How the pandemic has deepened inequalities in India

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That India is a very unequal economy is indisputable. And that was the case before the pandemic hit. Although it is difficult to get precise estimates of the level of inequality in India – household surveys tend to massively underestimate consumption, income and wealth – it is difficult to dispute the idea that Covid has exacerbated existing loopholes, exacerbating entrenched inequalities. The boom in the fortunes of the very rich during this period, juxtaposed with the misery of millions of migrant workers who had to return to their villages on foot, is a stark reminder of the scale of economic disparities. To that extent, the latest edition of the World Inequality Report serves as a useful reminder of the concentration of income at the top of the pyramid. The richest 10 percent earn 57 percent of national income. In the top 10 percent, the very elite top 1 percent wins 22 percent. In comparison, the share of the poorest 50 percent in national income has fallen to 13 percent. And this is only an estimate of the inequality. In the case of wealth-based inequalities, the numbers are even more skewed.

Overall, the discourse on inequalities in India tends to focus on disparities in consumption, income and wealth. But countries like India are also marked by high levels of inequality in “opportunity”. In such societies, an individual’s class of origin, their birthplace, which are their parents, tend to have a significant impact on their level of education, employment and income prospects and, for example, therefore, its destination class. In these countries, characterized by low levels of social mobility between generations, children born into disadvantaged households are less likely to move up the income ladder. While these links may well have weakened over time in India, the question is to what extent has the pandemic, which has widened economic disparities, also impacted social mobility?

To the extent that Covid has resulted in worsening educational inequalities, inducing scars in the labor market and exacerbating income inequality, it is likely to depress social mobility. While some effects will be evident immediately, others will take shape over time. Take education. The prolonged closure of schools and the shift to online modes of education have widened the learning gap between children from poor and well-off households. With preschool education being key to creating a semblance of a level playing field, the fact that young children in low-income households were more deprived of learning tools, smartphones, will be reflected in lower learning outcomes. The ASER 2021 report attests to this.

Children born to less educated parents were less likely to have access to a smartphone, although even the availability of a smartphone in the household did not necessarily lead to better access for children. More than a quarter of children in households equipped with a smartphone could not access it (for those in the lower classes, the figures are significantly higher). It has already started to have an impact on learning outcomes – children are unable to catch up with their program.

It is difficult to estimate to what extent these learning gaps will increase or decrease over time. Needless to say, the larger the gap, the more effort will be required to close it. But, a decline in basic skills, an inability to catch up, “educational scars” as some have called it, inevitably have an impact on their chances in life. Education, after all, offers pathways to upward mobility.

Then there is the issue of jobs. From the labor market data over this period, three broad trends emerge, all of which have worrying implications for social mobility.

First, since the start of the pandemic, there has been a decline in labor market participation. According to data from the CMIE, the activity rate rose from 42.7% in September-December 2019 to 40.2% in May-August 2021. This means that despite a “young” population, the number of people Job search actually fell, perhaps dismayed at the lack of job opportunities.

Second, over the same period, the unemployment rate fell from 7.5% to 8.6%. This implies that among those looking for a job, those who fail to find a job, perhaps even at lower wages, have increased. Third, among those who are employed, more and more are increasingly employed as casual labor. This growing “insecurity” or “contractualization” of the workforce implies the absence of well-paid and productive jobs. These scars in the labor market have implications for social mobility. Being unemployed for a long time or moving to lower paying and less productive jobs will affect a person’s income over their lifetime. This will weaken the possibilities for upward mobility for entire households.

A quick return to a higher growth path will heal some of the scars. Periods of rapid growth reduce barriers to mobility and create opportunities to move up the income ladder. But if growth is moderate and uneven, if profits disproportionately benefit those at the top of the income distribution, the owners of capital, and among the employed, the more educated and skilled sections, like this seems to be the case now, it will only hamper social mobility. Paradoxically, however, since high mobility may alleviate concerns about high inequality, it is more serious in highly unequal economies.

If left untreated, this toxic combination of high inequalities and low social mobility will lead to greater demand for redistribution. The clamor for the levy of a wealth / inheritance tax will only intensify, as will demands for equal taxation of labor and capital income as those at the top of the pyramid income derives a greater share of their income from capital. Political expediency will demand complying with such demands, especially when every action is viewed through the lens of politics. Stopping this slide isn’t going to be easy. The world of Horatio Alger seems distant.

This column first appeared in the printed edition on December 13, 2021 under the title “Des Chiffons aux Chiffons”. [email protected]


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