Income of poorest fifth plunged 53% in 5 yrs

• The annual income of the poorest 20% of Indian households, constantly rising since 1995, plunged 53% in the pandemic year 2020-21 from their levels in 2015-16.
• In the same five-year period, the richest 20% saw their annual household income grow 39% reflecting the sharp contrast Covid’s economic impact has had on the bottom of the pyramid and the top.
• This stark K-shaped recovery emerges in the latest round of ICE360 Survey 2021, conducted by People’s Research on India’s Consumer Economy (PRICE), a Mumbai- based think-tank.

About survey and its results

• The survey, between April and October 2021, covered 200,000 households in the first round and 42,000 households in the second round.
• It was spread over 120 towns and 800 villages across 100 districts.
• While the pandemic brought economic activity to a standstill for at least two quarters in 2020-21 and resulted in a 7.3% contraction in GDP in 2020-21, the survey shows that the pandemic hit the urban poor most and eroded their household income.

Changes in income across categories

• Splitting the population across five categories based on income, the survey shows that while the poorest 20% (first quintile) witnessed the biggest erosion of 53%, the second lowest quintile (lower middle category), too, witnessed a decline in their household income of 32% in the same period.
• While the quantum of erosion reduced to 9% for those in the middle income category, the top two quintiles — upper middle (20%) and richest (20%)— saw their household income rise by 7% and 39% respectively.
• The survey shows that the richest 20% of households have, on average, added more income per household and more pooled income as a group in the past five years than in any five-year period earlier since liberalisation.
• Exactly the opposite has happened for the poorest 20% of households — on average, they have never actually seen a decrease in household income since 1995.
• Yet, in 2021, in a huge knockout punch caused by Covid, they earned half as much as they did in 2016.

Changes in share of household incomes

• The survey showed that while the richest 20% accounted for 50.2% of the total household income in 1995, their share has jumped to 56.3% in 2021.
• On the other hand, the share of the poorest 20% dropped from 5.9% to 3.3% in the same period.

Rural Vs Urban impact of Covid

• Even among the poorest 20 per cent, those in urban areas got more impacted than their rural counterparts as the first wave of Covid and the lockdown led to stringent curbs on economic activity in urban areas.
• This resulted in job losses and loss of income for the casual labour, petty traders household workers.
• Data shows that there has been a rise in the share of poor in cities.
• While 90 per cent of the poorest 20 per cent in 2016, lived in rural India, that number had dropped to 70 per cent in 2021.
• On the other hand the share of poorest 20 per cent in urban areas has gone up from around 10 per cent to 30 per cent now.