Gini Index

What is the Gini Index?

The Gini Index, also referred to as the Gini Coefficient, is a statistical value for expressing income or wealth inequality across a nation or population. It indicates the distribution of income on a population from perfectly even (evenly spread) to very uneven (widely dispersed).

It is often employed by economists, governments, and institutions such as the World Bank and United Nations to analyze inequality.

How the Gini Index Works?

Value Range: The Gini Index is between 0 and 1 (or 0 to 100 as a percentage).

• 0 = perfect equality – everybody has the same income.
• 1 (or 100%) = perfect inequality – one person has all the income, and everybody else has zero.

Example

• A nation with a Gini Index of 0.25 has quite low inequality.
• A nation with a Gini Index of 0.60 has high inequality.

Gini Index Formula

Although the exact calculation may be intricate, one can use this simplified version:

Gini Index= A/(A+B)

Where:

A = Area that lies between line of perfect equality and Lorenz Curve

B = Area which lies under the Lorenz Curve

The Lorenz Curve is a graphical measurement of income or wealth distribution.

Graphical Concept (Lorenz Curve)

Consider a graph:

• The x-axis is to denote cumulative population (poorest to richest).
• The y-axis is to denote cumulative income.

A straight diagonal line represents perfect equality (e.g., 20% of individuals receive 20% of the income).

The Lorenz Curve curves below this line. The greater the curve, the more unequal the distribution of income — and the greater the Gini Index.

Applications of the Gini Index

• Measure Economic Inequality: It facilitates comparison of income distribution between countries or over time.
• Policy Decisions: Governments utilize it to formulate tax policies or welfare programs.
• Track Development: A declining Gini Index over years might reflect more inclusive growth.

Gini Index of India

• India's income inequality Gini Index is about 35–37 (out of 100), according to recent estimates.
• Wealth inequality, however, is far greater, with the richest 10% capturing a significant portion of total wealth.

Limitations

• Doesn't Reveal Who Is Rich or Poor: It reveals the extent of inequality but not the absolute income levels.
• Ignores Regional Differences: It reveals national-level inequality, but not regional or community-level variations.
• Sensitive to Data Quality: Poor quality income data can bias results.