4 min read.Updated: 16 Jun 2020, 06:38 AM ISTGanesh Rao,Praveen Ravi,Vishnu Padmanabhan
30% of India’s urban population may deplete their lifetime savings by the end of June and would find it difficult to meet essential consumption
In the best of times, India’s poor lead a fragile existence but in the worst of times their situation becomes extremely precarious. The lockdown of the country over the past few months has discomfited everyone but it has hit the urban poor the hardest.
Measuring vulnerability accurately is difficult but an analysis based on data from official sources suggests that even in the most optimistic scenario, close to 30% of India’s urban population could be out of savings and unable to cover essential expenditure by June-end. In contrast, the rural poor, though hit hard, are relatively better off with still some savings and welfare support to fall back on.
According to one survey, 84% of households suffered a loss in income since the lockdown. As incomes fell, Indians had to rely more on their savings to cover essential expenditure. But for the poorest in cities, these savings rapidly dried up. To estimate how quickly savings are running out, we consider different scenarios of income losses for the poorest 50% of Indians (rural and urban separately) during the lockdown. For instance, in the worst-case scenario, we assume incomes in cities fell by an average of 82% across the three phases of lockdown between April and June while in rural India, which was less affected by the lockdown, we assume incomes fell by 66%. These scenarios are based on different studies that all report income losses within these ranges.
Taking a moderate scenario of incomes falling by 62% in urban areas and 50% in rural areas, close to 92 million urban Indians (20% of the urban population) and 89 million rural Indians (10% of the rural population) ran out of savings to fund essential consumption after the first 21-day lockdown.
Given the government's support to farmers and quicker reopening of the economy in rural areas, we estimate rural Indians would be able to cover essential consumption till June end. But in urban India, about 139 million Indians (30% of the urban population) would still run out of savings by the end of this month.
These estimates are based on inflation-adjusted consumption data from the National Sample Survey (NSS) on Household Consumer Expenditure (2017-18) and savings data from the 2013 All India Debt and Investment Survey (AIDIS). Both datasets present the latest official accounts of consumption and savings at the national level.
We generate measures of vulnerability by calculating how much of the monthly essential consumption (which includes spending on food, health, rent, education, power and cooking gas) can be covered by existing savings, government support (both in-kind and DBT), and taking into account the income shock they experienced in the past couple of months.
Poor urban Indians have been hit harder because they spend much more on essentials while having much smaller savings to fall back on. For instance, data suggests that the poorest 20 percent in cities have lower savings than their rural counterparts but still spend much more on essential expenditure. Comparing pre-lockdown savings to the estimated balance at June-end shows that the bottom 30% of urban households would have to either cut down essential expenditure or borrow to cover it. Even for others, there has been a significant erosion of savings. For urban households between the fourth and fifth urban deciles, savings fell by 37% during the lockdown. Little wonder then that the lockdown triggered such an exodus from cities.
The rural poor have been less affected because they have seen some amount of government support. For instance, the central government has implemented relief measures to support the poor via the Public Distribution System (PDS) and cash transfers.
There have been well-documented issues in implementation.But in our analysis, we assume that all the poor (poorest 50% of the population) receive the central government’s support to arrive at conservative estimates of income and consumption shocks. For both urban and rural households, the government support includes subsidized cereals through the PDS and the ₹500 cash transfer per month to women with Jan Dhan accounts. But rural households got additional support through an advance payment of ₹2,000 under the PM Kisan scheme. We find this government support may have been critical in preventing the rural poor from entering destitution.
These figures mask significant variation at state level. Some states imposed even more stringent lockdowns (and hurt incomes further), some states have been better at implementing the Centre’s relief measures and some states have provided their own relief to the poor.
Both centre and states are now banking that their new measures (e.g. portability through PDS) and the gradual reopening of the economy will help the poor - but the damage may already be done. For instance, the rural poor who appear to be protected from this crisis, are likely to have substituted productive expenditure (e.g. investment towards the next crop cycle) with current consumption. These negative shocks to productivity will be felt long after the lockdown is fully lifted. Similarly, research has shown that even a few months of disruption in children’s education can hinder their long-term development. For these children and the workers already forced to leave cities, additional food or cash transfers may be too little, too late.
The authors are development and public policy professionals.