What 2020 Did To India’s Inequality

Context: India’s pandemic-induced economic hit is expected to be much worse in terms of rise in inequality, poverty and unemployment, in comparison to other comparable Asian nation.

Pre-pandemic scenario of Inequality:

• As per the World Inequality Database, the share of the top 10% in India’s national income was about 56%, much higher than comparable countries like Indonesia (41%), Vietnam (42%), and China (41%).

Effects of pandemic on India’s inequality:

• Fall in income: Dalberg survey found that the average monthly household income declined by 65%.
  • The poorest were hit the hardest: the bottom 10% of India’s households lost 30 percentage points more of their income than the top 10%.
  • The Centre for Monitoring Indian Economy (CMIE) survey: An average Indian household lost about ?25,000 in the first six months of the pandemic, as compared to the previous year.
  • Differential impact: Rural-urban Earnings: While the bottom rural decile lost 54% of their incomes in the covid months, the richest decile experienced a loss of 16% in rural areas.
    • In urban areas, the corresponding numbers are 39% and 21%, respectively.
  • Rising inequality: The share of the bottom 10% in total household income decreased from an already low 2.7% to 1.6% in rural areas (and 2.8% to 2.2% in urban areas).
• Inter-generational disparities: Researchers at the International Monetary Fund have shown that five years after a pandemic, income inequality increases and individuals with low education are most impacted.
• Larger short-term impact on the poor: Due to slower recovery, they are forced to sell productive assets and reduce education and food expenses in order to survive the crisis, as per the World Bank.
• Rise in poverty: As per World Bank estimates, South Asia (mainly India) will see the number of poor increased by about 70 million in 2020.
• Accumulation of debts: In the Dalberg survey of low-income households, the median debt accumulated as of late-May was 67% of pre-lockdown income, reaching 100% for the poorest households.

Inadequacy of the government support:

• The direct cash transfer of ?1500: was a tiny fraction of the income loss of ?17,585 that a household in the bottom 10% experienced.
• The Centre’s cash transfer amounted to just 4% of Gross Domestic Product per capita per month over three months, around ten times less than other lower-middle-income countries, - World Bank.

Way forward:

• Raise funds through a covid cess on the rich in order to partly fund direct support to the poor.
• Bringing a recovery package: which should include -
  • Larger direct cash transfer to the poorest;
  • Continuation of the Public Distribution System (PDS);
  • Expansion of MGNREGA in rural areas;
  • Introduction of a new urban employment guarantee scheme, and
  • Added investments in education.

Conclusion: Holding back on public support for checking fiscal deficit alone, risks prolonging the hardship of average Indians and delaying recovery.