Reports

PEW report points to how the pandemic has led to a shrinking of the middle class in South Asia

Print edition : April 23, 2021

Families of migrant labourers at Patna station during the nationwide lockdown, on June 1, 2020. According to the report, the pandemic shrunk the global middle class by 54 million and pushed 131 million more people into poverty. Photo: Ranjeet Kumar

A PEW study points out how the COVID-19 pandemic led to the middle classes shrinking in number even as it pushed more people into poverty in South Asia and India.

A Pew Research Centre (PRC) analysis on the impact of COVID-19 in seven regions in the world has startling findings on the deleterious standard of living in India. The study divides the population into five income tiers—poor, low income, middle income, upper middle income, and high income—drawing from the World Bank’s database on household income and consumption from 160 countries. The poor are those who live on less than $2 a day, the low income group on $2-10 a day, and the middle income group on $10-20 a day. The upper middle income group earns $20-50 a day and the high-income group more than $50. The PRC classified incomes on the basis of the World Bank’s estimates of growth for 2020 and 2021.

According to the report, the pandemic shrunk the global middle class by 54 million and pushed 131 million more people into poverty. The “drop-off”, or decline, of the middle classes was higher in South Asia, East Asia and the Pacific than other regions in the world. The drop-off in the middle class was the most severe in South Asia and Sub-Saharan Africa. Within the South Asian region, the decline was the maximum in India and “reversed” years of progress, according to the report.

Globally, the low-income population increased by 21 million, the upper middle income population fell by 36 million and the number in the high-income group declined by 62 million.

The number of global poor was predicted to be around 672 million in 2020, but it went up to 803 million, says the report. The global poverty rate also increased 10.4 per cent (which was almost the same as in 2017) instead of the previously expected 8.7 per cent.

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While millions lost their jobs during the lockdown and many employed persons had to bear salary cuts and reduction in benefits, there has been no comprehensive study on the impact of the four-month lockdown on the Indian economy. According to the report, before the pandemic, some 1.38 billion people globally were estimated to be counted as the middle class in 2020. This number has come down to 1.32 billion. The report says that had it not been for China, which accounts for more than one-third of the global middle class and which bucked the trend of contraction of the middle classes, it would have been worse.

High-income groups are a characteristic of advanced economies, but the sharp economic downturn in these countries has pushed a large number of them into the middle class. The high-income population in advanced economies shrunk by 47 million in 2020, which accounted for the bulk of the global fall-off.

However, the global cut-off pegged at $50 for the high-income tier, says the report, is not much higher than the median income in advanced economies; 40 per cent of the population in these advanced countries were in the high-income tier. So the contraction in the high-income tier was more a reflection of a reduction in the standard of living of a typical person in these countries rather than a reflection of outcomes for wealth.

Ironically, the report says, the middle-income group grew globally as a result of high-income groups slipping to its ranks. In the developing countries, the middle classes slipped further down into lower income groups while the lower income classes became poor.

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From 2011 and 2019, the total number of the global poor declined from 1.10 billion to 61 million, that is, the global poverty rate had abated annually by around 49 million. But the pandemic reversed this. As many as 131 million people were added to the ranks of the poor when the poverty rate increased from 9 per cent in 2019 to 10.4 per cent in 2020. The share of the global population in the high-income tier also went down from 7.5 per cent in 2019 to 6.8 per cent in 2020.

The Asian scenario

Asia accounted for the bulk of the shrinking global middle class; the numbers fell by 32 million in South Asia and 19 million in East Asia and the Pacific. The regional differences within Asia itself were rather stark. The projected rise in global poverty during the pandemic, says the report, was concentrated in South Asia and Sub-Saharan Africa, with the former accounting for the major part.

Of the global middle class population, 672 million lived in East Asia and the Pacific, including China; 183 million lived in Europe and Central Asia; and 123 million in South Asia. The report argues that any shift in income in the regions would depend on the situation that existed before and after the pandemic. For instance, South Asia already had a small middle class population which contracted further with the contraction in the economy. Moreover, the 26 per cent, or 32 million, decrease of the middle class in South Asia was sharper compared with the 3 per cent, or 19 million, decrease in East Asia and the Pacific.

Significantly, even though Sub-Saharan Africa had a larger number of people living in poverty as a proportion of the total population before the pandemic (494 million of 1.14 billion) than South Asia (104 million out of 1.86 billion), the percentage increase of poverty (8 per cent) was higher (75 per cent) in South Asia. India was a large contributor to this increase.

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Comparatively, Europe, Central Asia, Latin America and the Caribbean saw poverty levels go up by 17 per cent. In West Asia, North Africa, East Asia and the Pacific poverty levels went up by 20 per cent.

In contrast, high-income groups that were concentrated in the advanced economies (489 million of a total of 593 million) contracted by around 10 per cent. Assuming there were high-income groups in other regions as well, the report says that the extent of contraction of high-income groups was most notable in Latin America and the Caribbean (15 per cent) followed by Europe, Central Asia, East Asia and the Pacific (12 per cent). Comparatively, the contraction in North Africa, West Asia, South Asia and Sub-Saharan Africa was “relatively small”.

The reasons for the “out-sized” contraction of the middle class in South Asia was attributable to low economic growth, says the report. The rate at which this happened in India, notwithstanding schemes to ameliorate the effects of the lockdown and the pandemic, was severe. The lack of adequate social safety nets and stimulus to the working population in terms of maintaining purchasing power could have been factors for the downward slide. The report does not explore how countries and regions that experienced similar economic slowdowns managed to keep their middle classes from slipping into near poverty levels.

Fall in GDP

In January 2020, when the crisis was just about unfolding, the World Bank had projected a gross domestic product (GDP) per capita increase by 4.3 per cent. In January 2021, the GDP per capita fell by 7.8 per cent, which was a “retreat of 12 percentage points” from the actual potential. Within Asia there were vast differences. The setback to economic growth was much smaller in East Asia at around 4.7 per cent. The region was the only one to report some positive growth (0.4 per cent) in GDP per capita terms. The change in output per capita ranged from -3.2 per cent in Europe and Central Asia to -7.8 per cent in Latin America and the Caribbean.

In India, the government informed Parliament in September 2020 that it had no idea of the extent of job losses or deaths among the migrant worker population. A livelihood survey by a private university estimated that 20 per cent of those who had lost their jobs during the lockdown continued to be unemployed until December 2020.

Oxfam report

Other studies such as Oxfam’s “Inequality Report” released in the third week of January 2021 showed how the wealthy recovered their losses soon enough. Eighty-seven per cent of respondents of a survey conducted among 295 leading economists in the world believed that inequality levels had increased in their countries.

The Oxfam report says that it took only nine months for the 1,000 top billionaires in the world to recover their wealth to pre-pandemic levels, but for the poor it would take 14 years or more. The Oxfam report also observes that globally the majority of the people (56 per cent) subsisted on $2-10 a day. They were mostly in the unorganised sector—gig workers, drivers, domestic workers, factory workers, hair dressers, cooks, market traders, and so on. Oxfam estimates that before the pandemic, over three billion people did not have access to health care and three quarters of the population did not have social protection like unemployment benefit or sick pay.

Also read: World’s richest recouped wealth lost due to COVID-19 in 9 months but poorest will take over a decade: Oxfam inequality report

Other studies also point out how, especially in the United Kingdom, the rich sat on their savings and during the lockdown, unable to spend, and the poor depended on their savings to subsist. At the same time, even as the salaries of many people were “protected”, for example, government employees, the incomes of several others, especially those in the private sector and on contract employment, suffered major cuts.

Ninety per cent of the countries reported disruptions of essential health services in the first six months of the pandemic. It was also found from a provisional review of 147 countries that where people depended on a highly privatised system of health care, COVID-19 mortality rates were high.

People living in poverty were more exposed to the virus. The value of crisis response protection measures constituted a very small proportion of the GDP in low- and medium-income countries. In Asia, social protection measures by and large were inadequate. The Oxfam report cites the instance of the Vietnamese government, which announced financial relief for all affected employers and employees but left the migrants and informal workers out. In India, the proportion of internal relief constituted only 0.8 per cent of the GDP for the 40 million migrant population that was displaced during the pandemic.

China, which faced the brunt of the pandemic initially and suffered economic growth reverses, managed to bounce back. Not only did manufacturing and other industrial activity resume there, but the government was successful in preventing a second wave of the pandemic. Its aggressive testing at workplaces, schools and subsequent tracking also prevented the spreading of hotspots.

As a result of the pandemic, there has emerged a demand from people and institutions for a universal basic income, besides a cap on wages and imposition of wealth tax. Even financial institutions such as the International Monetary Fund stated that austerity was not an option any longer. Klaus Schwab, chairman of the World Economic Forum, called out the “neoliberal ideology” for the situation and said that it was time to “move on” from this framework. Whether these reactions have emerged in response to the crisis in capitalism or as a result of a genuine concern for redistributive policies remains to be seen.

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