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India's middle class shrinks by 32 million due to Covid-19: Pew Research

In January 2020 before the pandemic, World Bank had pointed to virtually same growth in real GDP in India (5.8%) and China (5.9%) in 2020. By January 2021, its revised estimates suggest -9.6% degrowth for India and 2% growth for China

twitter-logoBusinessToday.In | March 31, 2021 | Updated 14:39 IST
India's middle class shrinks by 32 million due to Covid-19: Pew Research
Covid-19 had a major impact on India but effect was not so strong on neighbouring China, says Pew Research

The Indian middle class shrunk by a record 32 million due to Covid-19 pandemic downturns, according to an analysis by the US-based Pew Research Center. The 32 million in India account for around 60 per cent of the global retreat in the middle-income tier (people with incomes of $10.01-$20 a day).

At the same time, low-income tier, people with an income of $2 or less a day, rose by 75 million, which also account for 60% of the global increase in poverty.

The report referred to a spike in participation in India's rural employment programme, MGNREGA -- originally intended to combat poverty in agricultural areas - as many lost jobs in urban and semi-urban areas. "The number now participating is setting record highs in the programme's 14-year history," it said.

The Covid-19 pandemic had a major impact on India but the effect was not so strong on neighbouring China, Pew Research stated. It said while India saw a deep recession in 2020, China was able to "forestall a contraction".

The Pew Research article, 'In the pandemic, India's middle-class shrinks and poverty spreads while China sees smaller changes', by Rakesh Kochhar says in January 2020 before the pandemic, the World Bank had pointed to virtually the same growth in real GDP in India (5.8%) and China (5.9%) in the year 2020. By January 2021, one year into the pandemic, its revised estimates suggest -9.6% degrowth for India and 2% growth for China.

For China, the impact of Covid-19 was modest. "The change in living standards in China is more modest than in India. The largest impact in China is the estimated addition of 30 million people to the low-income tier (incomes of $2.01-$10 a day). The number of people in the middle-income tier likely decreased by 10 million, and poverty was virtually unchanged," the article suggests.

Also read: Indian economy estimated to grow by 5%; record stronger recovery in 2021, says UNCTAD

In the post-recession scenario, the middle-class group is shrinking in India and poor income group is ballooning. "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. Meanwhile, the number of poor in India is projected to have reached 134 million, more than double the 59 million expected before the recession," the article suggests.

In just one year since the pandemic, the poverty rate in India has risen to 9.7% in 2020 from the January 2020 forecast of 4.3%.

In 2020, most people in India -- 1.20 billion before the pandemic -- were in the global low-income tier, China had 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," the reports said.

Though Covid-19 ravaged most global economies, the effect on China was not very strong, partly due to the early closing of borders and tight Covid-related restrictions.

The overall impact on the Chinese economy, however, is still high. Its economy grew 2.3 per cent in 2020, the lowest annual growth rate in the past 45 years. India came out of recession in Q3 (October-December) after recording 0.4 per cent GDP growth for the quarter. The government projections suggest the GDP could shrink by 8.8 per cent in th

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