‘Everybody Became Poorer, Except The Super-Rich’

Covid squeezed the incomes of about 97 per cent of Indians. Only the super-rich were spared, Mahesh Vyas MD & CEO of the Centre for Monitoring Indian Economy (CMIE), tells Lola Nayar. Even though the jobs are coming back, incomes are not rising. Edited excerpts from the interview:

You say Covid adversely imp­acted incomes of 97 per cent of the population. Which sections were hit the worst?

All households suffered income erosion over the past one year. When we ­rep­ort that 97 per cent of the households are reporting a fall in real incomes, we are covering all kinds. Yet, it is useful to see that the hit is a lot more on the poorer ones. This is not surprising. But what is alarming is that the pain of loss of income is deep among most ­income categories, inc­luding the middle classes. Only the richer people saw less ins­tances of income loss. Let the data speak for itself. It shows that the hit gets inc­reasingly modest as incomes increase. For example, 99.3 per cent of households with annual income of less than Rs 1 lakh saw a fall in real terms; 98.1 per cent with annual income between Rs 1 lakh and Rs 2 lakh; 94 per cent of those with income between Rs 2 lakh and Rs 5 lakh; 90.1 per cent of those with income between Rs 5 lakh and Rs 10 lakh, and then a much smaller 77.6 per cent of those with income of more than Rs 10 lakh.

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Is the reduction in incomes due to job losses, salary cuts, delays in salaries, fall in ­revenues of businesses or services, or total collapse of enterprises?

I suspect that the biggest reason is not job losses. We do not have a direct answer to your question. But we can infer. We see that most jobs have come back, but inco­mes have not. In January 2021, household incomes were 5.3 per cent lower than they were a year ago. But jobs were only 2.4 per cent lower in the same period. Evidently, earnings have fallen much more than jobs. Deciphering the roles of fall in wages, as against failure of enterprises, would be ­difficult to gauge. Also, the failure of enterprise is not a binary state. Enterprises can remain suspended in the hope of business returning fully or to a fraction of its earlier level, often to uns­ustainable levels. So, it may not be the failure of enterprises that may be responsible for loss of household incomes as much as small businesses being badly hit. Household debts could have risen not because of needs, but because of loans of ­proprietary businesses.

Is the impact more in urban areas compared to the rural ones?

Both are badly hit. The difference between the rural and urban damage is not significant. Nevertheless, while overall 97 per cent of households suffered a fall in real incomes, a lesser 95 per cent of urban ones suffered a hit.

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Though CMIE studies ­indicate that fewer jobs were impacted in the ­second wave, is there any difference in the severity?

Income hits in the second wave are less severe than the first. Household inco­mes in April 2020 were less than half of their levels a year ago. We do not have the income data for April 2021 yet, but it appears that the hit is lower. But that would be a clinical comparison. What is important is that we are seeing two hits to ­incomes in close proximity. The cumulative impact on household well-being will be significant. We can ­expect the adverse impact of this on spending propensity to be significant.

Is there a gender element as studies indicate more women were edged out of employment in the past 14 months, and those seeking to enter the job market are facing challenges?

Every economic shock has hit women more. We only measure the impact of shocks on women’s participation in the labour market. But this is a narrow view. The impact on women is more than just the impact on their employment. Nevertheless, we see the ­impact of Covid-led disruptions on women’s employment because we have the data. Women ­accounted for 10 per cent of total employment in India in 2019-20, i.e. before the pandemic. In April 2020, when the lockdown was clamped, the share of women fell to 9.3 per cent. The share of women was alr­eady low and then it shrank even more. There is substantial volatility in the share of women in employment. It fell to 9.1 per cent by December 2020, but has rec­overed since. The share of women increased from 9.3 per cent in April 2021 to 10.8 per cent in May. The huge fall in employment in May 2021 was largely among men.

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Is there any difference among the different regions or states?

Delhi, Tamil Nadu, Kerala and West Bengal show the largest increases in ­unemployment in May 2021. Tamil Nadu also saw a large fall in the labour ­partici­pation rate. The rise in ­unemployment and the fall in labour participation rate often reflect the ­intensity of the lockdown.

What is the profile of the three per cent population that faced no income falls? Is it the super-rich or the extremely poor?

In a way, they are at both ends of the spectrum. The poor are at such low levels that they do not have much scope to see a further fall and the super-rich have sources that deliver ­incomes even during a lockdown. Since April 2020, no household with an annual income of less than Rs 36,000 has said its income is higher than it was a year ago. Prima facie evidence ­suggests households that earn more than Rs 20 lakh a year faced the least pains in terms of income shrinkages.

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Has the drop in incomes impacted consumer spending trends?

Yes, the fall in incomes ­impacted spending. The ­impact on savings is more complex. Savings have been eroded among households with modest incomes bec­ause in the face of loss of jobs or incomes they need to borrow to meet the necessary expenses. Savings, on the other hand, have inc­reased in households with higher incomes because they had less avenues to spend.

Does the current scenario bear out any linkage ­between growth and well-being/happiness?

While there is no data, it is fair to believe that the ­economic difficulties households experienced in recent times are likely to have ­impacted their overall well-being, including the mental health of people. It has adversely impacted health, education, growth and, therefore, happiness. No individual could feel happy by what has happened, even if the person got richer in these times.