Covid has pushed too many Indians back into povertyIndian upward mobility has gone into reverse even as an economic recovery looks further awaylivemint.com
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As the world continues to be ravaged by the COVID-19 global pandemic, fully a year on, it is becoming increasingly evident that the greatest burden has fallen on the global poor. Even the poor in rich countries, which have relatively secure social safety nets and well developed public health systems, have seen a sharp drop in incomes and the greatest impact of the virus itself, since they are not in occupations in which “work from home” is feasible. While an investment banker, senior civil servant, or university professor can safely work remotely, this is obviously not an option for a food delivery worker, a store clerk, or a front line medical worker.
If the impact on the poor in rich countries has been severe, in lower and lower middle income countries, it has been nothing short of devastating. A recent study by the Pew Research Center compares the impact in China and India. While China’s gross domestic product (GDP) rebounded in 2020, after an initial drop due to the pandemic, India’s GDP collapsed last year, but is projected to revive this year. This difference helps account for the big difference in impacts on the poor in the two countries.
Pew’s methodology is a counterfactual one — that is, computing the change in the number of poor and in other income strata as compared to a scenario of normal GDP growth in the absence of the pandemic and subsequent lockdowns. In other words, this is a conceptually clean methodology for determining the impacts on poverty of the pandemic. The definition of those in poverty is the standard international definition of a daily income (actual or imputed) of US$2 or less a day.
For China, the study shows a very modest increase in the number of people in absolute poverty — only a million or so — whereas 30 million more people were pushed into the low (but not absolutely poor) income category. Meanwhile, 10 million people fell out of the middle class, 18 million from the upper middle class, and 3 million from the high income category.
By contrast, for India, a staggering 75 million people were pushed back into poverty due to the crisis — this is almost 60 percent of the global total increase in poverty due to the pandemic. Those in the lower middle income category lost 35 million, and the middle class shrank by 32 million people, many of these, evidently, accounting for those who slipped back into poverty. Additionally, there was a loss of 7 million people from the upper middle class, and a drop of 1 million from the high income earners. The impacts in India undo years of progress in combatting poverty, and have reversed several years of gains in pulling the power and lower middle income categories into the middle class.
If these statistics are not grim enough, there is now added concern of a looming sovereign debt crisis, especially in middle income emerging countries. In a March 29th interview with the Financial Times, United Nations Secretary-General, António Guterres, has pointed to the fact that large, middle income countries such as Brazil and South Africa have borrowed heavily in domestic bond markets. There is, thus, little danger of an external debt crisis, but there is a danger all the same, as maturities are coming down in many large, middle economy countries, such as Brazil and South Africa.
Shortened maturities may reduce the interest service cost of debt, given how long short rates are, but they mean that borrowings must be rolled over more frequently, which can heighten the possibility of a crisis in a context of greater macroeconomic instability. While India is not in such crisis territory, unrestrained fiscal profligacy, and an increasing debt to GDP ratio, can add to macroeconomic pressures going forward, especially if rising inflation forces the Reserve Bank of India to raise its policy rate to damp it down, thus increasing borrowing costs further.
Taking a longer view, the global crisis and its aftermath have impeded the process of economic convergence between richer and poorer economies, a beneficial impact of globalization that had been in train, in fits and starts, since the 1990s. India, in particular, suffered a serious GDP contraction last year, and even the prospect of higher growth this year, which could India give back its crown as the fastest growing major economy, has reduced the prospect of achieving the government’s putative goal of making India into a US$5 trillion economy anytime soon (although your columnist, as you may recall, has expressed scepticism about this being a sensible goal to begin with).
Even a month or so ago, there was somewhat greater optimism that a ramped up vaccine rollout around the world, which was reducing the infection rate in many countries, and saw lifting of restrictions as a consequence, At the time of writing, however, cases are again on the rise in many places, and new variants and mutations of the virus appear to be more resistant than had been hoped to the existing vaccines. India, in particular, is seeing an alarming increase in cases and increased stress on the healthcare system. If this necessitates a further lockdown, which may be imminent in some states, it will almost certainly lead to a significant downward revision in the growth forecast for the current fiscal year.
Lower growth, in turn, foretells a rather grim year ahead for India’s poor.
Vivek Dehejia is a Mint columnist.
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