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.