The Covid-19 pandemic has hit the global economy hard, increasing poverty in practically every country, reducing employment and pulling people down from middle-income brackets into low-income groups, sometimes to the brink of poverty. Alongside, the inequality gulf, already a yawning chasm, has also widened. Some countries have been hit harder than others, of course, and India is one of them.
A report released by the Washington-based Pew Research Center on 18 March 2021 and Oxfam’s 2021 inequality report released earlier this year shine a light on India’s economic travails as does this year’s Global Hunger Index rankings. Before we get to these, some context is necessary.
So, let us look at some of the projected macroeconomic figures to get a sense of the scale of the crisis. Estimates put the drop in global economic output at around 4.5 per cent in 2020. While the International Monetary Fund (IMF) estimated a 4.4 per cent contraction, in the early days, the World Bank had put the number at 5.2 per cent.
The global unemployment figures show the problem from a starker, and more human, perspective. According to the International Labour Organization (ILO), 114 million jobs were lost in 2020 compared to 2019. Apart from outright job losses, working hours were curtailed for many. In total, there was an 8.8 per cent reduction in working hours, the equivalent of 255 million full-time jobs, assuming a 48-hour working week (see https://www.ilo.org/wcmsp5/groups/public/@dgreports/@dcomm/documents/briefingnote/wcms_767028.pdf).
Obviously, this had a big impact on global poverty. The World Bank says that the pandemic caused an increase in “extreme poverty” in 2020, for the first time in 20 years. In an assessment in October 2020, it said that between 88 million and 115 million more people would be pushed into extreme poverty, defined as living on less than $1.90 (roughly Rs 138), by 2021. Had the pandemic not happened, the World Bank expected a 7.9 per cent reduction in extreme poverty in 2020 (see https://www.worldbank.org/en/news/press-release/2020/10/07/covid-19-to-add-as-many-as-150-million-extreme-poor-by-2021).
The UNDP says the burden of poverty will fall, or actually is already falling, disproportionately on middle-income countries which had high loads of poverty before the pandemic, especially in South Asia and sub-Saharan Africa. While citing the IMF and ILO figures for poverty and unemployment, the UNDP also says that more than 265 million people will face acute food insecurity globally. It also says that there will be a 60 per cent decline in earnings for workers in the informal sector, while half the world is trying to survive without “any form of social protection” (see https://feature.undp.org/covid-and-poverty/).
The India story
We all know intuitively that the pandemic has been bad news for a lot of people in India and throughout the world, but these numbers help us to imagine the enormity of the crisis. Let’s move to Indian the situation, in which the pandemic exacerbated poor economic outcomes already existing – in the language of the pandemic, “pre-existing conditions”.
The National Statistical Office (NSO) estimated that the contraction of the Indian economy in the 2020-21 financial year would be of the magnitude of 8 per cent, despite the fact that technically it emerged from a recession in the third quarter (October to December), showing 0.4 per cent GDP growth. The economy is projected to be back in negative territory in the fourth quarter.
Despite much waffling about a V-shaped recovery and “green shoots”, there is little point in speculating about what will happen in the impending financial year, especially given the fact that India seems to be in the grip of a second wave of infections that has hit states that are key to an economic recovery – Gujarat, Karnataka and Maharashtra, for example. Restrictions on public mobility have already been announced by some of these states.
The unemployment and poverty data can help us, as with the global situation, understand the situation in terms of human costs. According to data compiled by the Centre for Monitoring Indian Economy (CMIE), the unemployment rate in February 2021 was 6.9 per cent, which is an improvement over February 2020, before the lockdown, when it was 7.8 per cent. But in between, it has been a rollercoaster. The unemployment rate peaked in April 2020 at 23.50 per cent. The situation started improving in June, by when the easing of the lockdown had begun. The unemployment rate fell to 10.30 per cent that month, reaching its lowest point in November at 6.50 per cent, in between it has been up and down, but below 10 per cent.
Contribution of MGNRGA
Much of the credit for shoring up the employment figures must go to the programme run under the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), which was allocated Rs. 61,500 crore in the 2020 Budget after being derided by the ruling party. But increased demand for work caused by the pandemic-induced recession prompted the Centre to increase the allocation by Rs. 40,000 crore. Chhattisgarh (107 per cent of target), West Bengal (105 per cent), and Assam and Bihar (104 per cent) have utilized the scheme maximally. But this in itself tells us a story. MGNREGA programmes usually pay less than minimum wages and draw only those who cannot get paid work even in the informal sector. It is an indicator of economic distress, not prosperity. The unemployment figures, thus, don’t necessarily mean that the situation is getting better. For comparison, the budgetary allocation for MGNREGA programmes in 2021-22 is Rs. 73,000 crore, a reduction of about a third. The allocation was Rs. 61,400 crore in 2018-19 and Rs. 60,000 crore in 2019-20. These figures are being cited to point to the extraordinary role played by MGNREGA to alleviate extreme distress.
We need to take a quick look at the situation that existed when the Covid-19 pandemic devastated the economy and a multitude of lives. The GDP growth rate has been falling for some time now. In 2016-17, it was 8.26 per cent, a 0.26 per cent increase over the last year. Since then it has been falling -- 7.04 per cent in 2017-18; 6.12 per cent in 2018-19; and 4.18 in 2019-20, a precipitous decline. The unemployment figures were stable between 2016-17 and 2019-20, falling from 5.51 per cent to 5.36 per cent, though in the aftermath of demonetization there had been a substantial spike in unemployment (see https://www.cmie.com/kommon/bin/sr.php?kall=warticle&dt=2019-01-08%2009:28:37&msec=666).
The shrinking middle class
In other words, the Indian economy wasn’t doing too well, but the pandemic made matters worse. It is in this context that we need to look at the Pew Research report. It says, first, that the Indian middle class has shrunk by 32 million in 2020, which accounts for 60 per cent of the global contraction of the middle-income group, defined as those who earn $10.01-20 (roughly Rs. 725-1,450) a day. This means that the number of people in the middle class will have fallen to two-thirds of the pre-pandemic projection of 99 million people.
At the same time, the number of poor people, defined as those earning $2 or less (roughly Rs 145 or less) a day has increased by 75 million, again accounting for 60 per cent of the global rise in poverty. The total number of poor people is expected to clock in at 134 million, more than double the pre-pandemic estimate of 59 million, at a poverty rate of 9.7 per cent, as against the January 2020 forecast of 4.3 per cent. This also means that those in the low-income tier, earning $2.01-10 (roughly Rs. 145-725) a day will fall from the expected 1.20 billion to 1.16 billion. It should be a sobering thought for those inclined to push the rhetoric of the ‘India Shining’ variety and trumpet the rise of India’s affluent middle class that over 95 per cent of India’s population consists of people who are either in a low-income trap or are poor. We shall return to this point.
India’s growth figures, including a —9.6 per cent growth rate for India according to the World Bank’s estimate revised in January this year, are in contrast to the situation in China, which was the only major economy to record positive growth in 2020 at 2.3 per cent. The number of people dropping out of the middle-class category there was 10 million and the poverty scenario remained unchanged. Additionally, in China there are more people in the middle-income and upper-middle-income categories than those in the lower-income categories and the poor combined (see https://www.pewresearch.org/fact-tank/2021/03/18/in-the-pandemic-indias-middle-class-shrinks-and-poverty-spreads-while-china-sees-smaller-changes/). There are other metrics, but we shall not belabour the point.
Hunger index: still serious
Then, of course, there is the Global Hunger Index (GHI). This year, it placed India at 94 on a list of 107. This is despite the fact that India’s score on the index has been improving continuously from 38.9 in 2000, through 37.5 and 29.3 in 2006 and 2012, to 27.12 in 2020. Other countries have improved faster, however. On the GHI severity scale, below 9.9 counts as low, 10-19.9 as moderate, 20-34.9 as serious, 35-49.9 as alarming, and above 50 as extremely alarming. So, India has improved over this century from alarming to serious, but is not likely to break into the moderate category anytime soon. Of concern, to citizens will be the fact that low-income countries – in Africa, South America and Asia, including Sri Lanka (64, in the moderate bracket), Nepal (73, moderate), Bangladesh (75, serious but just about, with a score of 20.4) and Pakistan (88, with a score of 24.6) – outperform India in providing nutrition to their people.
Rich vs poor
This is at one level inexplicable, though not surprising, given that it has been known for a decades that India has been behind even countries in sub-Saharan Africa on key indices like child malnutrition rates.
This brings us inescapably to Oxfam’s report, The Inequality Virus — Global Report 2021. It begins with the finding that globally it took just nine months for ‘the fortunes of the top 1,000 billionaires to return to their pre-pandemic highs, while for the world’s poorest, recovery could take more than a decade’ and that the increase in the wealth of the 10 richest people in the world is more than enough to prevent anyone from falling into poverty because of the virus and provide vaccines for everyone on the planet (see https://d1ns4ht6ytuzzo.cloudfront.net/oxfamdata/oxfamdatapublic/2021-01/The%20Inequality%20Virus%20-%20Global%20Report%20%282021%29-3.pdf?N03OMRi1S_PWAiXig7D34AiDJ6ibPSOP). Among these 10 richest are Jeff Bezos of Amazon, Elon Musk of Tesla and an assortment of entrepreneurs mostly in the IT and IT-enabled sectors. The pandemic has made, and will make over the coming years, a deeply unequal world even more unequal. The report says that a survey of economists found that 87 per cent of respondents felt that the pandemic would create an increase or major increase in income inequalities in their countries.
In India, too, the pandemic has delivered a bonanza to the rich. We’ve already seen what it is doing to the poor. The Oxfam report says Mukesh Ambani doubled his wealth between March and October 2020, his total fortune reaching $78.3 billion. In the process, Ambani jumped from the 21st spot in the global list of billionaires to sixth place. Gautam Adani, too, has made a killing. His group’s six listed companies added $79 billion to their market value in their past year. Adani is now India’s second-richest person in India with a net worth of $56 billion, having added $50 billion to his fortune in the past year, $5billion more than Ambani has done (https://www.ndtv.com/india-news/the-growing-wealth-and-power-of-gautam-adani-2398716).
These examples serve mainly to highlight the extreme impoverishment of hundreds of thousands of people in the country. The point is whether the government is doing or has done enough to meet this emergency. Clearly, it hasn’t. From the early days of the pandemic, economists have advocated putting money into people’s pockets through direcst cash transfers to alleviate hardship and get the economy going. These appeals have not been heeded.
The problem from a larger political economy vantage is that the Indian state is neither interested in redistributing wealth downwards, nor in strengthening a dilapidated welfare infrastructure.
(Suhit K. Sen is a freelance journalist and an independent historian)
