Lorenz Curve

The Lorenz curve is a graph that shows how income or wealth is distributed across a population. It plots the cumulative percentage of total income on the vertical axis against the cumulative percentage of people, ranked from poorest to richest, on the horizontal axis.

How it works

If income were perfectly equal, the poorest 20% would earn 20% of all income, and the curve would be a straight 45-degree line of equality. In reality the curve sags below this line: the bottom share of people holds a smaller share of income, and the gap between the curve and the diagonal measures inequality.

The Gini coefficient summarises this gap in a single number, the area between the line of equality and the Lorenz curve, expressed from 0 (perfect equality) to 1 (one person holds everything). The more the curve bows away from the diagonal, the higher the Gini and the greater the inequality.

In India

India's income and wealth distribution is highly unequal, and Lorenz curves are widely used to illustrate it. Government surveys such as the Periodic Labour Force Survey and consumption-expenditure surveys, along with research bodies, generate the data behind these curves.

Policymakers cite inequality measures when designing redistribution, progressive income tax, subsidies, direct benefit transfers, and welfare schemes all aim to lift the bottom end of the curve closer to the line of equality. Wealth, concentrated in property and financial assets, is typically even more unequal than income, so a wealth Lorenz curve bows further from the diagonal than an income one.

Why it matters

For anyone analysing the Indian economy, the Lorenz curve frames a key reality behind consumption patterns: a large share of discretionary spending power sits with the top end. This shapes which companies and sectors, premium versus mass-market, capture growth, a consideration for equity investors.

Common mistakes

A common error is reading the Gini number without the curve; two distributions can share a Gini yet differ in shape, one unequal at the top, another at the bottom. Another is confusing income inequality with wealth inequality; they are measured separately and wealth is usually far more skewed.