[Editorial] Covid-19, Poverty and Income Inequality of India

Quick revision mind map

Context

Consumer Pyramids Survey

Poverty rose but income inequality fell

  • Poverty certainly rose during the COVID-19 pandemic.
  • However, income inequality actually fell.

What the editorial is about?

  • The need for assessing prospects for inequality by understanding the decline in inequality during the pandemic after it ends.

Most probable and repeated topics of upsc prelims

India and Covid-19

  • COVID-19 has upended Indian society.
  • Over two-thirds of the country has been infected by COVID-19 and perhaps five million or so people have died, directly or indirectly, from the pandemic.
  • The economy too has taken a beating. Even though there has been a V-shaped recovery, output remains about 10% lower than in 2019.

Covid-19 and Poverty

  • Poverty certainly rose during the COVID-19 pandemic.

General trend

  • In macroeconomic crises, including the oil shock of 1990-91 or the global liquidity crisis of 2007-08, many expect the poor to bear the brunt of the pain.
  • They are the most vulnerable, without contractual protections and adequate safety nets.

The different script played by Covid-19

  • There are signs that this pandemic has not followed that script.

Consumer Pyramids Survey

  • Under this survey, the monthly data from nearly 2,00,000 households with a total of one million members from the Consumer Pyramids Household Survey through 2021 were examined.
  • It is found that extreme poverty, defined by the World Bank as the percentage of the population with an income below $1.90, rose from 7.6% in November 2019 to 11.7% in July 2021.

Covid-19 and Inequality

Top VS Bottom Quartile Income

  • In rural areas, the top quartile income fell by perhaps 20%, while the bottom quartile income grew slightly during the same period.
  • The result is that inequality, measured as the percentage change in the income of the top quartile minus the income in the bottom quartile, fell by 15-20 percentage points.

A Robust Finding

  • The richer households saw larger drops in income all along the income scale, in rural and urban areas, within each State, and even within caste groups.
  • This remarkable finding is not unprecedented.
  • Historians observed the same dynamic during the plague in 14th century Europe.

Given how much the world economy has changed since then, however, the explanations for India’s experience will differ.

Why did inequality fall during the Covid pandemic?

Sources of Income

  • The three primary sources of income for a majority of the Indians came from government transfers, business profits, and labour income.

Government transfers

  • They are cash or in-kind payments.

Business profits

  • Profits may be from any business, a food cart, a farm, or a manufacturing plant.

Labour income

  • Wages earned from hourly work or employment contracts.
Per cent matters
  • Only 30 per cent of workers in the bottom quartile worked in the service sector, whereas over 45 per cent of those from top quartile households do.
Consumer spending on Services VS Manufacturing/Agriculture
  • During the pandemic, consumer spending on services fell by 30%-40%, far more than the decline in expenditure on manufacturing or agriculture.

Way Forward

Risk of inequality returning to the pre-pandemic levels

  • Once the demand for services rises, along with aggregate income, both demands for the labour of the rich and the business income of that group will likely return.

Need

  • Assess prospects for inequality by understanding the decline in inequality during the pandemic after it ends.

Practice Question for Mains

  1. There are signs that the Covid pandemic has not followed the usual script – of bearing the brunt of the pain. Comment. (150 Words, 10 Marks)
Referred Sources

TH

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