Coronavirus impact: Over 100 million Indians could fall below poverty line

Job losses, destruction of informal sector and inadequate government support could push India back by a decade in poverty-reduction progress

As the Narendra Modi-led central government continues to pick pieces in the puzzle to rein in the coronavirus pandemic in India, the economic costs of the nationwide lockdown on millions of poor could be catastrophic. Projections based on a recent analysis by researchers at the United Nations University (UNU) show that, in the worst case scenario, 104 million more people in India could fall below the World Bank-determined poverty line of $3.2 a day for lower-middle-income countries. At present, 60 per cent of India’s population, or an estimated 812 million people, live below that poverty line.

In effect, the coronavirus pandemic and the economic consequences of an extended business shutdown could swell the ranks of India’s poorest to 915 million. From 60 per cent, the proportion of people below the poverty line could increase to 68 per cent – a situation seen in the country more than a decade ago. Much of the Indian government’s efforts to mitigate poverty over the years could be negated in a matter of just a few months.

The World Bank classifies nations into four broad income categories on the basis of which they are assigned three poverty lines. The lower-middle-income category, in which India also falls, has countries where per-capita annual gross national income is between $1,026 and $3,995 (between Rs 78,438 and Rs 3 lakh). In these countries, those earning less than $3.2 a day (around Rs 78,000 per year) are considered to be below the poverty line.

Upper-middle-income nations are those where citizens on average earn between $3,996 and $12,375 annually. In these countries, those earning less than $5.5 a day are considered below poverty line. Citizens of high-income nations earn more than $12,375 every year, while low-income nations are those where the per-capita annual income is below $1,026. The World Bank’s standard international poverty line of $1.9 a day is applicable to low-income nations.

Even if India’s damage were ascertained using an international benchmark for poor economies — poverty line of $1.9 a day (Rs 145 at prevailing exchange rates) — 15 million to 76 million Indians might join the ranks of the poorest in this crisis. In India, which has an annual per-capita income of $2,020 (or Rs 1.5 lakh a year), 22 per cent of the population earns less than $1.9 a day. It would be pertinent to note that this poverty line is much lower than even the minimum wage notified under the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), and holding it up like a blade of grass in the wind might position policy makers with their backs to a looming economic storm.

The UNU study has taken into account three scenarios of per-capita income and consumption decline while making global projections of increased poverty. In the worst-case scenario, researchers have estimated a ‘high contraction’ of 20 per cent in income and consumption — that could lead to an eight per cent rise in poverty in countries where those living below $3.2 (Rs 244) a day are deemed to be poor. According to UN researchers, this ‘high global contraction’ could add 541 million to the global poor in lower-middle-income countries. Two of every 10 persons slipping below the poverty line due to the coronavirus-induced economic crisis could be from India.

The report notes: “Covid poses a real challenge to the UN Sustainable Development Goal of ending poverty by 2030 because global poverty could increase for the first time since 1990 and, depending on the poverty line, such increase could represent a reversal of approximately a decade in the world’s progress in reducing poverty. In some regions the adverse impacts could result in poverty levels similar to those recorded 30 years ago.”

In the ‘medium contraction’ scenario, in which per-capita income and consumption fall 10 per cent globally, the number of below-poverty-line people in India could rise by 50 million.

In the ‘low contraction’ scenario, the damage would be restricted to the addition of 25 million people. Naturally, global trends in poverty increases would follow the same pattern. But the impact of the pandemic on poverty could be more severe in South Asia, especially the low- and lower-middle-income countries. It is estimated that two-thirds of the ‘new-world poor’ would be residents of Sub-Saharan Africa and South Asia.

In more ways than one, this will be bad news for India, which has been reeling from sub-par economic growth over the past year, even as the government increasingly relies on welfare measures to win over the poor, fiscally constraining itself in the process.

An International Labour Organization (ILO) report published earlier this month had dire estimates for India’s employment scenario. With 90 per cent of India’s 500-million workforce engaged in the informal sector, the ILO report estimated that almost 400 million workers could slide deeper into poverty. The report noted: “Current lockdown measures in India, which are at the high end of the University of Oxford’s Covid-19 Government Response Stringency Index, have impacted these workers significantly, forcing many of them to return to rural areas.” If the ILO’s estimates were to come true, this rise in informal-sector unemployment could further reduce per-capita income and consumption, making the UNU estimates look like an understatement.

The ILO estimates that the hardest hit sectors would be retail, food and hospitality, and manufacturing. Official estimates suggest that almost 48 million workers — almost a third of India’s services sector workforce — is engaged in the retail and wholesale sectors. More than 90 per cent of them work in the so-called informal ‘shadow economy’. Another 46 million are estimated to be involved in manufacturing, while the restaurant and hotel industry employs over seven million workers.

The construction sector employs over 50 million. The domino effects and the U-shaped gradual economic recovery predicted by many to follow the pandemic could put millions of workers in such sectors at the mercy of the welfare state. The Modi government recently announced a Rs 1.7-trillion ($22 billion) package to bail out the most vulnerable sections of society likely to bear the brunt of the coronavirus crisis.

An examination of the cash component of the PM Garib Kalyan Yojana shows that it would be inadequate to prevent the slide of millions in the country below the poverty line due to the present crisis.  The amount of cash directly deposited in the bank accounts of 320 million beneficiaries is Rs 29 billion — a per-capita one-time cash assistance of almost Rs 900. This one-time dole would be enough to keep them at the poverty line designated for lower-middle-income countries for four days on an average.

However, a section of the most vulnerable beneficiaries of the programme would get even less. For instance, 191 million economically disadvantaged women have received a one-time payment of Rs 500 – enough to keep them at the poverty line for two days. Elderly widows and the disabled have received a similar cash transfer.

The minimum wage for workers in India’s flagship work programme for the rural poor, the Mahatma Gandhi National Rural Employment Generation Scheme, has been raised to Rs 202 from Rs 182 — less than the poverty line requirements — although many states pay much higher wages than that notified by the central government. A look at the frontloading of the PM-KISAN scheme, which provides Rs 6,000 a year to farmers, and the one-time payment to 21 million construction workers, show that they would survive at the poverty line for no more than a week with this monetary help.

While the government may be constrained by its finances to put more cash in the hands of the distressed, India’s fiscal and monetary policy response to the crisis has been rather muted. Initially, the Reserve Bank of India (RBI) assisted states by raising their ways and means advances (WMA) limit by 30 per cent. And that limit was doubled to 60 per cent on April 17. The central bank has injected greater liquidity into the banking system through policy rate tweaks and other measures — that is unlikely to immediately benefit those staring at sliding below the poverty line.

On the brighter side, loan repayment moratoriums for small borrowers and widening of the monetary policy rate corridor could increase cash flows to sitting ducks in the present poverty inducing crisis. The centre has made a one-time transfer of over Rs 17,000 crore to states to tackle the crisis, and various states are now implementing their own welfare schemes to help the poor. Free distribution of food rations by the Centre and states could ease the pain and temporarily slow down the impending spike in the headcount of the poorest.

But should India’s central bank and the central government be doing more instead of leaving the bulk of the firefighting to states? Lekha Chakraborty and Emmanuel Thomas from the New Delhi-based National Institute of Public Finance and Policy (NIPFP) had raised alarm bells in their analysis a day before PM Modi formally announced an extension of the lockdown. They noted: “It seems that the government and the RBI are adopting a wait-and-watch policy. But, even if the pandemic is tamed in the next couple of months, the hardship it is going to cause to the vulnerable is going to be unimaginable. Some have even said that more people will die of hunger than the pandemic, unless the government wakes up to the situation and addresses the issue on a war footing.”