Richer, and poorer: Inequality will continue to scar the economy long after Covid leaves us

Source: Times of India

Relevance: Covid pandemic has increased the already huge inequality in the world. Steps to tackle this should be initiated.

Synopsis: There is a high possibility that the post-Covid world would be a more unequal world.

Introduction

Mass deaths reduced the labor force, and post-pandemic labor scarcity resulted in increased pay. Inequality decreased as wages increased disproportionately faster than profits.

• Inequality caused by Covid is a global issue. In the midst of the second wave, when millions of poor people were gasping for oxygen outside hospitals, Mercedes achieved the highest monthly sales of its ultra-luxury SUV in June.
• The number of billionaires in the country climbed from 102 to 140 last year, when the economy saw its worst downturn since independence. 75 million people fell into poverty, accounting for 60% of the global rise in poverty, according to Pew Research.
• Despite last year’s strict lockdown, listed company earnings as a percentage of GDP achieved a ten-year high of 2.6 percent. Whereas CMIE data showed the jobless rate had risen to 23.5 percent at the peak of the lockdown.

How has inequality risen during the pandemic?

Sharpening of disparities came from a variety of places and angles.

• Firstly, people who lived in slums and other densely populated places were more susceptible to the virus, and they were compelled to spend their savings on treatment and survival. The wealthy could either defend themselves or if they became infected, could afford treatment, isolation, relaxation, and recuperation.
• Secondly, poorer people, who work in contact-based industries like restaurants, hotels, travel, and tourism, have seen their jobs and wages suffer as a result of the lockdowns. Those in white-collar employment could easily adjust to remote working, have their paychecks safeguarded, and even exploit the lockout to save money.
• Thirdly, large corporations were able to take advantage of low financing rates and raw material costs, as well as brutally eliminate jobs. While small businesses and micro-businesses in the informal sector were forced to close.
• Fourthly, to maintain financial stability and keep the economy moving, the Reserve Bank of India, like other central banks, lowered interest rates and injected massive amounts of cash. Instead of going into productive activity via loans, all of that money has gone into the stock market, fueling an asset price boom. The poor have been hammered hard by inflation, which is already over 6% and above the upper limit of the goal band.
• Lastly, this heightened inequity will linger long after Covid has passed away. For example, online education has widened an already wide digital gap. Only about a third of the youngsters had access to online classrooms, according to the Annual Status of Education Report (ASER).
  • Learning quality is questionable, given that virtual teaching is a novel experience for both teachers and students, raising fears that school accomplishment levels, which are currently alarmingly low, could be further undermined.

Inequalities are both morally and politically damaging. Our largest growth driver is the enormous consumption base of the lowest half of our population. They will spend more if they earn more, which will result in increased output, jobs, and growth. This virtuous loop is what we need to focus on.