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COVID-19 Impact: Middle Class Shrinks in India, Poverty Increases

Syed Khalique Ahmed

NEW DELHI—The COVID-19 outbreak has taken a heavy toll on Indian economy. Ever since the lockdown was imposed on March 25, 2020 to curb the spread of coronavirus, the middle class in India has shrunk owing to decline in their income while the poor income group is increasing. But surprisingly, the prices of pulses and edible oil have shot up tremendously andgone beyond the purchasing capacity of the majority of the people.

According to a research article published by US-based Pew Research Centre, about 99 million people in India were expected to join the global middle class before the pandemic in 2020. This number, after a year into the pandemic, is estimated to have come down 66 million only due to economic downturn caused by the pandemic while the number of poor is estimated to have gone up to 134 million, more than double of 54 millions that was estimated before the start of the pandemic. In India, a person earning Rs. 32 per day in urban area and Rs. 26 per day in rural area, is officially considered to be poor. Increase in number of poor in India as per estimates of the Pew study indicates the extreme poverty into which a huge proportion of Indian population has fallen during the one year of pandemic owing to job losses for salaried and non-salaried daily wage workers.

According to the article, poverty rate in India rose to 9.7 per cent in 2020 against the forecast of 4.3 per cent, again due to the pandemic.

73.5 Lakh Job Losses During 2nd Covid Wave In April 2021: CMIE

The estimates of the Pew study are supported by a recent report of the Centre for Monitoring of Indian Economy(CMIE), an independent think tank engaged in collection and analysis of  data with regard to industry in India. According to CMIE data released on May 25, while the job losses were reported in February and March 2021 as well but the labour market crashed sharply in April when about 7.35 million (73.5 lakh) people lost their jobs, coinciding with the second pandemic wave.

According to CMIE’s CEO and Managing Director Mahesh Vyas, “Of the 7.35 million who lost employment in April, 6 million losses were from the agricultural sector as April is a lean month for employment in the farms”.

According to Vyas, while some of the agricultural and daily wage workers may have found jobs in construction industry that saw an increase of 2.7 million jobs during April, the most of 6.2 million released from agriculture and daily wagers could have been left unemployed during the month though they were actively looking for work.

34 Lakh Salaried Employees Lose Their Jobs

CMIE study shows that salaried employees saw a loss of 3.4 million jobs in April alone. “This was the third consecutive month of a decline in coveted employment category. During these three months, the total loss of salaried jobs was a substantial 8.6 million. The cumulative loss of salaried jobs since the pandemic is even larger at 12.6 million. During 2019-20, there were 85.9 million salaried jobs. As of April 2021, there were just 73.3 million”, Vyas said in his report.

CMIE report says that the salaried job losses were mostly in rural areas. While the salaried job losses in urban areas was 58 per cent in 2019-20, it was only 32 per cent till April 2021. Against it, salaried job losses in rural areas was 68 per cent till April 2021 against merely 42 per cent in 2019-20, indicating that medium and small scale industries were the most hit by the pandemic because small and medium industries are located mostly in rural areas.

No Immediate Prospect of New Job Creation, Economic Recovery: CMIE

The second COVID wave has stalled economic recovery and there is no prospect of creation of jobs during 2021-22 if the CMIE study is to be believed. “New investments that could create jobs in large numbers are unlikely to be made during the year,” says CMIE report.

There are other reasons also holding back the economic recovery process. These are loss of household incomes due to sharp increase in unemployment, resulting into fall in consumer demands. CMIE study says that the increase in unemployment and fall in consumer demand as witnessed in April 2021 continued in the same direction in May 2021 as well. The unemployment rate that was 8 per cent in April 2021, has shot up to 14.5 per cent in the week ended May 16, 2021, indicating a very grim scenario of Indian economy and rising poverty in the country. Reserve Bank of India has also in a statement said that the biggest toll of the second Covid wave was in terms of unemployment and low spending.

GST Collection May Also Fall, RBI Transfers Rs. 991.2 billion to Govt

Lockdown is also likely to impact the revenue collection of the central government due to second pandemic wave. The GST collection that was Rs. 1.41 lakh crores in April, is expected to dip by 30 per cent during May and may fall below Rs. 1 lakh crore in June due to slowdown in manufacturing activity and temporary closure of automobile plants and electronic units.

It is because of this reason  that the Reserve Bank of India (RBI) has announced to transfer Rs. 991.2 billion as surplus to the Centre to help it to mitigate the adverse impact of second Covid wave on the economy. According to economists, this will help the government to absorb the losses in indirect tax revenue that are anticipated in May-June due to impact of lockdown.

Prices of Eidble Oil, Pulses Shoot up

According to official data, the prices of packed edible oils, including groundnut, mustard, sunflower, soya and palm oil-have gone up to hgihest level in the last one decade. According to details available on the website of the Ministry of Consumer affairs, the price of a litre of mustard oil that was available for Rs. 118 in May 2020, is Rs. 166.44 in May 2021, an increase of 39 per cent in one year. Similarly, the prices of other edible oils have witnessed an increase of almost 50 per cent in the last one year.

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