There are 205.9 million households in the country, of which 30 per cent (61.4 million) live in urban areas and the rest (144.5 million) in rural areas.
Urban households earn around 85 per cent more than rural ones, spend three-fourths more and, as a result, save nearly double that of rural households. Much of this can be explained by differences in profession and education. Even for the same profession and levels of education, urban earnings are higher. The lowest income quintile accounts for 22.4 per cent of the population and just 6 per cent of income. But India is changing rapidly – the middle classes, which accounted for 2.7 per cent of the population in 1995, accounts for 8.3 per cent today. However, the regional disparities are a matter of concern. Two-thirds of the poor reside in the 10 low-income states

Highlights
Disparities in earnings

Urban income levels are around 85 per cent more than rural ones (Rs 95,827 per annum versus Rs 51,922 per annum). Since expenses in urban areas are substantially higher (Rs 69,065 per annum in urban areas versus Rs 40,309 per annum in rural ones), the difference in the surplus income (of urban and rural areas) that can be saved or invested is not all that huge in absolute terms. The average urban household saves nearly double that of a rural household (Rs 26,762 per annum in urban areas versus Rs 11,613 for rural areas).

1) INCOME INEQUALITIES

People belonging to the lowest income quintile (Q1) have an average annual per capita income of Rs 3,534. While they comprise 17.9 per cent of the households, their share in total income is only 5.4 per cent.In contrast, the highest income quintile (Q5) accounts for 22.3 per cent of the households, but 51 per cent of the total income. At Rs 33,170 per annum, the average annual per capita income of the top-most quintile is about 9 times that of the lowest quintile. While these are All India numbers, a similar trend is observed even when we analyse income quintiles of rural and urban India. It is estimated that 214 million persons out of an estimated population of 1,027 million fall under the category of poor. This gives us an all India incidence of poverty estimate of 20.8 per cent. The incidence of income poverty in rural and urban areas is estimated to be 21.7 per cent and 18.7 per cent respectively.

The degree of deprivation is related to education (highest education level in a household) and the major source of income. While nearly 26.7 per cent of non-poor households have at least one graduate, just 8.5 per cent of poor households qualify this attribute. A higher percentage of poor are primary educated (25.5 per cent) and illiterates (7.2 per cent) compared to just 10.4 per cent and 3.8 per cent respectively in the case of non-poor households. Labourers constitute the largest segment of poor households and comprise over 62 per cent of such households. In contrast, this group accounts for 26 per cent of the non-poor households. Those earning salaries account for 21.7 per cent of non-poor households whereas just about 4.4 per cent of poor households earn their living through salary/wages.

Ownership of (select) consumer durable goods among the non-poor households is significantly higher than those of poor households. At an all-India level, 33 per cent of non-poor households own colour television sets, 25 per cent have telephone, 22 per cent have refrigerators, 19 per cent own cellular phones, nearly 7 per cent have cars and 2 per cent own credit cards. In contrast, 8 per cent of poor households own colour television sets, 4 per cent have telephones, 3 per cent have refrigerators, 3 per cent own cellular phones, and hardly 1 per cent have cars and credit cards each.

Estimates of Income inequalities

	% share in population	Share of BPL Population (%)	Per capita APL	Income BPL	Per annum Ratio (APL/BPL)
SC/ST	22.9	31.8	10,854	3,431	3.16
OBC	35.6	19.8	13,388	3,734	3.59
GENERAL	27.7	12.0	18,602	4,032	4.61

	Rural			Urban
	% share in households	% share in income	Per capita income(Rs/per annum)	% share in households	Per capita income(Rs/per annum)
Q1	18.1	6.3	3,226	17.9	5.4     5,424
Q2	18.6	10.2	5,193	19.0	9.6     9,566
Q3	20.5	14.2	7,270	20.0	14.5    14,443
Q4	20.9	21.2	10,817	20.4	21.8    21,709
Q5	21.8	48.2	24,618	22.7	48.7    48,517
TOT	100	100	10,227	100	100    19.935

2) DISPARITIES BY CATEGORIES OF LANDHOLDING

The quantum of land owned by a rural household is perhaps an important indicator of the economic status of the household. Nearly 40 per cent of rural households in India do not possess any land while 30 per cent own between 0.1-2 acres of land. Levels of land possessed have as much of an impact on earning levels as occupation does. Households that do not own any cultivable land form the largest group with average household size of 4.68. While they comprise of 37.3 per cent of the population, their share in rural income is 30.7 per cent. In contrast, large farmers account for just 4.7 per cent of the rural population and they contribute about 9 per cent to rural income.
Within these categories of land, a larger proportion of landless households have chief earners who are either illiterates or have low levels of education. Over a third of households in landless categories are illiterate and just 6 per cent of them are graduates. Nearly 10 per cent of households with more than 10 acres of land are headed by those who are graduates.
Since landholdings by the households are interrelated to occupation, the bulk of landless households are labourers (68 per cent). Households with large land holdings have a higher share of households with agriculture as a major source of income (78 per cent) in comparison with just 2.5 per cent agriculture households in landless categories.
Household Income profile by size of land holding

	Landless	Marginal	Small	Medium	Large	Total Rural
% of households	40.5	29.7	14.1	11.9	3.7
Per capita income (Rs/per annum)	8,409	8,929	10,962	14,101	19,666	10,277

3) Impact of education on income

At the all-India level, 17 per cent of all households have at least one graduate member – the figure is 30 percent for urban areas and 11 per cent for rural areas. Around a fifth of households across the country (26 per cent in rural areas and 7.9 per cent in urban areas) are headed by illiterates while a similar number are headed by those who have just passed primary school (5th class) (22.5 per cent in rural areas and 11.5 per cent in urban areas). Just around one-seventh of households across the country are headed by those who have completed graduation.

Salary levels range from Rs 37,574 per annum for illiterate households to Rs 131,104 (that is, 3.5 times that of lowest level) for graduate households. For each level of education, salary levels in urban areas are higher as compared to rural areas. In the case of illiterate households, the average earnings in rural areas is Rs 36,028 per annum versus Rs 49,464 in urban areas; for graduates and above, average rural earnings are Rs 109,527 as compared to Rs 143,302 in urban areas – on an average, urban earnings at each level of education are around a third higher as compared to rural areas.

4) Disparities in education and working in rural/urban areas as causes of income disparities

At every level of education and occupation, urban income is higher than those in rural areas. In the case of the salaried class (such households comprise 36.9 per cent of all urban households and 10.5 per cent in rural areas), urban salary levels are around 15 per cent higher (the household income is Rs 114,545 per annum in urban areas versus Rs 99,243 in rural areas). For labourers (34.6 per cent of rural households and 22.9 per cent of urban households), urban earnings are 37 per cent higher than rural ones; it is 74 per cent in the case of the non-agricultural self-employed and 64 per cent higher in the case of households headed by agricultural labourers.

Another way to look at the rural-urban disparity is to compare the population shares with income shares across rural and urban areas. Households headed by salary earners in rural areas earn less than what they do in urban areas. The average salaried household in rural area earns almost double (Rs 99,243 per annum) the average for all rural households (Rs 51,922 per annum). As a result, while such households account for 10.5 per cent of all rural households, they account for 19.5 per cent of all rural incomes. Similarly, rural households headed by labourers earn a lot less than their counterparts in urban areas – yet, the share of such households in total income is a lot less adverse than it is in urban areas. Such households comprise 34.6 per cent of rural households and 20.2 per cent of total rural income; in urban areas, the figures are 22.9 per cent and 9.7 per cent respectively

5) REGIONAL DISPARITIES

As per CSO estimates, the per capita net domestic products at current prices for 2004-05 vary significantly across the country, ranging from Rs. 29,137 for Delhi to Rs. 6,277 in Bihar, a difference of around five times between the richest and the poorest states. If the various states are bunched into three categories6 of low, middle and high income (based on the level of their per capita income), we will find that 48 per cent of Indians live in the low- income states, 30.6 per cent in the middle income ones and the balance in the high-income states. While accounting for 48 per cent of the population, these low-income states account for just 36 per cent of the country’s GDP. The high income states account for 21.4 per cent of the population and 29.9 per cent of the total GDP. Not surprisingly, the bulk of the population in the low income states is poor – 30 per cent of households in these states fall in the lowest quintile, and just 12.5 per cent of households fall in the top-most income quintile. In the high- income states, the situation is the reverse – while just 11.4 per cent of households fall in the lowest income quintile, 32.6 per cent of households fall in the top most income quintile.
Looked at another way, nearly 67 per cent households in the lowest income quintile (Q1) are those residing in the low income states; 20.8 per cent of households in the lowest income quintile are from middle income states and just 12.3 per cent are from high income states.
In the highest income quintile, around 26.7 per cent of households are from the poorest states, 38.2 per cent from the middle income states and 35.1 per cent from the high income states.

6) ESTIMATES OF FINANCIAL VULNERABILITY

a) Financial vulnerability may be defined as a state of financial well-being of households that results from the pursuit of “unsustainable livelihoods”. In other words, financially vulnerable households are no longer able to meet their financial needs. This can happen on account of two reasons – households lack access to key productive assets; and/or due to unwise financial management. In the present context, a household is characterised as financial vulnerable if its total reported income is less than its total (routine and non-routine) expenditure. If we follow the above criteria, we find that one fourth of Indian families (51 million households equivalent to about 262 million persons) are financially vulnerable. In other words, the incomes of around 25 per cent of Indian households are below their total expenditure and these household are unable to meet their needs through the financial resources at their disposal. Approximately three fourth of such households is located in rural India. Expenses on weddings and other social ceremonies account for around 57 per cent of all non-routine expenses in the case of vulnerable households and this falls to 31 per cent for non vulnerable households.

The level of income is an important determinant of financial vulnerability. As per this survey, a majority of vulnerable households – two-third in rural and urban India each – belong to the bottom two income quintiles (Q1 and Q2). Hardly one-third of non vulnerable households belong to these income quintile groups. While 40 per cent of vulnerable households reported an outstanding loan, this share in the case of non-vulnerable households was only 18 per cent.

b) Occupation levels vary significantly across financially vulnerable households and non-vulnerable households. Labourers constitute the largest segment of the vulnerable population, comprising over 43 per cent of the vulnerable households.The salaried account for 21.5 per cent of the non vulnerable households. Just around 10 per cent of the vulnerable households earn their living through salary/wages. Interestingly, other socio-economic and demographic characteristics such as education level and age of chief earners, size of landholdings and even ownership of high-end products etc, have not shown much impact on vulnerability. For instance, while 28 per cent of landless households are financially vulnerable, this share for medium and large farmers is 23 per cent each.
Main Sources: NCAER India Financial Protection Survey-2007, NSSO-AIDIS-2002.