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.
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.
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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