China may have become more prosperous in comparison to India in 2020, estimates new study

China may have become more prosperous in comparison to India in 2020, estimates new study

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published Published on Mar 27, 2021   modified Modified on Mar 29, 2021

During the last one year, India seems to have lost the race in becoming the world leader in terms of development, prosperity and growth thanks to the recession brought about by the Covid-19 pandemic. The total number of poor people in the country has swelled and the middle class has shrunk in 2020 in comparison to what was anticipated earlier.

A new study by the United States based think tank Pew Research Centre shows that in January 2020 (i.e. prior to the pandemic) it was projected that the country had approximately 99.0 million people who belonged to the middle class (also termed as middle income class) in 2020. However, revised estimates made in January 2021 (i.e. almost a year later) indicate that the size of the middle class may have contracted by one-third (i.e. nearly -33.3 percent) to 66.0 million people in 2020 owing to the global economic crisis. Before the pandemic had hit the global economy, it was projected that China had 504.0 million people who were from middle class in 2020. However, revised estimates made after a year show that the total number of middle class people there fell to 493.0 million in 2020 i.e. a decrease by just -2.2 percent.


 

Economic forecasts made in January 2020 on the basis of World Bank data suggest India’s (5.8 percent) real gross domestic product (GDP) was about to grow at the same pace as that of China (5.9 percent) in 2020. However, a year later, the World Bank has revised the growth estimates downward to -9.6 percent for India but predicts around +2.0 percent real GDP growth rate for China in 2020. Therefore, the pandemic impacted these two economies differently.

Globally, the projected number of people in middle class was 1,378.0 million for 2020 prior to the pandemic, which fell to 1,324.0 million, as per the estimation made a year later. Kindly check image-4. It means that around 54.0 million additional people were pushed out of middle class across the world during the last year, out of which 32.0 million people were from India i.e. 59.3 percent. Kindly compare image-1 against image-3.

Post-pandemic estimates indicate that the size of the middle class in China was 7.5 times greater than that of India in 2020. However, before the Covid-19 pandemic had struck, the size of the middle class in China was projected to be 5.1 times greater than that of us. Please see image-2.

According to the Pew Research Centre study, people who are from middle income live on $10.01-$20 a day, which translates to an annual income of about $14,600 to $29,200 for a family of four.

 

Using World Bank data (accesed from iresearch.worldbank.org/PovcalNet/home.aspx) on the distribution of people by either income or consumption levels in major global regions and countries, the analysis by Pew Research Centre shows that the total number of poor people in India was 134.0 million as per the estimates of January 2021, more than double the 59.0 million poor people as per the projections made prior to the recession. Put differently, 75.0 million additional Indians joined the ranks of poor in 2020. As a result, the demand for work and employment generation under the Mahatma Gandhi Rural Employment Guarantee Programme (MGNREGA) increased in 2020, mentions the study. As opposed to India, the total number of poor Chinese has increased from only 3.0 million to 4.0 million in 2020. Please consult image-2.

It should be noted that the total number of poor in India is estimated to have decreased from 340.0 million to 78.0 million between 2011 and 2019. The World Economic Outlook of International Monetary Fund (IMF) released in October 2020 had predicted that the economic progress made by the countries since the last three decades to reduce poverty would be reversed by the pandemic. Economic disparity would also rise further in the post-COVID world, anticipated that report. On its website, the United Nations Development Programme (UNDP) mentioned that "[w]hile data are not yet available to measure the rise of global poverty after the pandemic, simulations based on different scenarios suggest that, if unaddressed, progress across 70 developing countries could be set back 3–10 years."

 

Globally, the estimated number of poor people has increased from 672.0 million to 803.0 million in 2020. Please see image-4. It means that around 131.0 million additional people were pushed into poverty across the world during the last year, out of which 75.0 million people were Indians i.e. nearly 57.3 percent. Kindly compare image-1 against image-3.  

Post-pandemic estimates indicate that the total number of poor people in India was 33.5 times higher than that of China in 2020. However, projections made before the pandemic indicate that the total number of poor people in the country was 19.7 times higher than that of China. Kindly consult image-2.

In case of India, although the size of the poor class has increased in 2020, the size of the low income class (per capita income of $2.01-$10 daily) has shrunk from 1,197.0 million to 1,162.0 million i.e. a decrease by -2.9 percent. For a country as large as China, there has been a negligible increase in the number of poor people in 2020. However, the size of the low income class there has expanded from 611.0 million to 641.0 million i.e. a jump by almost 4.9 percent. Kindly refer to image-2.

Estimates made in January 2021 indicate that the size of the upper-middle class in China was 15.13 times higher than that of India in 2020. However, pre-pandemic projections indicate that the size of the upper-middle class in China was 11.82 times higher than that of us. Please see image-2.

Estimates done a year after the pandemic had hit show that against 23.0 million high income Chinese, there were 2.0 million high income Indians in 2020. However, pre-pandemic projections indicate that the size of the high income class in China was 26.0 million in contrast to 3.0 million high income class Indians. Kindly consult image-2.

Table 1: Estimated number of people and respective percentage share in total for each tier in 2020 before and after the global recession, in millions

Source: In the pandemic, India’s middle class shrinks and poverty spreads while China sees smaller changes -Rakesh Kochhar, Pew Research Centre, 18 March, 2021, please click here to access

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Table-1 indicates that in case of India, except for the poor class, the percentage share of population (in total population) for all the different income classes have fallen in 2020. In case of China, except for the low income class and poor class, the percentage share of population (in total population) for all the different income classes have come down. In other words, while in India a high proportion of the population joined the ranks of poor due to the pandemic, in China a significant proportion of the population fell into the low income trap.

According to the study by Pew Research Centre, the poor live on $2 or less daily (or no more than $2,920 annually for a family of four), low income on $2.01-$10, middle income on $10.01-$20, upper-middle income on $20.01-$50 and high income on more than $50. All dollar figures are expressed in 2011 prices and purchasing power parity dollars, currency exchange rates adjusted for differences in the prices of goods and services across countries. Please note that the Pew Research Centre study has used the terms “income” and “consumption” interchangeably for the sake of convenience.

Thus, we observe that the Covid-19 induced economic downturn made a huge impact on the standards of living of the people across the world.

Poverty measurement in India

Based on the Consumption Expenditure Survey done by the erstwhile National Sample Survey Office (NSSO), income/ consumption expenditure poverty was calculated last time in 2011- 12. The country does not have recent estimates about income/ consumption expenditure based poverty.

On the basis of the leaked National Statistical Office (NSO) survey report ‘Key Indicators: Household Consumer Expenditure in India,’ Somesh Jha of Business Standard reported that the real (i.e. adjusted for inflation, keeping 2009-10 as the base year) monthly per capita consumption expenditure fell by -3.7 percent to Rs. 1,446/- in 2017-18 from Rs. 1,501/- in 2011-12. Although monthly per capita consumption spending in rural areas declined by -8.8 percent in 2017-18, it rose by two percent over six years in the urban areas. Falling real per capita consumption expenditure indicated an increase in the prevalence of poverty, said the Business Standard news report.

The data obtained from the 75th round of survey by NSO during the period July 2017 to June 2018 has been deemed unfit officially for constructing the new income poverty line and measuring the latest income or expenditure-based poverty. Because of discrepancies in the data and issues about data quality, the monthly per capita consumer expenditure data pertaining to 2017-18 has not been used by the Central Government. Although the government has thought about a Consumption Expenditure Survey in 2020-2021 and 2021- 22, collection of household level data based on door-to-door, random sample survey (and not telephonic data) may be difficult due to the ongoing pandemic.

A World Bank Group report published in October last year has cautioned that “the lack of recent data for India severely hinders the ability to monitor global poverty.” The biennial World Bank publication titled Poverty and Shared Prosperity Report: Reversals of Fortune states that “the absence of recent data on India, one of the economies with the largest population of extreme poor, creates substantial uncertainty around current estimates of global poverty.” It further adds that “[s]everal economists and policy experts have used public news and media outlets to cite figures from different sources of data leading to opposite views about the direction of poverty rates in India in recent years. The lack of data creates doubts among the general public, obstructs scientific debate, and hinders the implementation of sound, empirically based development policies. There is no alternative to timely, quality-assured, and transparent data for the design and monitoring of antipoverty policies.”

In order to know more about this issue, please click here, here and here.  

It must be noted that for a family of five, the national level poverty line in terms of consumption expenditure was about Rs. 4,080/- per month in rural areas and Rs. 5,000/- per month in urban areas in 2011-12. These poverty lines varied from state to state because of inter-state price differentials. The percentage of persons below the poverty line in 2011-12 has been estimated as 25.7 percent in rural areas, 13.7 percent in urban areas and 21.9 percent for the country as a whole (as per the Tendulkar Methodology, which was accepted by the erstwhile Planning Commission). In 2011-12, India had 270 million persons living below the Tendulkar Poverty Line.

References

In the pandemic, India’s middle class shrinks and poverty spreads while China sees smaller changes -Rakesh Kochhar, Pew Research Centre, 18 March, 2021, please click here and here to access

The Pandemic Stalls Growth in the Global Middle Class, Pushes Poverty Up Sharply -Rakesh Kochhar, Pew Research Centre, 18 March, 2021, please click here to access

China’s middle class surges, while India’s lags behind -Rakesh Kochhar, Pew Research Centre, 15 July, 2015, please click here to access

Poverty and Shared Prosperity 2020: Reversals of Fortune, World Bank Group, released in October 2020, please click here to access 

World Economic Outlook, October 2020: A Long and Difficult Ascent, October 2020, International Monetary Fund, please click here to access

Poverty measurement in India: A status update -Dr. Seema Gaur and Dr. N Srinivasa Rao, Working Paper No. 1/2020, Ministry of Rural Development, released in September 2020, please click here to access

A world where everyone thrives: Fiscal expansion to achieve the SDGs, Common Cause Journal, Vol. XXXIX, No. 4, October-December, 2020, please click here to access

News alert: Sustained efforts required to reduce multidimensional poverty amidst the pandemic, Inclusive Media for Change, Published on Oct 27, 2020, please click here to access

India’s middle class shrank by 32 mn in 2020, says Pew report -Asit Ranjan Mishra, Livemint.com, 19 March, 2021, please click here to access

Coronavirus: Pandemic may have doubled poverty in India, says Pew study, The Hindu, 19 March, 2021, please click here to access

Consumer spend sees first fall in 4 decades on weak rural demand: NSO data -Somesh Jha, Business Standard, 14 November, 2019, please click here to access

 

Image Courtesy: Inclusive Media for Change/ Himanshu Joshi



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