How the pandemic is widening inequalities among nations

Roughly eight in ten Indians lie below the global median income level while all Americans lie above it, shows research by Branko Milanovic, one of the foremost experts on global inequality. Even if you are among the top 10 percent urban Indians in terms of income, you are still only at the 69th percentile globally. If you are among the top 10 percent rural Indians, you are just above the global median (50th percentile).

Milanovic’s estimates do not take into account the impact of the pandemic. But it is evident that the pandemic has widened both the extent and the nature of these inter-country differences. An overwhelming majority of those in developing countries are unvaccinated, and are likely to remain so at least for the next few months, despite promises by the G-7 group of economies to help bridge this gap. Where you live has become much more important than it was ever before.

The wide divergence in vaccination rates has in turn led to widely divergent patterns of economic recovery across the globe. The US and the UK are experiencing a faster-than-anticipated rebound in economic activity after successfully vaccinating a large share of their population. Developing countries such as India and Indonesia are witnessing growth downgrades as they struggle to ramp up their vaccination programs.

Income Divergence

The latest projections from the World Bank suggests that the pandemic scars are likely to be deeper, and last longer, in the developing world. The poorest countries will experience the biggest drops in average (per capita) incomes in the next couple of years, data from the Bank’s Global Economic Prospects report show.

Since the industrial revolution, the West has grown at a faster pace than most of the developing world, widening the gap between the rich and poor nations. But since the mid-1990s, developing countries started growing faster, closing some of the gap with richer countries, a new research paper by the economists Arvind Subramanian, Dev Patel, and Justin Sandefur show. The pandemic threatens to undo those gains.

Developing countries are likely to grow much slower than advanced economies in the coming years, widening the gap between rich and poor nations once again, the latest World Bank projections suggest.

India-China Gap

Within the group of emerging and developing economies, one big outlier is China. China’s growth bounce-back has been sharper than much of the rich world, and with higher vaccine coverage than most other developing countries, China is expected to continue growing faster in the coming months and years. Even as China closes the gap with other large emerging markets (such as Brazil and Turkey, which are a part of the G-20 group), the gap between India and the rest will widen.

This also means that the income gap between India and China will widen in the coming years, posing both an economic and strategic challenge for India. As last year’s events showed, a widening power gap between the two countries can invite trouble along the India-China border. The widening power gap will also limit India’s ability to effectively counterbalance China in the Indo-Pacific region.

Mass Poverty

The other striking contrast between India and China has been in their ability to protect their poor and vulnerable sections. While India saw a sharp rise in the ranks of the poor last year, China saw only a marginal rise in poverty, estimates from the Pew Research Centre show. The extent to which the middle class shrank was also much higher for India than for China.

It is worth noting that the Pew estimates don’t take into account the devastation of the second wave. The continuing lockdowns across most of the country, for a second year in a row, are likely to extract a much heavier toll in the world’s second most populous country than what the Pew report suggests.

(This is the first of a four-part series on how the pandemic is widening economic inequalities.)

Tauseef Shahidi contributed to this piece.