India's widening wealth gap is the focus of CNBC's Inside India newsletter.

This report is from the CNBC "Inside India" newsletter, which provides timely and insightful news and market commentary on the emerging powerhouse and the big businesses driving its rapid growth. If you find it interesting, you can subscribe here.

The big story

The increasing wealthy population in India and their significant impact on the country's growth trajectory are attracting envy from numerous major economies.

The number of ultra-wealthy individuals in the country, defined as those with at least $30 million, increased by 6.1% in 2023 to 13,263 people, according to Knight Frank data. This number is expected to grow by 50.1% between 2023 and 2028, making it the fastest rate of growth for UHNWIs globally, the same report stated.

Through their consumption habits and investment decisions, these individuals are quietly advancing India's economic growth.

Despite the excitement and anticipation of expansion, there lies the difficulty of reducing economic disparity.

A study by the World Inequality Lab (WLI) found that the top 1% of income earners in India accounted for 22.6% of the country's overall income between 2022 and 2023, making it one of the highest in the world, surpassing levels in the United States and emerging markets like Brazil and South Africa.

Over the past eight decades, the percentage of the nation's top earners has fluctuated significantly. In the 1930s, when India was under British rule, the share held by the top earners was just over 20%. During World War II, this share dropped to just over 10% and remained relatively low between the 1940s and 1960s. However, in 1982, the share plunged to 6.1%. It gradually increased thereafter, reaching 15.1% at the turn of the century.

The income gap in India is increasing, along with the wealth disparity.

The wealthiest 1% of India controlled 40.1% of the country's wealth between 2022 and 2023, according to a WLI study. This represents a significant increase from the 12.9% they held in 1961, when the researchers began their analysis.

According to Sumedha Dasgupta, senior analyst at the Economist Intelligence Unit (EIU), the increase in income and wealth inequality in India is not due to the poor becoming poorer.

She told CNBC's Inside India that the phenomenon is occurring at a faster rate, with the rich becoming much richer.

Despite being an emerging economy with a strong growth rate, India has over 300 billionaires, which has only widened the rich-poor divide due to its large population of poor people.

India's 3 household groups

The wealth and income disparity in India has resulted in the emergence of diverse categories of households with varying standards of living.

Blume Ventures divides Indian households into three categories based on their per capita income.

The "consuming class" in India, also known as India 1, comprises approximately 30 million households or 120 million individuals with the ability to invest and purchase goods and services beyond basic necessities. This group accounts for $800 billion, or 60%, of India's total consumption.

The second group, or India 2, consists of approximately 70 million households with lower incomes from the "aspirant class," who are heavy consumers but reluctant payers, as Blume Ventures stated in its Indus Valley Annual Report 2024. This group includes helpers and security guards.

The venture capital firm observed that the last group, or India 3, consists of individuals who do not have the income to purchase discretionary goods. These individuals have a per capita income of approximately $1,000, which is similar to that in sub-Saharan Africa. This group comprises around 205 million households or a billion people.

According to research from Oxfam, approximately 63 million Indians fall into poverty each year due to healthcare expenses, which equates to two Indians becoming impoverished every second.

A minimum wage worker in rural India would need 941 years to earn the same amount as a top executive at a leading Indian garment company in a year, according to Oxfam.

Unequal education opportunities

According to Dasgupta of the EIU, India's vicious wealth and income gap cycle is largely due to mismatched education opportunities.

Education is not easily accessible to a significant portion of Indians due to the government's reliance on funding and the subpar quality of education.

Primary and secondary education in private schools is typically of higher quality for children from households with a monthly income of around 30,000-50,000 Indian rupees ($355 to $592).

Government schools, although free or low-cost in the initial years, often face challenges such as a shortage of qualified teachers, inadequate facilities, and a lower standard of education provided.

Rural parents are not motivated to send their children to school for 13-14 years because they want them to work and contribute to the household. They are uncertain about the kind of income their child will be able to provide later based on their education.

Education and meals are ensured for India's children through public or private schooling. However, limited access to foundational education can negatively affect productivity, employability, and health in the long run, particularly among those in lower income per capita areas.

Typically, India's less affluent population finds employment in low-skilled jobs such as agriculture, construction, and labor, and often struggles to secure positions in higher-skilled roles in manufacturing or services.

Dasgupta recommends increasing resources to enhance primary educational standards and boost enrollment and completion rates.

The Department of School Education and Literacy received the highest amount of funding ever, with 734.98 billion Indian rupees allocated in the recent national budget, despite being only 6.6% of the total budget allocation.

What else is needed?

Experts have suggested that in addition to enhancing education, measures such as increased taxes on India's wealthy and a greater emphasis on job creation are necessary to boost the labor force participation rate.

A wealth tax is not currently in place in the country, but there are other measures such as higher income tax rates for the wealthy, capital gains tax, and surcharges for high-income individuals. According to a recent survey by the Earth4All initiative and Global Commons Alliance, 74% of those polled in India support a tax on the super-rich.

TS Lombard's chief India economist, Shumita Deveshwar, suggests that a more effective solution for India would be to encourage investment opportunities, both domestically and privately, in order to promote growth.

FDI inflows in India slowed to a 5-year low in FY24, despite the country being a fast-growing economy relative to other emerging markets and attracting global investors' attention.

Despite a 48% increase in FDI flows in the first quarter of 2025 from April to June, the economist warned that these flows may be unstable and not yet backed by a robust domestic private investment recovery.

To prevent wealth inequality from worsening, the only viable option is to increase private investment, particularly in the manufacturing industry, which can transition individuals from farming to higher-skilled employment.

Need to know

Swiggy, a food delivery giant backed by SoftBank, made its market debut on Wednesday. Its shares soared 15% on their first day of trading. The company raised 113.27 billion Indian rupees in its IPO, which was oversubscribed more than three times. Swiggy's listing is India's second-largest this year and follows the successful IPO of Hyundai Motor India in October.

India's central bank chief, Shaktikanta Das, has warned of the possibility of global inflation returning and economic growth slowing down at CNBC-TV18's Global Leadership Summit. He cautioned that despite global central banks potentially managing a soft landing during a period of "continual and unprecedented shocks," there are still challenges such as geopolitical conflicts, geoeconomic fragmentation, commodity price volatility, and climate change that continue to grow.

Uday Kotak, founder and director of Kotak Mahindra Bank, has expressed his lack of excitement towards bitcoin despite President-elect Donald Trump's positive stance on the cryptocurrency. His stance aligns with RBI Governor Das' concerns that bitcoin poses risks to financial stability, monetary stability, and the overall banking system.

What happened in the markets?

This week, Indian stocks have not met the expectations of investors, with the index declining 2.54% since Monday, despite a 8.3% increase since the beginning of the year.

The current 10-year Indian government bond yield is 6.854%, having risen in the past week.

This week on Biz Focus Hub, Hiren Ved, the director and CIO of Alchemy Capital, stated that the domestic stock market is currently in a consolidation phase. He attributed this to the fact that company earnings had been "tepid" due to seasonal factors and the election earlier this year.

Analysts on CNBC Pro spoke with Capital Economics about the potential impact of Trump's election victory on global investors. According to Capital Economics, most Asian currencies are expected to weaken by up to 5% against the dollar in the coming year due to the anticipated higher interest rates in the U.S.