The novel Coronavirus COVID-19 had carried with it an economic crisis India had never witnessed before since Independence, said former RBI chief Raghuram Rajan, on April 4. Tracing back to the cause for this, PM Narendra Modi announced the Lockdown in India as a preventive measure against COVID-19 and extended it twice. It is an excellent initiative to mitigate the spread of Coronavirus in India. However, this effective measure to regulate the disease spread seems to come at a cost. With the movement of people seized, many people had to give up on their livelihood. [1] As per the 2000 census, only 7 percent of India's total workforce comprises the formal sector (including the Government and the corporate). Around 81 percent of the employed in India are in Informal sectors. As of 2018, 31 million people were unemployed in India. The announced lockdown was a big blow to these sections of the population (i.e., below the poverty line) that relied on daily wages for living. As rightly predicted by Narayana Murthy, founder of Infosys, extended and lengthy lockdown will result in more deaths due to hunger and unemployment than due to Coronavirus.
That said, It will considerably change the Gini coefficient (a measure of the income inequality in society) and the Lorenz curve (wealth distribution) of India. This lockdown has directly affected the poor than the rich, which causes economic Inequality. A case study in Delhi proves the point, A survey conducted in the neighborhood of Delhi's industrial area during the lockdown, shows that 85 percent of the people who were working as laborers in factories lost their employment. Their daily average income dropped from 365 rupees to just 46 rupees on which the entire family has to survive. The International Monetary fund has estimated that India's GDP will fall from 4.5 percent last year 1.9 percent this year. Former Chief Economic Advisor to the Government of India and Professor of Economics at Cornell University, US, Dr. Kaushik Basu, believes that income inequality will rise after COVID-19.
As per the UN's International Labour Organisation, 400 million of India's workers in the informal sector will be thrust into more profound poverty[2]. Studies report that by the end of 2020, at least 49 million people might end up in deplorable conditions. The current poverty line is 14 US$ per month in rural areas and 17 US$ per month in urban areas. India's overall poverty rate rises to 46.3%, with the above-stated poverty line as reference. There might not be a change in this curve as the living costs in Urban and Rural areas might have a negligible effect, and altering this curve shall not facilitate any advantage. The studies report, without the benefits given by the Government to the poor, few millions will end up below the poverty line. Ten million Migrant workers from Uttar Pradesh, Jharkhand, Orissa, and Bihar alone lost their livelihood, adding to a significant proportion of below the poverty line section of the population. The Tourism sector has witnessed a loss of US$ 2.1 billion, which it never has in history. As per the estimations of CII and ASSOCHAM, all the small to medium scale industries associated with Tourism have lost their source of income.
Many employees in the informal sectors of Tourism have lost employment. Many hotels, roadside tea stalls, and all the small scale businesses situated in the tourist spots lost their bread and butter. People in the Government and Corporate Sector will be least affected with minimal deductions in their salary. Few Corporate sector employees might have a risk of Job loss due to reduced revenue of the company. Still, the well-off section of the population always has a share of savings for unpredictable circumstances like the current COVID-19. Hence, the poor are the most affected, pushing them further deep into poverty with no savings.
From these statistics, the current Lorenz curve, for market income, would become steeper towards the rightmost corner (more prosperous end), indicating income inequality. The curve would look like a smoothened step function, with a flat nature and a sudden steep rise in the slider towards the end. Thus the Gini coefficient would naturally increase as opposed to the pre-COVID times for market income. However, the Government is ensuring the Inequality does not fall to a point where the needy dies of hunger. The PM CARES funds is an initiative by the Prime minister to combat the current scenario. The Uttar Pradesh Government announced a transfer of US$ 86 million to the accounts of 2715,000 workers. Andhra Pradesh Government has declared 1000 rupees to each below poverty line citizen. Delhi Government is also working tremendously under challenging times like these. It is providing free food to 400,000 migrant workers and needy every day. It has opened over 500 hunger relief centers.
Similarly, the Telangana government announced ration and grants to unemployed people. As per studies by [2], if the Government can make a Direct Benefit Transfer (DBT) of Rupees 312 per month to the poor, we can come back to the pre-COVID-19 scenario. So the Lorentz curve for disposable income, due to substantial efforts from the Government, will closely replicate the PreCOVID-19 curve. Thus, the change in the Gini Coefficient will be small. That said, the Government cannot provide freebies for an extended period, and the lockdown has to be relaxed eventually. As per studies by Industrial body Ficci, the industries and firms are on the verge of losing a significant share of their revenue, thus exploring the possibility of reducing the human resources. If this were to be accurate, the unemployment rate would shoot up, resulting in turmoil amidst COVID-19. Thus the revenue to the Government would collapse, and grants to the poor would eventually be affected. Therefore the curves, in this case, would match the Lorenz curves for the market income, and Inequality would skyrocket. Thus the gap between rich and poor would widen. Hence, relaxations to the lockdown have to be in place. As the Infosys Founder, Narayana Murthy suggested, We have to accept Corona as a part of our daily lives and move ahead with our professional lives, with appropriate health measures such as usage of masks and sanitizers.
However, the bright side of COVID-19 to the economy is that companies in China are moving out. The Government of India is attracting those companies as an alternative to China. The PMO has ordered the central and state governments to be ready with investment strategies to attract these companies. With a skilled workforce equalling China, India could be a potential country for the companies to invest. If this were the case post-COVID, the income inequality would decrease to an extent never in history. China is a country where significant companies like Apple manufacture and assemble electronic parts. Large companies turning to India for such establishments would surely increase the employment, even for the informal sector. That would reduce Inequality and pave the way for a more economically stable society. Thus the Lorenz curve could be close to the ideal identity line (y=x), and the Ginni coefficient would reduce. Nevertheless, this is just a hypothesis, and many factors play a role in this to be a reality.
On a concluding note, predicting a stock, a week ahead under normal circumstances, is a challenging task with many factors to consider. Estimating the Indian Economic growth post a pandemic is a tough job. However, stabilizing the economy and reducing Inequality after COVID-19 requires humongous efforts from the Government and "the job offering" Industries. Let us hope that the positive consequences post-COVID, stated in the essay, becomes a reality and aids in stabilizing the fallen economy and increasing Inequality.
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#Covid19#Lockdown#Economy
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