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Explained: How a raging pandemic is widening India's wealth gap

The coronavirus pandemic has dealt a huge blow to India's middle and low-income groups. This is likely to further widen the wealth gap between India's rich and poor.

The severe economic crisis triggered by the pandemic is expected to sharply increase income inequality in India. (Photo: Reuters/Representational image)

Ever since India gained Independence, the country has traversed a wave of ups and downs to finally become a global powerhouse over the last five years. India's growth story - from being a struggling economy in the 1950s to a $2 trillion-plus economy in 2020 - has been impressive, but not enough to support its constantly expanding population.

This is why India has one of the highest wealth gaps among all major economies in the world. Even after all these years, there has been no change in this trend as the rich tend to get richer and the poor, poorer.

The Covid-19 crisis has only made matters worse for India's middle and low-income groups.

Also Read | How years of jobless growth have come back to haunt India during Covid-19 pandemic


The popular belief that coronavirus pandemic has made everyone poorer is not entirely true.

While most economic activities are suffering due to restrictions imposed during the lockdown, some of the world's top billionaires have seen their wealth rise. At the same time, the world's poor have seen their wealth deplete.

In India, the wealth gap has been rising sharply during the ongoing pandemic as previous levels of income inequality were already high in the country.

January 2020 study by rights group Oxfam India suggests that India's richest 1 per cent hold more than four-times the wealth held by 953 million people who make up for the bottom 70 per cent of the country's population. The study added that India's top 10 per cent of the population holds over 74% of the total national wealth.

Commenting on the study, Oxfam India CEO Amitabh Behar had said: "The gap between rich and poor can't be resolved without deliberate inequality-busting policies, and too few governments are committed to these."

"Our broken economies are lining the pockets of billionaires and big business at the expense of ordinary men and women. No wonder people are starting to question whether billionaires should even exist."

Since the study was from January 2020, it does not capture the economic devastation caused by the coronavirus pandemic. An International Labour Organisation (ILO) report, which predicts that 40 crore Indians could be pushed into poverty, offers a better picture of the widening wealth gap in India.


Ever since India went under a strict lockdown on March 25, millions of the country's poorest workers were immediately rendered jobless and left without any income. An unresolved migrant crisis is the biggest example of the plight India's poor are facing at the moment.

Also Read | Unemployment, rising food prices: Double whammy for India’s poor amid pandemic

Even the country's vast middle class population encountered a sharp loss of income during the pandemic due to a wave of job losses and pay cuts. Once considered a key driver of India's economic growth, crores of salaried middle-income employees are now jobless.

A recent report by the Centre For Monitoring Indian Economy (CMIE) indicates that 2.1 crore salaried jobs were lost in the first five months of the pandemic, indicating that income levels among middle class households have fallen sharply.

Mahesh Vyas, CMIE CEO and MD, recently wrote that the biggest loss of jobs among salaried employees was of white collar professional employees including software engineers, physicians, teachers, accountants, analysts and professional contractual employees.

"This was the biggest year-on-year loss among all salaried employees," Vyas wrote. This was followed directly by industrial workers. There has been a 26 per cent in fall in industrial workers over a year, CMIE noted.

Vyas went on to add that a majority of the decline in employment of industrial workers is likely to be in smaller industrial units, reflecting the distress in the micro, small and medium enterprises (MSMEs).

Even as the government continues to unlock the economy, there has been no respite for a majority of lower and middle income groups. Noted economists have already warned that the sharp increase in job losses and pay cuts will worsen India's wealth gap.


On the contrary, the story of India's billionaires during the pandemic has been starkly different. Some Indian billionaires such as Radhakishan Damani, Cyrus Poonawalla and Mukesh Ambani have got richer during the pandemic.

Ambani, who is the sixth richest man in the world, has added $30.5 billion to his wealth this year. A fund-raising spree earlier this year helped him make Reliance Industries Limited (RIL) a debt-free company.

Also Read | Mukesh Ambani's Reliance goes on shopping spree to take on e-commerce giants in India

Cyrus Poonawala, the founder of Serum Institute of India, saw his wealth grow sharply this year as well. He is currently on 123rd position on the Bloomberg Billionaires Index with a net worth of $14.3 billion. Of his total net worth, $5.56 billion was added this year.

There are several other rich Indians who have seen their wealth rise this year primarily due to the Indian stock markets, which have surged despite the ongoing economic crisis.

Explained | Robinhood investors: Why shrinking economy has expanding Sensex

Many rich Indians and listed companies have gained during the pandemic due to the disconnect between stock markets and the real economy.


A further increase in India's wealth gap could be an added challenge to bring about a recovery in India's economy, according to experts. According to several studies, rising income gap leads to lower transitional GDP per capita growth.

A 2014 OECD analysis indicates that a reduction in income inequality can boost a country's economic growth. It also found that countries with decreasing levels of income inequality grew faster.

"This compelling evidence proves that addressing high and growing inequality is critical to promote strong and sustained growth and needs to be at the centre of the policy debate," said OECD Secretary-General Angel Gurría.

"Countries that promote equal opportunity for all from an early age are those that will grow and prosper."

However, that has not been the case for India, which has seen a steady rise in income inequality for several years. A United Nations report from 2019 said India's growth over the last two decades has been unequal, especially during the period of 2000-2007.

During the period, income growth for the wealthiest one per cent in the country grew 213 per cent in comparison to the average income growth of 122 per cent. However, the income growth for the bottom 40 per cent was just 58 per cent.

While income levels had been improving slowly for a majority of low and middle income population, the coronavirus pandemic seems to have brought that trend to a grinding halt - a trend that would be hard to reverse for years as the pandemic may leave a permanent scar on the economy


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