Indian middle class shrinks, poverty grows due to the pandemic – report by us thinktank shows

~ Trinanjan Chakraborty

In October, 2020, the World Bank had warned of an alarming rise in global poverty due to the effects of the COVID-19 pandemic. The World Bank had estimated that between 88 & 115 million people globally were likely to be pushed into extreme poverty as a result of the disruptions caused by the pandemic by end of 2021. With India and China accounting for more than a third of the global population, the economic impacts of the pandemic in these two countries becomes vital determinant of the global scenario.

A study by renowned US non-partisan thinktank Pew Research indicates that the impact of the pandemic on the two Asian giants has taken different courses. Here, it is worthwhile to examine the performance of the two economies in a year ravaged by the pandemic. In Jan, 2020, the World Bank had predicted roughly similar real GDP growth rates for India and China – 5.8% and 5.9% respectively – for FY 2021. In Jan of this year, World Bank revised these rates in light of the pandemic. While China still stayed in the green zone with an approximate 2% growth projected, Indian economy was forecast to shrink by -9.6% in the current fiscal. (The Reserve of Bank India estimates the economy to shrink by -7.7% in the same period)

The Pew Research report demonstrates the ramifications of this sharp economic contraction. The study report estimates that the “middle class” in India is likely to have shrunk by a whopping 32 million during the year 2020 (middle class defined as people with income of $10.01-$20.0 per day) compared to what it should have become in a pandemic free world. The estimated drop in people in “low income” group (defined as daily income of $2.01-10.00) in India has been also sharp at 35 million. Expectedly, this has been balanced out by a whopping addition of 75 million to the Poor income bracket (daily income <$2.0) vis-à-vis estimates of a pandemic free situation.

By contrast, the study estimates that Chinese middle income group is likely to have contracted by 10 million with its “low income” population increasing by 30 million. The addition to Poor segment in China as a result of the pandemic has been minimal – estimated to be ~1 million. Wide spread job losses, prolonged salary cuts and sharp rise in price of fuels, LPG cylinder etc. has had a devastating effect on middle and low income groups in India, pushing them towards the lower rung. India’s national rural employment scheme, the NREGA, showed a sharp spike in demand during the months when the country was in a lockdown due to the pandemic, most likely boosted due to labor in informal sectors forced to return to their villages as their employment options came to a halt. The International Labor Organization (ILO) estimates that about 400 million people – approx. 76% of the total workforce engaged in the Indian informal sector is vulnerable to poverty due to the impact of the pandemic with most risk posed to those engaged in low-paid, low-skilled jobs.

The results of this study show the severe toll that the COVID-19 pandemic has taken of the Indian economy. In the recent months, with the economic activities resuming to pre-pandemic levels, signs of a recovery were visible. However, several states in the country are already showing a return in surge of Covid-19, a second wave which if not controlled, might again leave economic disaster in its wake. On part of the government, stepping up the vaccination drive and ensuring adherence to COVID safety norms in public places should be top priorities now. However, a big onus is also on the general population to adopt proper behavioral practices and also participate in the vaccination drive in large numbers to make it a success. Only through best and coordinated efforts of both can further ravages of the pandemic be stopped or minimized.

NB: The estimates made by the Pew Research study projects the difference between pre-pandemic projections and post-pandemic estimates. “Post pandemic” refers to the period since the onset of Covid-19 taken at January 2020.

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