The pandemic has been the reason behind major economic crisis globally. Concerning unemployment, living standards etc. the pandemic has devastated the economies. A large number of people who were earlier in the middle income group, they were driven into poverty. As India and China, together consists a considerable population and leaves significant influence on these trends of economic degradation. They also have a substantial effect on changes in the distribution of income at the global level because of the great population base.
An analysis by Pew research has recently shown the changes in distribution of income and living standard focussing on people across five income tiers in 2020: poor, low income, middle income, upper-middle income and high income. The poor live on $2 or less daily, low income on $2.01-$10, middle income on $10.01-$20, upper-middle income on $20.01-$50 and high income on more than $50.
The report titled ‘The pandemic stalled growth in the global middle class, pushes poverty up sharply’ by Rakesh Kochhar says that the Covid-19 pandemic is having a deep effect on the global economy. “In January 2020, as reports of the novel coronavirus were emerging, the World Bank forecasted that the global economy would expand by 2.5% that year. In January 2021, with the pandemic still holding much of the world in its grip, the World Bank estimated that the global economy contracted by 4.3% in 2020, a turnabout of 6.8% points” it states.
The research centre finds that the global middle class encompassed 54 million fewer people in 2020 than the number projected prior to the onset of the pandemic. Meanwhile, the number of poor is estimated to have been 131 million higher. The recession due to the pandemic is being considered as the reason.
Situation in India
India, the third largest economy is estimated to have seen a greater decrease in the middle class and a severer rise in poverty than China. Most people in India were under the global low income tier in 2020. Around 1.20 billion Indian were expected to be in this tier in 2020 prior to the pandemic, accounting for 30% of the world’s low income population. This number is projected to have dropped to 1.16 billion as the pandemic has pushed more people into poverty.
“In January 2020, economic forecasts from the World Bank pointed to virtually the same growth in real gross domestic product (GDP) in India (5.8%) and China (5.9%) in 2020.” In January 2021, nearly one year into the pandemic, the World Bank revised these growth estimates. They turned the level downward to -9.6% for India. On the contrary, they have a forecast of 2% growth for China.
The middle class people in India is estimated to have shrunk by 32 million in 2020, compared with the figures it could have reached without the pandemic. This accounts for 60% of the global retreat in the number of people in the middle-income tier. Prior to the pandemic, it was anticipated that 99 million people in India would belong in the global middle class in 2020. A year into the pandemic, this number is estimated to be have been 66 million, cut by a third.
Along with this, the condition of poor people has been downgraded massively. The number of poor Indian is estimated to have increased by 75 million that accounts for nearly 60% of the global increase in poverty. The figure of poor in India is projected to have reached 134 million, more than double the 59 million expected prior to the recession. The report mentions that, “The poverty rate in India likely rose to 9.7% in 2020, up sharply from the January 2020 forecast of 4.3%.”
Comparison with China
On the other hand, the change in living standards in China is modest. In China, there are more people in the global middle and upper middle income tiers than in poverty and the low-income tier. China accounted for 37% of the global middle-income population heading into 2020. But about only 10 million Chinese people are estimated to have tumbled out of the middle class to poverty. This is actually a small share of the 504 million who were in the middle class ahead of the pandemic.
“The largest impact in China is the estimated addition of 30 million people to the low-income tier. The number of people in the middle income tier likely decreased by 10 million, and poverty was virtually unchanged” the report by Pew says. Equally, the expansion of the low income tier in China from 611 million to 641 million or the number of poor from three million to four million during the pandemic is comparatively modest in number.
The key data source for the analysis is the World Bank’s PovcalNet database. This gives access to household survey data on either income or consumption for more than 160 countries. The latest year for which survey data on the numbers of people in each income tier are available is 2011 and 2016 respectively for India and China. “These benchmark estimates are extrapolated to 2020 using World Bank estimates of output growth through 2020. One projection is based on the World Bank’s January 2020 forecasts of economic growth in 2020, and the other is based on its January 2021 estimates of growth in 2020.” The difference between these two measures has been used to represent the consequence of the pandemic on the income distribution in countries.