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How COVID impacted informal sector and middle class in India

Updated : April 22, 2021 08:16:42 IST

The second wave of COVID-19 has been accompanied by a second round of lockdown in most states. Migrant labourers have once again started returning to the native places, a sure indication of loss of jobs.

Many economists have pulled down India's GDP growth for the current year by one to two percentage points. But, neither the GDP numbers nor the earnings of listed companies reflect the deep gash to the informal sector.

Assessing the impact of COVID on India's poor or the informal sector is difficult because there are very few assessments of incomes and consumption of the lower deciles.

After the first COVID wave, US-based PEW Research Foundation estimated that India's middle class shrank by 32 million people in 2020, the highest in any large economy; while the number of poor earning less than 2 dollars a day rose by 75 million people in India.

Reserve Bank of India (RBI) data showed that household debt-to-GDP rose sharply in the April-June quarter last year from 35.4 percent to 37.1 percent.

Another indication of higher poverty is the number of people enrolled under MNREGS, which rose to 4.5 crore in June 2020, and remained over 2.5 crore till last month, this compares to less than 2 crore before the pandemic.

The question is do we have any more reliable data or indicators on how much the informal sector has been hurt or will be hurt by the second wave of the pandemic? How can the government intervene to reduce the inequality and most importantly can COVID have an impact on India's medium and long-term growth because of the reduction of the middle class? To discuss this, Latha Venkatesh spoke to Tarun Ramadorai, professor of financial economics at Imperial College of London and Pronab Sen, former chief statistician of India.

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