The pandemic’s income inequality surprise

News: Recently, a study was done for analysing the changes in the poverty and income inequality in India due to the Covid-19 pandemic.  

What has been the impact of Covid-19 Pandemic? 

Macro level: Indian GDP fell sharply during the lockdown. It largely witnessed V-shaped recovery after the lockdown. 

Micro-level: During the lockdown: the poverty (income below $1.90) rose from 7.6% in November 2019 to 50.5% in April 2020, and the overall, income inequality also increased in India by 25% and 15% in urban and rural areas respectively.  

After the lockdown: a) the poverty began to decline, but did not return to the pre-pandemic levels, and (b) income inequality declined after the lockdown to below pre-pandemic levels. 

What were the causes behind decline in the income inequality?  

In general, the change in a person’s income can be the result of two factors: (a) The movement of a household from one income group to the other income group which normally refers to social mobility, and (b) change in the Gini coefficient which refers to the distribution of the income between different income group. 

In India, income inequality was reduced mostly due to the factor of social mobility. It is because the Gini-Coefficient was not much contributory to it. It is because India returned to the pre-pandemic level of Gini-Coefficient after the lockdown. The Gini coefficient was 0.4 before the pandemic erupted. 

What is the way forward?

There is no clear pattern between growth or poverty on the one hand, and inequality on the other. Therefore, the government should focus on growth and poverty instead of inequality, as it is difficult to be eliminated.

Source: This post is based on the article “The pandemic’s income inequality surprise” published in The Indian Express on 22nd Mar 22.