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Thursday, July 29, 2021

The pandemic has worsened India’s poverty crisis

Our estimates show that around 150-199 million additional people will fall into poverty this year. It means an overall increase in poverty by 15-20 per cent, making around half of the country’s population poor


July 8, 2021 8:08:29 am
Migrant labourers at Anand Vihar bus terminal in New Delhi. (Express Photo by Praveen Khanna)

Written by Krishna Ram and Shivani Yadav

The outbreak of the novel coronavirus last year led to mass havoc, fuelling a global health and economic crisis, the death of millions, lockdown of industries, large-scale job cuts, and catastrophic income shocks. It pushed the world into a deep recession, which for the first time after the Great Depression, is creating economic downturns in terms of job, income and consumption loss. Across the globe, around 3.9 million people have died, and millions have been pushed into poverty. India is no exception to this.

In India, the official death toll is 3.98 lakh (the unofficial figure is many times more than the official one). The Indian economy contracted by 7.3 per cent last year; the greatest contraction since independence. As per the CMIE report, there was a net loss of 7 million jobs between February 2020 and February 2021. Households experienced an average of 12 per cent loss in income during the last fiscal year. A point to note here is that it is an average loss. The loss for the poor and middle class ought to be higher. Besides, the CMIE survey is criticised for being biased towards the richer households, and hence the actual loss for poorer households tends to be higher than the reported. Our estimates show that 218 million additional people (168 million in rural and 50 million in urban areas) would have been pushed into poverty at 12 per cent contraction in their monthly per capita consumption in the year 2020-21.

In the year 2021, the onset of the second wave of Covid-19 and its subsequent misery raised further uncertainty regarding the health of the Indian economy. Although at this time, the lockdown was not imposed at the national level in the manner it was imposed last year, yet the impact in terms of loss of life and livelihood is severe. This time, both rural and urban areas are severely affected. Soumya Kanti Ghosh and Sachchidanand Shukla (IE, June 5) reported that the rural districts accounted for 2.28 million new cases in the August-September 2020, while for this year April-May period, the caseload rose to 7.61 million. Covid deaths also went up from 28,101 to 83,863 during the same period.

FICCI’s (2021) survey shows that around 58 per cent of businesses reported high impact and another 38 per cent reported moderate impact of the state-level lockdown of April-May 2021. The report states that, unlike last year, the weak demand for goods and services has not just been confined to urban areas, as rural India too reported compression of demand this time. Around 71 per cent of businesses reported a significant dip in their sales in rural markets. As per the CMIE’s (June 2021) consumer pyramid household survey, there was a loss of 22.3 million jobs during April and June 2021, of which daily wage-earners were the worst hit.

Further, given other challenges that the businesses and people face,, the economy is most likely to experience a lower GDP growth rate than expected at the beginning of the year. Therefore, considering the impact of the second wave of the Covid-19 crisis, most multilateral and international agencies have revised their 2021-22 growth predictions for India.

The World Bank revised its estimates of Indian GDP forecast to 8.3 percent from their earlier estimates of 10 per cent for the year 2021-22. RBI has also revised its estimate of GDP growth at 9.3 per cent from its earlier forecast of 10.5 per cent. Due to the fear of revised downward predictions, economic slowdown, increasing job informality and rising OOP health expenditure, a loss of 5-10 per cent on the income estimates of 2019-20 is expected. Our estimate using the Periodic Labour Force Survey (2018-19) data at an assumed level of 5-10 per cent of contraction in income/consumption shows that the impact of Covid-19 on poverty is humongous. We have used the Rangarajan committee’s estimates of the poverty line for the year 2011-12 for estimating Covid-induced increase in poverty. Consumer price indices for the rural and urban area (base year, 2011-12) are used separately for updating the poverty line of the year 2011-12, for the year 2019-20 and 2021-22. Assuming that there are no substantial changes in income and its distribution in the year 2019-20, we estimated Covid-induced poverty at the aggregate and disaggregated level. Our estimates show that around 150-199 million additional people will fall into poverty this year. It means an overall increase in poverty by 15-20 percent, making around half of the country’s population poor. The increase is higher in rural areas as compared to urban areas.

In pre-Covid times, around 35 per cent (265 million people) of the rural population was poor. However, this number is expected to rise to roughly 381-418 million, with the total headcount ratio reaching 50.9-55.87 per cent in 2021-22. Under the same levels of contractions, urban India expects 36 to 46 million additional people to fall under poverty, with the total headcount ratio reaching 39.08- 42.4 per cent. Across social categories, a higher percentage of people from marginalised groups are expected to fall into poverty than the other groups. For instance, at an all-India level, around 13-20 per cent of additional SC/ST people are expected to fall into poverty as compared to 12-16 per cent of upper caste people making total HCR for the group reaching a whopping 60-70 per cent. The Covid-19 induced poverty, therefore, leads to widening disparity between SC/ST and non-SC/ST groups.

Across major occupations, our analysis reveals that self-employed agriculture, non-agriculture, and casual labourers bear the highest impact in rural areas. In urban areas, casual labourers disproportionately bear the brunt of the crises. The ongoing farm distress, rural indebtedness, lack of infrastructures, small, marginal scattered landholdings, adverse terms of trade, and corporatisation of agriculture contribute to vulnerability for such labourers in rural areas. In the urban area, it is mostly the informal nature of jobs, depressed earnings, and little to no social security that place the casual workers at the brink of vulnerability. Low-income states (Uttar Pradesh, Rajasthan, Madhya Pradesh, Chhattisgarh, Odisha, and Bihar) bear the highest incidence of poverty followed by the middle-income states (Karnataka, West Bengal and Uttarakhand) due to the crises. The marked income inequity in the low-income states will increase post-Covid-19 contractions. In the high-income states (Maharashtra and Gujarat), the brunt of Covid-19 is seen mainly in rural areas, possibly because of the concentration of large populations in the area living near the poverty line, and because the area lacks employment and livelihood opportunities.

A rising number of poor can lead to demand shocks in the economy, which will further lead to the contractions in GDP growth. Therefore, the identification of poor and vulnerable groups is need of the hour so that directed interventions like national food security, direct cash transfer and other social security programmes prevent these groups from further falling deeper into penury and impoverishment. A large fiscal stimulus along with intermediate informal employment insurgency through MGNREGA and other employment generation programmes are urgent to rein the adverse impact of covid-19 on the welfare of the masses.

Ram is an assistant professor and Yadav is a research scholar at Ambedkar University, Delhi

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