Covid-19 worsens inequality in India; rich are richer and millions poorer

Children from a low-income neighbourhood receiving food distributed by a non-profit organisation, on the outskirts of Siliguri, India, on July 23, 2021.
Children from a low-income neighbourhood receiving food distributed by a non-profit organisation, on the outskirts of Siliguri, India, on July 23, 2021.PHOTO: AFP

BANGALORE - The Covid-19 pandemic has thrust India's income inequality to its painful peak.

Even as India reported a record increase in tech unicorns and billionaires got 35 per cent richer, millions of Indians are dropping out of schools and colleges, eating less and locking their shrunken incomes in costly debt.

Indian telecoms and retail tycoon Mukesh Ambani of Reliance Industries added over US$48 billion (S$64.8 billion) to his fortune last year, as India saw its first gross domestic product decline in four decades. Asia's richest person signed deals with Facebook and Google in the April-June quarter. At the same time, the Indian economy declined by 23.9 per cent.

The number of billionaires in the country rose to 140 from 102, with their combined wealth nearly doubling to US$596 billion.

Meanwhile, 75 million more Indians tumbled into poverty, accounting for 60 per cent of the global increase in poverty.

The economy continues to face turbulence, contracting by 7.3 per cent overall last year. But the stock market is buoyant. After an initial dip, it has recovered and is up by 75 per cent from a year ago.

Since the 90s, the number of poor in India has halved, but the income of the rich has grown at a faster clip than that of the poor. The GDP per capita between 1998 and 2019 has increased 8.5 times but rural wages have gone up only 5.4 times. The top 1 per cent earned 21 per cent of the country's income in 2019.

A January 2020 study by rights group Oxfam International suggests that India's wealth gap is wider than ever: The richest 1 per cent hold more than four times the wealth of 953 million people who make up for the bottom 70 per cent of the population. This surpasses inequality in the United States, China, Russia, France and Britain.

In the report titled "The inequality virus", 295 economists from 79 countries concluded that the pandemic will increase inequality in almost every country at once, the first time this has happened in a century.

Especially in developing countries like India, the pandemic has reinforced latent inequalities, said Prof Jayati Ghosh, professor of economics at the University of Massachusetts Amherst.

Job losses and pay cuts are now rampant in India. Unemployment hit 13 per cent in June, up from December's 10 per cent, according to the Centre for Monitoring Indian Economy (CMIE).

A report by Azim Premji University's Centre for Sustainable Employment, in Bangalore, found that monthly earnings fell on average by 17 per cent during the pandemic, with self-employed and informal salaried workers suffering the biggest losses.

Mrs Krishna Marigowda, for instance, lost her job as a telephone operator in Bangalore after her start-up entrepreneur employers relocated to the US during the pandemic. Her security guard husband had his pay halved.

Households like hers coped with the loss of income by decreasing their food intake, selling assets and borrowing informally from friends, relatives and moneylenders, the Azim Premji survey found.

After five years of relative calm, "the anxiety of poverty" was back, Mrs Gowda said. Her son quit college to work at a fuel station and they sold their scooter. When her mother got Covid-19 last month, Mrs Gowda took a high-interest loan from a moneylender to pay for her treatment.

Medical expenses and education-related debt are the biggest blocks to upward mobility among poor Indians, a study on intergenerational mobility in India by economists Sam Asher, Paul Novosad and Charlie Rafkin, found.

The pandemic has heightened these very sources of economic distress, leading to a persistence of inequality.

Both borrowing and delinquency are at their highest. Around 15 per cent of microfinance loans were overdue by 30 days after the second wave of Covid-19 in April and May, rating agency Crisil reported.

"The medical impact of the second wave of the pandemic has been much worse than the first wave, and afflictions have percolated to the rural areas, too," said Mr Krishnan Sitaraman, senior director of Crisil.

Government response could have been more sensitive to the income gap, say economists.

The government spent 137 per cent more on health but the delays in making vaccines available free of cost, and the overnight lockdown that led to millions losing jobs and migrants walking back home to their villages, in addition to chronically inadequate public healthcare and patchy ration delivery, emptied the wallets of many Indian families.

Malnutrition in children has risen across the country, the latest government data shows, sharply reversing hard-won gains.

"As schools have been closed since March 2020, millions of children were deprived of free lunch. Community workers in-charge of maternal and child health were also busy with Covid-19 duties," said Dr Neelam Patel, additional director of health and family welfare in Gujarat state.

Migrant families pulled their older children out of school as they moved back to villages, or put them to work to tide over financial distress, she added. India thus faces a future shortage of skilled and healthy workforce.

Dr Maitreesh Ghatak, professor of economics at the London School of Economics, wrote in Indiaforum: "When inequality creates impediments for the poorer sections preventing them from taking advantage of economic opportunities it hurts growth prospects."