).

percentile values of the upper tail of the ST wealth distribution (Figure 3). For the urban ST group, the increase in inequality appears to have been driven by two factors. First, the ownership rate of buildings declined for them from 1991 to 2002 by 9% points to 68% and the Gini ratio of buildings for building owners grew rapidly from 0.67 to 0.81. 19 Furthermore, the relative importance of financial assets in the urban ST portfolio rose sharply from 5% to 12% during the period. Because the distribution of financial assets is extremely unequal in favor of the wealthy (a Gini ratio of 0.87 in both years), the expansion in its share of wealth contributed substantially to the rise in inequality. 20 The more modest growth in rural ST inequality seems to have been mainly due to the rapid growth in wealth held as land, especially in the Northeast. 21 A secondary role might also have been played by the sharp rise in the concentration of financial assets in the top echelons of the wealth distribution. 22 Turning now to the evidence on stratification, the estimates in Table 7 indicate that the rural groups have lower values for their overlapping indexes than the urban groups, a result that is not surprising in light of the considerable rural–urban wealth gaps that were discussed above. When compared relative to their shares in population, the rural OC group has a substantially lower degree of overlapping than the rural SC/ ST groups. The overlapping index for the urban OC is almost 1 in 1991 and slightly lower in 2002, indicating the close similarity between their distribution function and the distribution function for the entire population. Estimates for the subgroups included in OC in 2002 (Scheme II) show that the Hindu FC is the group with the lowest amount of overlapping among all groups, while the non-Hindus rural and urban groups take, respectively, the second and third places in terms of overlapping. The higher degree of overlapping by the rural non-Hindus as compared to their urban counterparts is an exception to the pattern observed for the other groups, and is related to our earlier discussion regarding the rich Sikh rural residents ( Figure 2 and related text). Both groups of nonHindus have an overlapping index that exceeds one, indicating wealth polarization within these groups. The urban ST and SC groups are hardly homogenous groups. Both have values exceeding 1 for their overlapping indexes, indicating that there might be two distinct strata, one quite rich and the other extremely poor, within each of these groups. This is most striking in the case of the urban ST in 2002. Considered in conjunction with the sharp rise in within-group inequality, it appears that there is an emergence of

a “nouveau rich” and growing income polarization within the ST groups. This is also suggested by the lengthening of the right tail of the ST distributions between the 2 years (Figure 4, panels A and B). 23 However, being “rich” within the ST group is very different from belonging to the top of the urban Indian wealth distribution. The kernel density estimates (Figure 4) and the estimates of percentile cutoffs depicted earlier (Figure 1) convey this point vividly. To be in the top 10% of the ST distribution in 2002 required a minimum of 144 thousand rupees (in 2006 prices); this amount, as it turns out, was insufficient to belong to even the top 30% of the Hindu FC distribution. 24 Apart from the index of overlapping for each group with the overall population, the Yitzhaki decomposition also allows us to estimate pair-wise indexes of overlapping among the groups (Eqn. (7)). The estimates of the resulting overlapping matrix using Scheme II for 2002 are shown in Table 8 (panel A). The reference group (the caste represented by the subscript i in the overlapping index Oji) is shown in the rows of the table; other groups are shown in the columns (the castes represented by the subscript j). The highest degree of overlap for the urban (rural) FC was found with the rural (urban) FC indicating that their distributions are much closer to one another than with any other group. The kernel density estimates shown in Figure 4 (panels B and C) shows how little the upper tail of the distribution of the FC groups overlaps with the distributions of other groups (with the exception of urban OBC). 25 Overlapping of each of the other groups by the urban ST, SC, OBC, and the non-Hindus groups is generally high. In contrast, the overlapping of each of them by the Hindu FC is much lower. The reason behind this apparent discrepancy can be understood by considering the overlapping between the urban ST and urban FC. The overlapping of urban ST by urban FC is only 0.716. This reflects the fact that there are relatively few urban ST individuals in the urban FC wealth range. Consequently, the ranks of urban FC individuals, when each of them is placed in the wealth distribution of urban ST, did not differ much from each other for a large number of them, thus reducing the size of the covariance in the numerator of Eqn. (7). On the other hand, there are relatively more urban FC individuals in the urban ST wealth range and, therefore, when each ST individual placed in the FC distribution their ranks differ considerably from each other for a sizeable number of cases. This is reflected in the much larger (1.05) value of the overlapping of urban FC by urban ST.

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Figure 4. Kernel density estimates of wealth distribution by caste, 1991 and 2002. (A) 1991, (B) 2002, (C) Other communities (OC) by caste group, 2002. Source: Authors’ calculations from the All India Debt and Investment Survey (AIDIS).

The overlapping of rural ST and SC by each of these groups is higher than the overlapping of their urban counterparts by the same groups. This is in line with our earlier finding that

that the wealth gap in favor of the urban residents of these groups increased sharply at the higher percentiles (Figure 2). For example, the overlapping of rural ST by rural SC is

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Table 8. Matrices of overlapping and ranks, 2002 Urban ST A. Overlappinga Urban ST Urban SC Urban OBC Urban FC Urban NH Rural ST Rural SC Rural OBC Rural FC Rural NH B. Ranksb Urban ST Urban SC Urban OBC Urban FC Urban NH Rural ST Rural SC Rural OBC Rural FC Rural NH

Urban SC

Urban OBC

Urban FC

Urban NH

Rural ST

Rural SC

Rural OBC

Rural FC

Rural NH

1 0.938 0.881 0.716 0.915 0.855 0.852 0.794 0.654 0.937

1.045 1 0.916 0.722 0.944 0.925 0.924 0.849 0.678 0.973

1.107 1.009 1 0.842 1.041 0.918 0.889 0.908 0.792 1.075

1.131 0.928 1.062 1 1.133 0.809 0.739 0.903 0.903 1.163

1.052 0.933 0.951 0.827 1 0.842 0.812 0.838 0.750 1.029

1.065 1.051 0.905 0.681 0.928 1 1.021 0.851 0.625 0.971

1.042 1.032 0.885 0.662 0.906 0.977 1 0.831 0.608 0.945

1.193 1.119 1.068 0.866 1.100 1.040 1.017 1 0.836 1.148

1.266 1.111 1.179 1.037 1.230 1.000 0.934 1.070 1 1.277

1.051 0.963 0.928 0.776 0.970 0.879 0.868 0.826 0.697 1

0.5 0.498 0.581 0.701 0.582 0.478 0.463 0.590 0.699 0.551

0.502 0.5 0.590 0.718 0.590 0.473 0.459 0.598 0.717 0.555

0.419 0.410 0.5 0.638 0.508 0.378 0.366 0.497 0.618 0.469

0.298 0.282 0.362 0.5 0.381 0.251 0.242 0.347 0.456 0.344

0.417 0.409 0.492 0.619 0.5 0.383 0.371 0.491 0.600 0.466

0.522 0.526 0.622 0.748 0.616 0.5 0.483 0.639 0.763 0.576

0.536 0.541 0.634 0.758 0.628 0.517 0.5 0.652 0.773 0.591

0.410 0.402 0.502 0.653 0.509 0.361 0.348 0.5 0.637 0.461

0.301 0.283 0.381 0.544 0.400 0.237 0.227 0.363 0.5 0.350

0.448 0.445 0.531 0.656 0.534 0.423 0.409 0.538 0.650 0.5

Source: Authors’ calculations from the All India Debt and Investment Survey (AIDIS). a Each number shows the overlapping of the group named in the column label by the group named in the row label. b Each number shows the average rank of the group named in the row label in the distribution of the group named in the column label.

1.02, while the overlapping of urban SC by rural SC is lower, at 0.92. Further, the overlapping of rural OBC, FC, and NH groups by, respectively, the rural SC and ST is higher than the overlapping of urban OBC, FC, and NH groups (e.g., the overlapping of rural FC by rural SC was 0.934, as against only 0.739 for urban FC). This suggests that the distributions of rural ST and SC are more similar to each other than to the members of their own community in the urban areas and that they have at least some members with amounts of wealth that match the wealth of wealthier individuals from the rural residents of other communities. However, the rural–urban patterns of overlapping are quite different for the rural OBC and FC groups. Their wealth distribution is more similar to the urban residents of their own communities than to the SC or ST in the rural areas. For example, the overlapping of rural SC by rural OBC is only 0.831, while the overlapping of urban OBC by rural OBC is higher, at 0.908. Similarly, the overlapping of rural ST by rural FC is quite low at 0.625 compared to the overlapping of urban FC by rural FC that stood at 0.903. The overlapping relation between the rural OBC and rural FC, as well as that between the rural NH and rural FC, mirrors the relationship between urban ST and urban FC that was discussed above. The index of overlapping is sensitive to extreme values because it depends on the ranks and amounts of wealth of individuals in each caste. 26 Hence, an examination of the ranking of one caste in terms of another is instructive. Such an exercise can answer the following type of question: at what percentile of the forward caste wealth distribution is an average SC person located? The average rank of each caste in the distribution of other castes can be displayed in a matrix of ranks. Along the row labeled “Urban ST,” for example, we can read off the average rank of an individual in that group in the wealth distribution of each of the other groups. Since the ranks are normalized to lie between 0 and 1, the average rank of a group in its own distribution will be 0.5 (i.e., the 50th percentile). The matrix of ranks for caste groups under Scheme II is shown in Table 8 (panel B). Forward castes clearly dominate

other groups in terms of this indicator, too. If we look at the entries under the column labeled “Urban FC,” it is evident that the average rank of all groups except rural FC is placed below the 40th percentile of the urban FC wealth distribution; the rural FC’s average rank is at the 45th percentile. Similarly, the entries in the “Rural FC” column are also below the 40th percentile for all groups except, obviously, their urban counterparts. 27 Viewed from another angle, this means that the average ranks of all the other groups are at their lowest levels when they are placed in the distribution of forward castes. The most numerous of the groups, the rural OBC, have a mean rank above the 50th percentile in the distributions of all SC and ST groups and close to the 50th percentile for the nonHindus and urban OBC distributions. The average rural ST and SC ranks are below the 40th percentile in the distributions of all other non-ST/SC groups, except for the non-Hindus, where their ranks were at the 41–42nd percentile and slightly below the middle in the distributions of their urban counterparts. Similar results are also found for the urban ST and SC. Their average ranks are in the bottom half of the distribution of all other groups, except that of their rural counterparts, where they are slightly above the middle. The ranking is the lowest (roughly at the 30th percentile) in the FC distributions, somewhat higher (roughly at the 40th percentile) in the OBC distributions, and the highest (roughly at the 45th percentile) in the NH distributions. 5. CONCLUSION The average SC/ST person in India has a substantial disadvantage in wealth relative to people from other groups in both years of analysis. In a worrisome trend, the relative median wealth of the rural and urban ST was, in fact, lower in 2002 than 1991. Among the other groups, the Hindu forward castes are the clear leaders in median wealth in both the rural and urban areas. For the second survey year (2002–03), the OBCs and non-Hindus occupied positions that placed them

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noticeably above the SC/ST groups, but significantly below the FC in terms of median wealth values. A similar picture of SC/ST disadvantage and forward caste advantage is evident throughout the distributions in terms of gaps in percentile values. Estimates of the matrix of ranks for caste groups also confirm the existence of sizeable wealth disparities between the forward castes and everyone else. Considered in conjunction with the findings documented in other studies regarding the considerable shortfalls of the average SC/ST person in consumption, education, and development indices, the picture that emerges is one of comprehensive and persistent disadvantage for the SC and ST groups in contemporary India. Our decomposition analysis shows that inequality between castes (between-group inequality) accounts for as much as 8% to 13% of overall wealth inequality. The major determinant of between-group inequality is the large gap between SC/ST groups (especially rural) and the forward castes (especially urban) in average wealth. It would be interesting to compare this result to the results that arise from using other variables to classify the population (e.g., age or education). However, it is reasonable to expect that irrespective of the “grouping variable” used, the share of within-group inequality is likely to be the dominant factor in overall inequality. There are, inevitably, other wide variations in the characteristics of households that, when taken together, are likely to contribute more than the classifying variable itself to wealth differentials within any group. We also found that the urban and rural forward caste groups are substantially stratified from the other groups in terms of their wealth distribution, especially from the SC/ST groups. Among the latter, the rural SC and ST were notably stratified from their urban counterparts; but, there was hardly any stratification between them, that is, the overlap of one group by the other was almost perfect. This is indicative of how the urban-rural divide in wealth drives a wedge within these minority groups. On the other hand, the rural OBC

and non-Hindus are quite stratified from the rural SC and ST groups; in fact, they are less stratified from their urban counterparts. This suggests that the intra-rural stratification along caste lines was greater for the rural SC and ST than the urban-rural stratification was for the non-SC/ST groups. Strong evidence of a polarized distribution could be detected for the urban ST, urban NH, and rural NH (overlapping index >1). These groups also have within-group inequality that is much higher than the overall inequality. Substantial increases in within-group inequality between 1991 and 2002 were observed only for the urban and rural ST. In the urban areas, the increase could be attributed to a decline in homeownership rate and a dramatic rise in the inequality of building (mainly home) wealth. This was responsible for the deterioration in the median wealth of the group compared to the rest of the population. In the rural areas, the growth in ST inequality might be due to the rapid appreciation of land values in the Northeast over the last decade and the sharp increase in the concentration of financial assets at the top of the distribution. While the growth in ST inequality may be suggestive of the emergence of so-called “creamy layer,” it should be tempered by at least two other main findings of our study. The average ST household has fallen behind the overall population in terms of wealth accumulation and the ST creamy layer has levels of wealth that are considerably below the creamy layer of the nation and especially the creamy layer of forward caste Hindus. The period of study of this paper also coincides with the increased globalization of the Indian economy. Some have argued that that globalization helps the disadvantaged groups to narrow the gap with the privileged groups because the rent-seeking state is pushed back by the less discriminating global markets. Our findings suggest, however, that those that are better positioned to benefit from globally interconnected markets through access to better education or capital or other resources tend to maintain substantial advantages.

NOTES 1. It is widely acknowledged that caste is a highly heterogeneous category. For example, tabulations based on the 1911 census for Uttar Pradesh (the largest Indian state, then known as United Provinces) showed that among the 42 castes considered in the census, “each caste contained landless labourers, cultivators, as well as landlords” (Chaudhury, 2004, p. 1990). Economic differentiation within castes is the rule rather than the exception, then and now. 2. One method of comparing the two distributions is to observe how the ranks of the households differ across the distributions. Thus, if we use quintiles to rank households, we would expect all the households in a given quintile of the consumption distribution to also belong to the same quintile of the wealth distribution. Conducting this exercise for the 2002 data showed that only 52% of those in the top wealth quintile were also in the top consumption quintile. For the other quintiles, the correlation was substantially weaker and at least two-thirds of the units in a given quintile of wealth distribution were located in a different consumption quintile.

5. The determination of disadvantaged groups (OBCs) was made according to the 1931 census. Many changes have occurred since in the socioeconomic status of these groups, but this category does not reflect these changes, in part because subsequent censuses have not collected information on caste. 6. We separate the rural households from the urban, as we believe that the wealth accumulation and income generation dynamics vary significantly across this sectoral division. 7. When we analyze the relation between indebtedness and wealth, normally those groups that have higher net worth are also the ones with higher levels of absolute debt. However, the debt/wealth ratios are higher for SC and ST groups than with the other caste groups. 8. The difference between the outcome based on means and medians indicates the growth in inequality, as we will discuss later.

3. ANOGI stands for “Analysis of Gini.” 4. The “creamy layer” refers to the emergence of an economically well-off group within castes whose average member is worse-off relative to the rest of the population.

9. We derived the occupational/class status variable by using the NCO classification of 1968 as well as details on landholdings and the household type (see Jayadev, Motiram, and Vakulabharanam (2010) for details).

Please cite this article in press as: Zacharias, A., & Vakulabharanam, V. Caste Stratification and Wealth Inequality in India, World Development (2011), doi:10.1016/j.worlddev.2011.04.026

CASTE STRATIFICATION AND WEALTH INEQUALITY IN INDIA 10. In contrast, the other available methods of inequality decomposition by population subgroups allow only for the identification of betweengroup and within-group components of overall inequality. For a comprehensive overview, see Deutsch and Silber (1999). 11. For example, if the mean rank is 0.25 for SC, then the average SC person’s position in the wealth distribution for all persons will be at the 25th percentile. 12. In contrast, the between-group component in the standard decomposition would be equal to twice the covariance between the wealth of each group and the rank of each group’s mean wealth divided by overall mean wealth. The Yitzhaki decomposition takes into account the ranking of each individual within each group in the overall distribution. 13. In theory, the functions are actually cumulative distribution functions. However, when working with actual samples, the cumulative distribution function is estimated by the rank of the observation and hence our description of the functions as rank-assigning functions (Yitzhaki, 1994, p. 149, n.1). 14. Decomposition of the Gini by groups was performed using the ANOGI module for STATA (version 9). 15. The extent of between-caste inequality that we report here (8–13% of overall wealth inequality in 2002) is hard to compare with the estimates of between-group inequalities reported in some other recent studies. There are a variety of obstacles to direct comparisons, including the differences among studies in the measure of between-group inequality (e.g., Gini decomposition versus Theil decomposition), the basis of ‘grouping’ (e.g., caste versus ethnicity versus social class), and measure of economic status or resources (e.g., wealth versus income). With this caveat, it is interesting to note that in a study of inequality of consumption expenditures using a three-way classification (SC, ST and all others) in Kerala, Deshpande (2000) found that between-group inequality was less than 1 percent of total inequality in 1993–94. Comparing Brazil and US around 2000, Bourguignon, Ferreira, and Leite (2002), found that the household head’s race accounted between 5% and 14% of overall income inequality (depending on the measure of inequality) in Brazil and 2% in the US. 16. We have transformed the amounts of wealth into natural logarithms in this figure. Zero and negative amounts of wealth were set equal to zero in the transformation to include those observations also. 17. In 2002, the combined share of land and buildings in total household wealth was 89.1% and 78.1%, respectively, in the rural and urban areas. The remainder of wealth was made up of (in percent, urban areas in parentheses): Consumer durables, 5.3 (8.7); other real assets, 6.0 (5.8); financial assets, 2.5 (10.3); and, debt 2.9 (2.9).

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18. In 2002, roughly a third of the urban households did not own any land and a similar proportion did not own buildings. In contrast, only 6% of rural households did not own any land and there were a similar percentage of households who did not own any buildings. Among the owners, the Gini coefficient for land in the urban areas was 0.72 compared to 0.69 in the rural sector, suggesting that the urban-rural difference in land inequality was mainly a function of the ownership rate differential. In contrast, among building owners, the Gini coefficient for buildings was 0.63 in the urban areas, compared to only 0.55 in the rural areas, indicating that in the case of this asset, both differentials, that is, in the ownership rate and inequality among the owners, contributed to the greater inequality in the urban areas. 19. In contrast, among all urban residents, ownership rate increased by 6% points to 72% and the Gini ratio of building wealth declined sharply from 0.67 to 0.63. 20. This was reflected in the sharp increase in the concentration coefficient of financial assets with respect to wealth. The ratio rose from 0.59 to 0.71 between 1991 and 2002. It should be noted that for urban residents as a whole the share of financial assets rose from 8.6 to 10.3, a much less dramatic change. 21. The per capita average value of land rose by a whopping 165% for the rural ST in the Northeast between 1991 and 2002; the increase for the rural ST in the rest of India was a much lower 40%. 22. The share of the top decile of the rural ST wealth distribution increased their share of financial assets from 13% to 52% over the 1990s while their share of total wealth increased “only” from 46.0% to 50.5%. 23. Due to the log scale used in the figure the stretching of the tail appear to be somewhat smaller than what would be visible in a graph with the actual amounts. 24. The p90 for the urban Hindu FC is 2.6 times the p90 for the urban ST. 25. The lack of overlap appears to be smaller due to the log scale used in the figure than it would have been in a figure with the actual amounts. 26. As noted above, the biases in the data would most likely exaggerate the overlap component between the privileged and the underprivileged caste groups. 27. The sum of the average rank of group j’s rank in group i’s and the average rank of group i’s rank in group j’s distribution will be equal to 1.

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Please cite this article in press as: Zacharias, A., & Vakulabharanam, V. Caste Stratification and Wealth Inequality in India, World Development (2011), doi:10.1016/j.worlddev.2011.04.026