India's self-inflicted economic catastrophe

NEW DELHI  —  Nearly 80 per cent of the estimated 70 million people around the world who fell into extreme poverty at the onset of COVID-19 in 2020 were from India, a recent World Bank report has revealed. But even this shocking figure could be an underestimate, as the lack of official data makes it difficult to assess the pandemic’s human costs.

What accounts for this alarming rise in Indian poverty? COVID-19 was undoubtedly India’s worst health calamity in at least a century. But the pandemic’s economic and social consequences go beyond the direct effects on health and mortality. As I argue in my recent book, The Making of a Catastrophe: The Disastrous Economic Fallout of the COVID-19 Pandemic in India, very significant policy failures, owing to government action and inaction, were responsible for widespread and significant damage to Indian livelihoods and for the country’s decline in terms of many basic indicators of economic well-being.

This judgment may seem excessively harsh. After all, India’s government did not cause the pandemic and many other countries experienced economic setbacks after they failed to control the virus. But the devastating impact of the pandemic on India has been compounded by economic policies that reflected the country’s deeply-embedded inequalities.

To be sure, the pandemic did not create India’s many economic vulnerabilities. But it did highlight India’s many societal fissures and fault lines. And while the country already suffered from glaring inequalities of income, wealth, and opportunities long before COVID-19, the government’s pandemic response has taken them to unimaginable extremes.

Even as Indian workers faced poverty, hunger, and ever-greater material insecurity due to the pandemic, money and resources continued to flow from the poor and the middle class to the country’s largest corporations and wealthiest individuals. The intersecting inequalities of caste, gender, religion, and migration status have become increasingly marked and oppressive. The result has been a major setback to social and economic progress.

The grim state of affairs reflects the priorities of the ruling Bharatiya Janata Party (BJP) response. At the beginning of the pandemic, the central government imposed a prolonged nationwide lockdown with little notice. It then adopted containment strategies that were clearly unsuited to the Indian context, with immediately devastating effects on employment and livelihoods.

Instead of using the breathing space provided by the lockdown to bolster local health systems, the central government left state authorities to manage as best they could with minimal and inadequate resources. And when the resulting economic disaster threatened to spiral out of control, the government eased restrictions to “unlock” the economy even as the number of cases mounted, thereby putting more people at risk.

But at the heart of India’s self-inflicted economic catastrophe is the government’s decision to provide very little compensation or social protection, even as COVID-19 lockdowns deprived hundreds of millions of their livelihoods for several months. At a time when governments worldwide were significantly increasing public spending to fight the pandemic and mitigate its economic impact, the Indian government preferred to control expenditures (after adjusting for inflation) as its revenues declined.

But in a country where median wages are too low to provide more than the most basic subsistence, losing even a week’s income could lead millions to the brink of starvation. Given that more than 90 per cent of all workers in India are informal, without any legal or social protection, and that around half of those are self-employed, the effect was immediate and devastating.

The government’s decision not to increase spending aggravated the shock of the lockdown, generating a humanitarian crisis that disproportionately affected women and marginalised groups, including millions of migrant workers who were forced to return home under harrowing conditions.

But the effects of the official response to the pandemic are only one side of the story. COVID-19 safety measures have been a natural fit for the country’s still-pervasive caste system, which has long relied on forms of social distancing to enforce the socioeconomic order and protect those at the top. It also further entrenched India’s persistent patriarchy.

Instead of taking appropriate countermeasures, like providing greater support to the population, the BJP used the pandemic to consolidate its power and suppress dissent. This, in turn, limited the central government’s ability to generate the widespread social consensus and public trust needed to contain the virus.

None of this was inevitable. Even within India’s deep-seated social and political constraints, there is scope for a different economic strategy that would enable a just, sustainable and more equitable recovery. To ensure that most Indians, not just the stock market or large companies, benefit from growth, India’s voters must reject the BJP’s policies, which threaten to impoverish them further.

Jayati Ghosh, professor of Economics at the University of Massachusetts Amherst, is a member of the UN secretary general’s high-level advisory board on Effective Multilateralism. Copyright: Project Syndicate, 2022. www.project-syndicate.org