Sense and Vulnerability

CONTEXT: Formal labour & capital are more vocal, but informal labour & capital are likely to bear bigger COVID-19 shocks.

Significant aspects of Poverty in India

• It is an absolute concept, defined with respect to minimum standards of living.

• Multidimensional measures of poverty are correlated with conventional poverty rate, i.e. headcount ratio.

• Decline in correlation between poverty and growth: According to the Tendulkar Committee report - 

• Poverty rate declined from 45% in 1993-94 to 37% in 2004-05 and 22% in 2011-12.
• Had there been no growth decline due to pandemic, India’s poverty by 2023-24 would have been 10-12%.
• India will miss the target for SDGs in 2030, which was inspired by similar results by China in MDGs).
• Once poverty numbers drop to around 10%, experience from other countries shows further declines become difficult, since those are more serious forms of deprivation.

Tools for measuring Inequality:

• Gini Coefficient: Statistical dispersion intended to represent the income/wealth inequality in a nation/group of people.

• Kuznets-Oshima hypothesis— Higher growth and urbanization are correlated with rising Inequality, till a certain level of income.
• For, E.g. Between 1993 and 2012, there was negligible change in rural Gini, while urban Gini increased, consistent with patterns in other countries.

• Lorenz Curve: A graph on which the cumulative percentage of total national income is plotted against the cumulative percentage of the corresponding population.

• Income distribution: (subject to regional variations)

• Bottom 40% - Normal

• Next 40% - Log normal

• Top 20% - Pareto distribution (any leftward shift “for absolute decline in incomes” in the curve will have differing implications.)

• Growth Theory models: Under this model, society was classified into two classes like workers and capitalists and doesn’t depend on income distribution. For e.g. Kaldor Pasinetti.

• Similarly, there is a government, and there are wage-earners, unincorporated enterprise (informal) and formal firms.

• For, E.g. as per Credit Suisse estimation, around 50% of loss is borne by the government, 25% by wage-earners and 10% each by informal and formal firms.

Hurdles to Growth

• Private Health: Even when lockdown is totally unlocked, Covid-19 will leave a legacy of morbidity and health expenses.

• Lock-down led to delays in public expenditure on the social sector.

• Urban-Rural divide: Due to high population density and numerous slum-dwellers in cities, urban recovery will be dampened due to competition.

Conclusion

• Poverty and its public policy implication are clear. Clarity on Inequality is more difficult.
• Looking beyond 2020-21, a growth slowdown will be unequally distributed between government, formal/informal firms and wage-earners.