A new study by the Pew Research Center estimates that the COVID-19 pandemic has had a disproportionately deleterious impact on living standards in India and China in 2020.
The report uses World Bank projections of economic growth to estimate the impact of COVID-19 on Indian incomes.
What are the highlights of the report?
The lockdown triggered by the pandemic resulted in shut businesses, lost jobs and falling incomes.
This plunged the Indian economy into a deep recession.
However, China managed to avoid a contraction, although growth slowed.
Resultantly, Chinese incomes remained relatively unshaken.
Middle class - The report defines the middle class as people with incomes of approximately Rs. 700-1,500 or $10-20 per day.
The middle class in India is estimated to have shrunk by 3.2 crore in 2020 as a consequence of the downturn.
This is if compared with the number it may have reached without the pandemic.
In other words, India’s middle class may have shrunk by a third due to 2020’s pandemic-driven recession.
In comparison, there was just a 2% drop in the middle class population in China.
Poor - The number of poor people earning less than Rs. 150 per day has more than doubled, from almost 6 crore to 13.4 crore in India.
This accounts for nearly 60% of the global increase in poverty.
The report also noted the record spike in MGNREGA participants as proof that the poor were struggling to find work.
Low income group - The vast majority of India’s population fall into the low income tier, earning about Rs.150 to 700 per day.
This group shrank from 119.7 crore to 116.2 crore per day, with about 3.5 crore dropping below the poverty line.
Besides, the richer population who earn more than Rs. 1,500 a day also fell almost 30% to 1.8 crore people.
What is the overall impact?
In all, in India’s case, the sharp economic contraction has pushed as many as 7.5 crore people into the ranks of the poor.
In contrast, the figure is about 10 lakh in China, whose economy slowed but continued to post growth.
China’s middle class is likely to see a miniscule dip of just one crore.
In absolute terms, the number of poor in India is posited to have swelled to 13.4 crore.
This would reverse the gains made in the preceding 9 years when India cut the number of poor by more than three-fourths to an estimated 7.8 crore in 2019.
Why is it a serious concern?
Pew warned that the situation may actually be worse than estimated.
The methodology in this analysis assumes that incomes change at the same rate for all people.
If the COVID-19 recession has worsened inequality, the increase in the number of poor is likely greater than estimated in this analysis.
Also, the decrease in the number belonging to the high income group is likely less than estimated.
The middle class may have shrunk by more than projected.
What is the significance?
The Pew assessment acknowledges the multiple assumptions that inform the study.
These include varying base years for income/consumption figures, with India’s from 2011 and China’s from 2016.
Nevertheless, the study serves as a stark reminder of the economic disparities, both within India and at a comparative level with its northern neighbour.
The report once again spotlights the widening inequality in India, exacerbated by the pandemic.
Notably, the lower income populations have disproportionately borne the brunt of job and income losses in the wake of the lockdowns.
The fiscal policy response to redress this precarious situation has also been underwhelming.
This is especially true when viewed from the perspective of the pre-pandemic tax cuts for corporates done in an attempt to revive private investment.
How does the future look?
The number of COVID-19 cases is once again rising across the country.
Given this, there is a clear and present danger that any nascent economic recovery could be hindered even before it gains traction.
More worryingly, the number of those sliding into poverty could jump dramatically.
The government’s policy responses would well have to deal with the ‘lives versus livelihoods’ dilemma.
