5.2 / The impact was
5. Falling incomes, rising hunger and indebtedness
Sources and notes: Authors' calculations based on CMIE-CPHS. The top panel shows the rural and the bottom panel the urban distribution for average monthly per capita seasonally adjusted income before Covid (July 2019 to Feb 2020) and in the Covid months (March 2020 to Oct 2020). See Appendix Section 2 for details.
Figure 5.5 : Shift in rural and urban per-capita income distribution before and during the pandemic
impact on household incomes, Figure 5.5 shows the frequency distribution across income categories based on seasonally-adjusted average per-capita monthly income in the pre-Covid and the Covid months. We find that the percentage of households that have an average monthly income below I4,000 per capita (for a typical family of four this is equivalent to I16,000) increased sharply in the Covid months in both rural and urban areas.
Using this distribution, we can estimate the change in number and proportion of people below various poverty thresholds. (see Appendix Section 2 for details of methodology for poverty estimates). The official Tendulkar Committee poverty line of I1,240 per capita per month for rural areas and I1,480 per capita per month for urban areas (in Jan 2020 rupees) is very low and has not been updated (other than inflation adjustments) for over ten years. It is,
therefore, not a very meaningful threshold. Even the World Bank’s absolute poverty line of $1.90 per day, which is higher than the Tendulkar poverty line, has been criticized for its low level and for lacking any substantive interpretation (Klasen et al. 2016;
Lahoti and Reddy 2016). So we consider two other thresholds that are high enough to provide for basic needs - the recommended national floor minimum wage and the minimum monthly salary prescribed for government employees. The Expert Committee on Determining the Methodology for fixing the National Minimum Wage (Ministry of Labour and Employment 2019) proposed a wage such that the expenditure on minimum recommended food intake, essential non-food items (namely clothing, fuel and light, house rent, education, medical, footwear, and transport) and other non-food items for the wage earner and their dependents can be met. The recommendation was I375 per day (I104 per capita per day) for rural areas and I430 (I119 per capita per day) for urban areas as of July 2018.
This works out to I2,900 per capita per month and I3,344 per capita per month respectively after adjusting for inflation in Jan 2020 terms. This is consistent with Indian Labor Commission (ILC) norms and the Supreme Court guidelines. However, the recommendation has not been accepted by the Government of India, and as we saw in Chapter Two, a substantial fraction of informal workers earned less than this minimum even before the pandemic. A more aspirational minimum income in the Indian context is the one recommended by the 7th Central Pay Commission (CPC) for government employees which works out to I7,000 per capita per month.7 This threshold is determined using a
In addition to calculating the absolute number and the proportion of individuals who fell below these two thresholds during the pandemic, we also calculate a counterfactual scenario based on the observed growth in incomes prior to the pandemic. We calculate the growth rate of income for each percentile between 2018 and 2019 and apply the same rate to the pandemic year.8 This gives us the ‘business as usual’ scenario, had the pandemic not occurred, and had incomes continued to grow at the same rate. We provide the absolute numbers as well as proportions below the line for both the Covid and the counterfactual scenarios.
The absolute and proportional changes are shown in Figure 5.6 and Appendix Table 12 gives the levels from which these changes are obtained.
We estimate that the number of individuals who lie below the national minimum wage threshold (adjusted to January 2020 rupees) increased by 230 million in the Covid months. This amounts to an increase of 15 percentage points in rural and nearly 20 percentage points in urban areas. Had the pandemic not occurred, poverty would have declined by 5 percentage points in rural areas and 1.5 percentage points in urban areas between 2019 and 2020 and 50 million would have been lifted above this line.
The number of individuals in households with income below the 7th CPC level increased by 142 million as compared to pre-Covid period (over 10 percentage points). Of course, an overwhelming majority of individuals were below the 7th CPC even before the pandemic (81 percent in rural areas and 62 percent in urban areas).
The number of individuals who lie below the national minimum wage threshold increased
by 230 million during the pandemic.
5. Falling incomes, rising hunger and indebtedness
Sources and notes: Authors' calculations based on CMIE-CPHS. The first panel is the change in number of people and bottom panel is the change in proportion of people below different seasonally adjusted per-capita income thresholds. The observed change is the change between covid months (March to October 2020) and the preceding months (July 2019 to February 2020). The average seasonally adjusted monthly per capita real incomes over the two periods are calculated and used to estimate the proportion of individuals who live in households earning below these levels. The change without Covid is the counterfactual scenario in which household incomes would have grown at the same rate as prior to the pandemic (see text for details).
Figure 5.6 : Massive increase in poverty seen during the pandemic
Our finding of large increases in poverty during the pandemic is in line with other recent estimates.
The World Bank estimates that global poverty (as per the $1.90 a day line) will rise for the first time in twenty years with South Asia contributing 61 percent of this increase (75 million increase in South Asia and 119 million across the globe).9 The major contribution within South Asia is estimated to come from India. The Pew Research Center estimates that the middle class in India will shrink by 32 million and the low income class by 35 million with many of them becoming poor.10