Income of the poorest 20% of Indians plummeted by 53%; income of the richest grew by 39%

In a worrisome trend unseen since the economic liberalization was initiated in 1991, the annual income of the poorest 20% of Indian households plunged 53% in the pandemic year 2020-21 from their levels in 2015-16. It was on the rise since 1995.

During the same five year period which saw the rule of the current Modi-led BJP government, the richest 20% saw their annual household income grow 39% reflecting the sharp contrast Covid’s economic impact has had on the rich and the poor.

The survey conducted by a Mumbai-based think-tank People’s Research on India’s Consumer Economy (PRICE) between 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.

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, and the survey underscored that the pandemic hit the urban poor most and eroded their household income.

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 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 earned half as much as they did in 2016.

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.

In the previous 11-year period between 2005 and 2016, while the household income of the richest 20% grew by 34%, the poorest 20% saw their household income surge by 183% at an average annual growth rate of 9.9%. Even among the poorest 20%, 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.

There has also been a rise in the number of the poor in urban areas. While 90% of the poorest 20% in 2016 lived in rural India, that number had dropped to 70% in 2021. However, the share of poorest 20% in urban areas has gone up to 30% nowfrom around 10%.

“We need a K-shaped policy too that addresses the two ends of the spectrum and a lot more thinking on how to build the bridge between the two,” said Rajesh Shukla, PRICE CEO to The Indian Express.