Coronavirus – Economic Issues

COVID & Economic Inequality

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Not much

Mains level : Paper 3- Worsening inequality amid pandemic

Pandemic hit hard the lives, livelihood and the economy. It has also worsened income inequality. The article deals with the issues of impacts of pandemic and suggests ways to revive growth the deal with income inequality.

Need to address growth and inequality issue

  • The second wave of the pandemic is spreading to rural areas also.
  • It is known that rural areas have poor health infrastructure.
  • Similar to the first wave, inequalities are also increasing during the second wave.
  • The country has to address the issue of rising inequalities for achieving higher sustainable growth and the well-being of a larger population.
  • According to the State of Working in India 2021 report of the Azim Premji University, the pandemic would push 230 million people into poverty.
  • CMIE data shows a decline in incomes and rising unemployment during the second wave.
  • U-shaped impact: The recent RBI Bulletin says that the impact of the second wave appears to be U-shaped.
  • In the well of the U are the most vulnerable — blue collar groups who have to risk exposure for a living and for rest of society to survive.

K-shaped recovery and rising inequality

  • The recovery seemed to be K-shaped during the first wave.
  • The share of wages declined as compared to that of profits.
  • A large part of the corporate sector managed the pandemic with many listed companies recording higher profits.
  • On the other hand, the informal workers including daily wage labourers, migrants, MSMEs etc. suffered a lot with loss of incomes and employment.
  • The recovery post the second wave is also likely to be K-shaped with rising inequalities.

Policies needed for higher growth and reduction in inequality

1) Vaccination and healthcare facilities

  • An aggressive vaccination programme and improving the healthcare facilities in both rural and urban areas is needed.
  • Reducing the health crisis can lead to an economic revival.
  • Vaccine inequality between urban and rural areas has to be reduced.
  • The crisis can be used as an opportunity to create universal healthcare facilities for all, particularly rural areas.
  • Other states can learn from Kerala on building health infrastructure.

2) Investment in infrastructure

  • The budget offered some good announcements relating to capital investment in infrastructure.
  • The Development Financial Institution (DFI) for funding long-term infrastructure projects is being established.
  • This can revive employment and reduce inequalities.
  • The government has to fast track infra investment.

3) Safety net for vulnerable

  • The informal workers and other vulnerable sections including MSMEs have been dealt back-to-back blows due to the first and second waves.
  • A majority of workers have experienced a loss of earnings.
  • Therefore, the government has to provide safety nets in the form of free food grains for six more months, expand work offered under MGNREGA in both rural and urban areas.
  • The government also need to undertake a cash transfer to provide minimum basic income.

Policies for growth

  • Focus on demand: On economic growth, the RBI Bulletin says that the biggest toll of the second wave is in terms of a demand shock as aggregate supply is less impacted.
  • Investment: In the medium term, the investment rate has to be increased from the present 30 per cent of GDP to 35 per cent and 40 per cent of GDP for higher growth and job creation.
  • Export: It is one of the main engines of growth and employment creation.
  • There is positive news on exports as the global economy is reviving.
  • Protectionist trade policy: In recent years India’s trade policy has become more protectionist and the country has to reduce import tariff rates.
  • Role of fiscal policy: In the near term, fiscal policy has to play a more important role in achieving the objectives of growth, jobs and equity by expanding the fiscal space by restructuring expenditure, widening the tax base and increasing non-tax revenue.

Consider the question “Two waves of the Covid pandemic have worsened the inequality. India has to address the issue of rising inequalities for achieving higher sustainable growth and the well-being of a larger population. Suggest the policies that India should follow for higher growth and reduction in inequality.”

Conclusion

Vaccination, expansion in rural healthcare and cash transfers should be part of the strategy to boost demand and address inequalities.

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