Income inequality in India declined during pandemic, US report says


The covid pandemic has plunged millions of Indians into poverty, but the period following the initial strict lockdown also saw a decline in income inequality in the country, according to a new report released by a US-based office.

The National Bureau of Economic Research (NBER), a nonprofit that focuses on conducting and disseminating research on the economy, released a report titled “Inequality in India Decreased During Covid”.

The newspaper said the pandemic in India was associated with declining inequalities in two directions. The first was that Indians in the higher income groups had larger income reductions than the poor, and the second was that consumption inequalities had also declined, albeit marginally.

The non-peer reviewed study was led by three academics – Arpit Gupta of the Stern School of Business, New York University, and Anup Malani and Bartosz Woda of the University of Chicago Law School.

The researchers’ main data source was the Household Consumer Pyramid Survey (CPHS), conducted by the Center for Monitoring Indian Economy, which includes a sample of 1.97 lakh of households, with monthly information on their households. finances available from January 2015 to July 2021.

The study’s most remarkable finding – that income inequality declined in the months after the lockdown was lifted – seems to contrast with what other recent studies have said about income inequality in India.

According to the World Inequality Report 2022, the richest 10% of Indians had on average 96 times more income than the poorest 50%. Likewise, Oxfam International claimed that in 2021, India’s top 1% held around 77% of the country’s wealth.

The NBER article, however, qualifies its findings by noting that Gini coefficients – a statistical measure of the amount of inequality that exists in a population – “paint a less rosy picture of inequality” during the pandemic, particularly a “Back to the pre-pandemic period. levels of inequality by July 2020 ”.

Second, the decline in inequality actually started in 2018, a trend that was “interrupted” by lockdown, but then resumed.

Income inequality is basically the average gap between the incomes of the rich and the poor. This “inequality” decreases if the incomes of the rich fall or if the incomes of the poor increase.

According to the study, income poverty in urban areas fell from 40% before the pandemic to nearly 70% during closures. Poverty was defined, in this case, by the World Bank benchmark of $ 1.9 per day (or less). After the lockdown, poverty fell and income and consumption rose, “but they did not return to pre-pandemic levels,” the researchers said.

“In rural areas, the relative income of individuals in households in the upper quartile fell further before, fell further during and remained more depressed after the foreclosure compared to the incomes of those in the lower quartiles. Urban areas show a similar pattern, except that the decline during the lockdown was the same across all quartiles, ”the study said.

Likewise, the study shows that consumption inequalities also declined during the lockdown period, but not as fast as income inequality.

Before the pandemic, a 10% drop in income would lead to a 0.98% drop in consumer spending, meaning that for every reduction in income of Rs 100, a person would reduce their consumption by Rs 9.8. pandemic, the authors found that a 10% cut in income would lead to a 0.869% drop in consumption, or that for every Rs 100 reduction a person would reduce their consumption by Rs 8.6 – a very small difference.

The authors attribute this in large part to “consumption smoothing,” which refers to the tendency to adjust spending and saving patterns while maintaining stable consumption patterns.

According to the study, the sources of income of rich Indians come “disproportionately” from services and capital income (essentially wealth derived from wealth, such as dividends and interest), both of which have been “affected by” disproportionately during the pandemic ”. Unlike the rich, capital income does not constitute a large share of the income of the poorest households.

The authors further noted that demand for labor was a factor. “A larger fraction of the top quartile’s income comes from the service sector … and this sector saw the biggest drop in consumer spending during the pandemic,” the study said.

The employment rate fell further for the poorer sections of society during the lockdown, but they also recovered more quickly. In fact, the employment rate “recovered almost completely for all quartiles – except the top quartile – after the lockdown,” according to the study.

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