33% Indian middle class fell in poverty during 2020

 World Bank has estimated that 33 million out 99 million middle class people fell in poverty within a year 

The COVID-19 triggered economic crisis has hit Indian middle class hard. The Indian economy was slowing down before the COVID-19 hit it really hard. The economic crisis has not only made the lives of working people very difficult but also badly affected the middle class.

The loss of income and jobs through many middle class families in poverty. Millions of Indians find it hard to pay rents and school fees of their children. They are transferring their children from private schools to government schools. 

The Indian middle class has shrunk in 2020. The COVID-19 pandemic adversely affected the incomes of millions of people.  Those who earn incomes in the range of $10 to $20 a day considered the middle income households in India. The Indian middle class have been witnessing a steady decline in living standards.

According to a study by Pew Research Centre, India’s middle-income tier has shrunk by 32 million people in 2020. Many people have fallen into the low-income tier (earning $2 to $10 per day) and many have fallen below the global poverty line (earning less than $2 per day).

“The main impact of the pandemic has been a sharp contraction in global economic growth, and India has not been spared,” Rakesh Kochhar, senior researcher at the Pew Research Center and the author of the study.

 Thus, it is inevitable that the effects would lead to people losing their jobs. In terms of the income distribution, now we are stuck with more poor people and few middle-income earners. This situation has no parallels. The closest we have come to this was perhaps during the Great Depression.”

The Pew study found that self-employed workers in India witnessed the highest fall in incomes with an 18 % decline in their income in 2020, in the aftermath of a nationwide lockdown to curb the spread of COVID-19.

This spring, a second, devastating wave of COVID-19 swept India – wiping out 22.7 million jobs in May and April, reports the Centre for Monitoring Indian Economy (CMIE). Though the job market started to rebound in June, the 7.8 million jobs created last month clawed back only a third of this spring’s losses.

In June, the government unveiled a slew of measures worth 6.28 trillion rupees ($84.3bn) to help India’s COVID-19 ravaged economy. But the bulk of that largess is in the form of loan guarantees and credit lines to hard-hit sectors like tourism and healthcare, rather than direct payments to struggling households.

“The government is not putting money in the hands of people who lost incomes and jobs,” said economist Arun Kumar. “You don’t spend when you’re not secure.”

India is now staring at “the prospect of slower growth, rising poverty and a shrinking middle class” for the first time in a generation, observed Pratap Bhanu Mehta, the former president of the Centre for Policy Research.

Prior to COVID-19, the cohort’s strength was reflected by rising consumer spending. The McKinsey Global Institute even predicted that India would become the world’s fifth-largest consumer market by 2025.

New members of the middle class, especially those from mid-sized and smaller cities, forged a common trajectory towards upward mobility by pursuing higher education and salaried jobs, with the hope that each generation would be better off than the one before it.

As of March – before the second deadly COVID-19 wave struck the country – of the nearly 40 million people who were jobless but willing to work, some 38 million were between the ages of 15 and 29, according to CMIE.

Youths who grew up thinking higher education and private-sector jobs were a golden ticket into the middle class are now navigating a dramatically altered social mobility landscape.

the Pew Research Center claims that the middle class has shrunk by about 32 million people while the low-income tier grew by 72 million people in India. Both account for 60% of the global reduction in the middle class and 60% of the global rise in the low-income tier.

The Pew Research Center study found that in 2020, half of the salaried workers moved to the informal sector of the salaried workers, 30 % were self-employed, 10 percent were casual wage laborers, and 9 percent were informal salaried individuals.

This has adversely affected income levels across the country and around 230 million individuals received less than the minimum national wage – 375 rupees per day, as recommended by Snoop Satpathy Commission in 2020.

“If you consider the salaried workers as more or less belonging to the middle class, around 50 percent of them lost their jobs during the pandemic,” Amit Basole, director of the Centre for Sustainable Employment at Azim Premji University in Bengaluru, told Zenger News.

Before the pandemic, the World Bank had anticipated that around 99 million people would fall under the middle-income category in India by 2020. However, the number was cut by a third – only an estimated 66 million were a part of the Indian middle class during that period. Many fell into poverty.

“The impact of the pandemic on the middle class in India was worse than the rest of the world, as Indians do not have the access to a social safety net available to many in the global middle class,” Ashish Kulkarni, assistant professor at the Gokhale Institute of Politics and Economics in Pune.

Still, middle-income earners around the world have found themselves on the short end of the stick. Between 2011 and 2019, the global middle class increased by 54 million people each year on average – reaching 1.34 billion over the eight years. With the beginning of the pandemic, however, 54 million fell out of this category.

In India, more workers fell into the global low-income tier than in any other income bracket in 2020.

The World Bank estimated in 2019 that 1.2 billion Indians would fall under the global low-income tier category in 2020, accounting for 30 percent of the world’s low-income populace. But now, that figure is expected to have reduced to 1.16 billion as more people are estimated to have dropped back below the global poverty line.

Global poverty decreased at a rate of 49 million each year from 2011 to 2019. However, with the coronavirus disrupting businesses and livelihoods, 131 million were added to the poor category in 2020. India contributed 60% of total increase by adding 72 million poor people, setting back nearly three years of progress.

India’s neighbor China also witnessed a drop in the living standards of its workforce. But when compared to the scenario in India it has fared better, in part, due to a robust health care system and a generous fiscal stimulus. China, with the second-largest economy in the world and the largest population, is often at the forefront of global economic trends.

Around 30 million (about the population of Texas) in China were added to the global low-income tier, but the poverty rates in the country remain mostly unaffected, with its poor increasing from 3 million to 4 million people.

About 10 million members of the Chinese middle class slipped to the global low-income tier as compared to India’s 32 million. But Chinese economy picked up pace before any other major economy and recovered some losses. The impact is not so bad on Chinese middle class compare to Indian. 

“China and India both experienced a contraction in economic growth, but China was able to avoid going into the negative territory,” said Kochhar. China now accounts for 37% of global middle class.  China has prevented big financial damage to middle class and working people through state intervention.  

                                                                Khalid Bhatti 

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