Covid-19 and Poverty

A recent World Bank’s study indicates that the COVID-19 pandemic is estimated to push an additional 88 million to 115 million people into extreme poverty this year, with the total rising to as many as 150 million by 2021, depending on the severity of the economic contraction. For almost 25 years, extreme poverty was steadily declining. Now, for the first time in a generation, the quest to end poverty has suffered its worst setback.

Hyderabad: October 17 is the International Day of Eradication of Poverty. The theme for the day in 2020 addresses the challenge of achieving social and environmental justice for all. The growing recognition of the multi-dimensionality of poverty means that these two issues are inseparably intertwined and that social justice cannot be fully realized without aggressively addressing climate change and environmental challenges at the same time. Whereas progress has been made in addressing income poverty, there has been less success in addressing the other important dimensions of poverty, including the rapidly growing impact of the environment, within a more holistic approach.

The prevalence of hunger in many parts of the world is another problem relating to poverty the world has to address. Appropriately, the Nobel Committee awarded the Nobel Peace Prize for 2020 to the World Food Programme (WFP) for its efforts to combat hunger, for its contribution to bettering conditions for peace in conflict-affected areas, and for acting as a driving force in efforts to prevent the use of hunger as a weapon of war and conflict. In 2019, the WFP provided assistance to close to 100 million people in 88 countries who are victims of acute food insecurity and hunger.

The poverty issue this year is much more important because of the devastating impact of the Covid-19 pandemic on employment and poverty. The projections show that the population below the poverty line may increase, unemployment may rise and many informal workers may fall into poverty. A study done at UN-WIDER university at Helsinki shows under a contraction of 10 percent per capita income or consumption, the increases in poverty headcount at US$1.90, US$3.20 and US$5.50 is respectively, about 180, 280, and 250 million people, but if the contraction is 20 percent, then the increases could be about 420, 580, and 520 million people, respectively.

At the global level, the potential impact of COVID-19 poses a real challenge to the UN Sustainable Development Goal of ending poverty by 2030 because increases in the relative and absolute size of the number of poor under the three poverty lines would be the first recorded since 1990 and they could represent a reversal of approximately a decade of progress in reducing poverty. The concentration of the potentially new poor under the US$1.9/day and US$3.2/day poverty lines would occur in the poorest regions of the world, notably in Sub Saharan Africa and South Asia, which form two thirds and 80–85 percent of the total poor. In South Asia, poverty may increase from 847 million in 2018 to 915 million in 2020 if we take US$3.2/day.

A recent World Bank’s study indicates that the COVID-19 pandemic is estimated to push an additional 88 million to 115 million people into extreme poverty this year, with the total rising to as many as 150 million by 2021, depending on the severity of the economic contraction. For almost 25 years, extreme poverty was steadily declining. Now, for the first time in a generation, the quest to end poverty has suffered its worst setback. This setback is largely due to major challenges — COVID 19, conflict, and climate change — facing all countries, but in particular those with large poor populations. The increase in extreme poverty from 2019 to 2020 is projected to be larger than any time since the World Bank started tracking poverty globally in a consistent manner. While COVID-19 is a new obstacle, conflicts and climate change have been increasing extreme poverty for years in parts of the world.

World Bank’s study also appreciated of the Mumbai city in containing coronavirus in slums. Observing that effective approaches have tapped the skills and dedication of community members, the World Bank said that in Mumbai, city officials were able to stem the rapid spread of the coronavirus in Dharavi, one of the city's largest urban settlements, by mobilizing community members and staff from private medical clinics for a strategy based on mass screening for fever and oxygen levels.

The impact on poverty in India has been very high. The economic shock has much more severe for India, for two reasons. First, pre-COVID-19, the economy was already slowing down, compounding existing problems of unemployment, low incomes, rural distress, malnutrition, and widespread inequality. Second, India’s large informal sector is particularly vulnerable. Out of the national total of 465 million workers, around 91% (422 million) were informal workers in 2017-18. Lacking regular salaries or incomes, these agriculture, migrant, and other informal workers were the hardest-hit during the lockdown period.

Estimates by the Centre for Monitoring Indian Economy (CMIE) show that unemployment has increased from 8.4% to 27%. There was a loss of 122 million jobs. Out of that small traders and casual laborers lost 91 million jobs. An ILO report reveals that 400 million informal workers in India are at risk of falling deeper into poverty during the crisis. A study by Azim Premji University shows that 77% of the households had less food than before in the first few months of the Covid-19.

The government announced the Atmanirbhar Package of around Rs. 20 lakh crores. However, analysts say that out of the 10% of GDP package, fiscal stimulus is only 1% to 2% of GDP. It may be noted given the magnitude of the crisis which is unprecedented, there is a need for a significant increase in financial help to the poor. The fiscal relief or stimulus is not adequate as compared to the problem. After the announcement of the first stimulus, Nobel Prize winning economists Abhijit Banerji and Esther Duflo have commented that the government should have been bolder with the social transfer schemes. According to them, “what the government is offering now is small potatoes – at most a couple of thousands for a population that is used to spending that much every few days”.

At the global level, stimulus in many countries is much more than India. Also one has to learn from other countries on the health care system. For example, While the healthcare systems of some wealthier countries have come close to collapsing under the strain of COVID-19, Vietnam was quick to respond and remains in control. Could this swift, effective response act as a viable model for other lower-income countries?

With a population of over 97 million, Vietnam has experience in responding to outbreaks of other infectious diseases including SARS, MERS, measles, and dengue. The country worked for years to improve the country’s health system so it can meet the challenge of outbreaks like this one. In the case of the novel coronavirus, Vietnam relied on four relatively cost-effective solutions to combat the virus, including strategic testing, contact tracing through apps, and effective public communication campaigns.

India has to undertake several measures to reduce the impact on poverty due to Covid-19. First, relief measures like food and cash transfers to the poor including increasing allocations for MGNREGA are needed. Second, pandemic allows the revamping of our health infrastructure. Third, economic growth has to be revived. GDP growth is expected to contract by 10 percent in 2020-21. Fourth, agriculture is a pro-poor sector. Recent agricultural reforms have to help in raising the incomes of the small and marginal farmers who constitute 86% of total farmers.

More importantly, employment creation is crucial for poverty reduction. Some of the Employment challenges are: (a) creating productive jobs for 7 to 8 million per year (b) correcting the mismatch between demand-supply of labor: less than 10% of India’s workforce has skill training compared to 96% in South Korea, 80% in Japan, 95% in Germany, 68% in the UK and 52% in the USA (c) Formalization of enterprises and workforce (d) focusing on MSME and informal sector (e) Getting ready for automation and technology revolution (f) Social security and decent working conditions for all.

There is a lot of scope for the gig economy to increase employment in the next few years. In the manufacturing of exports, a two-pronged strategy is needed. First is promoting labor-intensive sectors like apparel, footwear, furniture, and numerous light manufactures. The second one is participating in global value chains as China is vacating. We have to develop innovative and out of box thinking for employment generation

Finally, climate change which is the theme of this year is also an ongoing threat to poverty reduction, and it will intensify in the coming years. Estimates show that climate change will drive 68 million to 135 million into poverty by 2030. Climate change is a particularly grave threat for countries of Sub-Saharan Africa and South Asia — the regions where most of the global poor are concentrated. The impacts of climate change can also include higher food prices, deteriorating health conditions, and exposure to disasters, such as floods, that affect both the poor and the general population. Especially for the poorest countries, climate change is perhaps the most vexing challenge, and the problem is not of those countries’ making. Human-induced rises in global temperatures and sea levels are almost entirely a product of levels of energy use by high-income developed countries and large, rapidly growing middle-income countries.

To conclude, first time since 1990, poverty is likely to increase in many countries including India due to the pandemic. On this poverty eradication day, we emphasize that issues like creating productive employment, climate change, and investment in health care systems are needed to reduce poverty and achieve sustainable development goals by 2030.