COVID RESETS POVERTY DYNAMICS

Anti-poverty programmes will now have to factor for the surge in new poor following massive economic disruption. EPISODE #18

Apr 12, 2021

Hi Everyone,

A very happy Monday to all of you.

All the more given the inclement circumstances that are threatening to overwhelm the world and India as the virus mutates and spreads.

Have said this before—and have so countless others—that the battle against covid-19 can be won only with a collective fight back. And in this us citizens are the biggest stakeholders. The cost of not overcoming this challenge is staggering.

Clueless politicians busy trying to pass the buck have weaponised lockdowns, without any empirical evidence of success—the first lockdown was in very different circumstances where India was trying to create some breathing space to set up a modicum of the medical infrastructure needed to mitigate the fallout.

Worse, lockdowns come with a very expensive price tag. The record contraction of 24% in Q1 of 2020-21 gives us the baseline estimate of the economic cost. And the contradiction of letting IPL carry on (don’t get me wrong; I love the tournament and look forward to the entertainment every evening) in the middle of a weekend when all of Maharashtra was locked down is baffling. And so is the decision to continue to allow mass congregations, including political rallies. After all sauce for the goose should be sauce for the gander.

The best strategy begins with us: don a mask properly, practice basic hygiene and social distancing.

Keeping with the topic of covid-19 I put the spotlight on a worrying trend: the surge in the number of new poor following the massive economic disruption caused by the lockdown and disruption in supply chains.

Conventionally anti-poverty programmes have looked to pull people out of extreme poverty. The rise in the number of the new poor reminds us that we need safety nets to prevent people from falling back into poverty in the event of an economic shock—like the one witnessed with this once in a century pandemic.

Thank you Unsplash for the pictures this week.

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Read on

THE NEW POOR PROBLEM

Tragically, just a few weeks after observing the one-year anniversary of the covid-19 pandemic, which originated in Wuhan, China, India runs the risk of being overwhelmed by a fresh wave of infections. And this even while the vaccine roll out is just about beginning to gain momentum.

Most state governments have responded to the challenge with night lockdowns in a bid to break the chain of infection. While the efficacy of this strategy, especially when you weigh the costs and benefits, is yet to be proved there is a bigger downside risk: it will deal a fresh blow to the informal economy, which is the primary source of employment in the country, especially to migrants.

And stray reports in newspapers suggest that migrants are already exploring their return to villages—hopefully, since there is no national lockdown in place, it will not be the nightmare from last year.

At the same time, this fresh threat to informal jobs puts the spotlight on a largely ignored dimension of the covid-19 pandemic: its impact on the dynamic of poverty.

For the first time India and the world are witnessing a reversal in the decline of poverty levels—so painstakingly achieved over the last few decades. The World Bank had estimated last April that about 40 million would be pushed back into extreme poverty in 2020 due to the economic shock caused by the once in 100-year pandemic. Over the year with the global economic outlook worsening the World Bank revised this number upwards rather dramatically: they now estimate that the surge in the number of new poor could be anywhere between 119-124 million.

Worryingly the World Bank estimates that 60% of the new poor reside in South Asia. And it is more likely that bulk of the new poor will be living in urban areas—who unlike the 70 million circular migrants whom we saw trudge on foot last year do not necessarily have the option of returning to their village. Those who wish to access the World Bank report please click here.

This unfortunate post pandemic trend is in contrast to the first two decades of this Millennium which saw a reduction in the number of people living in extreme poverty by 1 billion.

A Fresh Challenge

Most public policy responses, especially in developing countries like India, are conventionally designed to pull people out of poverty. This is not without reason. As late as the turn of this Millennium, the poverty levels in India were scary: around 40% (though the actual number is a constant source of dispute; primarily because of how you measure poverty).

Alleviating this scourge was an obvious priority and in this strategies like food security and guaranteed rural employment worked well. Together with the unprecedented acceleration in growth in the first decade of the Millennium, India was able to prune this to about 20%.

While this was indeed a creditable achievement, it concealed more than it revealed. Those who had escaped extreme poverty were still very vulnerable to economic shocks.

In fact, Anirudh Krishna, professor at Duke University and a former member of the Indian Administrative Service, had in a very prescient book argued that most people were just one disease away from extreme poverty.

The book, ‘One Illness Away’, published in 2010 made out a strong case for public policy to shift focus and also figure ways to prevent people from falling back into poverty.

The devastation caused to livelihood by the covid-19 pandemic and the consequent spike in the number of new poor only affirmed Krishna’s thesis: there is an urgent need to create safety nets to prevent people from descending back into extreme poverty. Worse there is every chance that the may not be able to bounce back.

In fact, Krishna kept up with his research and over the last decade mapped 10,000 households from over 200 slums across Bengaluru, Jaipur and Patna. And last year, in the aftermath of the pandemic, they conducted phone surveys with residents of diverse slums each in Patna and Bengaluru.

And their findings only confirmed the worst fears about their lived experience in the post pandemic world:

most continued to cut back on food or other essentials;
residents in 30 out of 40 neighbourhoods borrowed to meet essential needs;
on average, they were operating with 50% of their pre-pandemic income.

Clearly a situation which was already precarious became dire after the Indian economy witnessed an unprecedented contraction—this followed the imposition of lockdown and disruption of supply chains.

Revival of partial lockdowns only revives fears that history may well repeat itself with even more devastating consequences.

The New Dynamic

The big challenge to public policy will be to address this new dynamic. At one level policy efforts—as we have seen over the last one year in the roll-out of free food grains and monetary transfers—will have to be persisted with. It will, the fiscal costs notwithstanding, mitigate the economic fallout to some extent.

At another, which is going to be the real poser, public policy will need to figure strategies to restore the living standards of these cohorts; mirroring the challenge of recouping the contraction in the size of the Indian economy—roughly it is the size of the economy in 2018. Schemes like Ayushman Bharat, providing health insurance to 600 million Indians, are good starts. Similarly programmes like providing drinking water, electricity and housing will only further bolster the capacity of human capital to cushion the economic shock we just witnessed.

It will be a long haul no doubt. But not insurmountable. Especially if we view it as a cup half-full.

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