Economic inequality determines collective goods provisioning as well as common pool resources outcomes. However, there is little theoretical or empirical understanding of how (if) inequality influences loss of commons. Using a comprehensive nationally representative dataset from India, we show why this relationship is ambiguous when local commons are governed under an incomplete decentralization regime where higher levels of government retain substantial residuary powers. We establish a non-monotonic relationship between economic inequality and local privatization of the commons within villages. However, economic inequality increases the likelihood of state-facilitated leasing of commons to private interests. We also delineate the role of social heterogeneity in alienation of commons. We use several empirical strategies to establish the robustness of our findings and mitigate possible endogeneity.