Elsevier

World Development

Volume 39, Issue 10, October 2011, Pages 1820-1833
World Development

Caste Stratification and Wealth Inequality in India

https://doi.org/10.1016/j.worlddev.2011.04.026Get rights and content

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.

Introduction

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., Béteille, 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, discrimination-based) 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, 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 divisions1 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 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 et al., 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

Section snippets

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,

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,

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

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 noticeably above the

Acknowledgments

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.

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