Does social identity matter in individual alienation? Household-level evidence in post-reform India

Does consumption distance as a measure of individual alienation reveal the effect of social identity? Using the central idea of Akerlof’s ‘social distance’ theory, individual distance is calculated from their own group mean consumption and then we examine whether individuals from different social groups – caste and religion – are alienated across the distance distribution. Using India’s household-level microdata on consumption expenditure covering three major survey rounds since the inception of the reform period, we find a non-unique pattern where the marginalised and minority group households tend to be alienated across the distance distribution. However, among them, the households with higher educational attainment become more integrated as reflected in the interaction effect of education. These results are robust even after controlling for the endogeneity of education. Given this significant group difference in consumption, we undertake a group-level comparison by creating a counterfactual group through exchanging the characteristics of the privileged group to the marginalised group (or Hindus to non-Hindus), and find that the privileged group still consumes more than the counterfactual marginalised group, explaining around 77% of the estimated average consumption gap at the median quantile in 2011–12 (or 59% for Hindus versus Non-Hindus). This suggests other inherent identity-specific social factors as possible contributors to within-group alienation (relative to a better-off category) that can only be minimised through promoting education for the marginalised (or minority religion) group.