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Photo: Mint

Opinion | Must mind the gap

The study expects India’s per capita income to fall by 5.4% to about 143,000 in 2020-21 from 152,000 last year

A decline in income inequality is usually greeted with cheers. But not this time. According to a State Bank of India study, the gap between India’s rich and poor states will narrow in the wake of the coronavirus crisis. Though such a convergence is desirable, one would have hoped to see rising incomes of the poor achieve this, not a decline in earnings of the well-to-do, as is the case now. What this reflects is the economic blow that covid-19 has dealt.

The study expects India’s per capita income to fall by 5.4% to about 143,000 in 2020-21 from 152,000 last year. This contraction would be greater than the 3.8% decline expected in nominal gross domestic product. On a positive note, the report forecasts a V-shaped recovery next year, but cautions that it may take at least until 2023-24 to recover our pre-pandemic growth levels. The policy implication is clear. Even as businesses reopen, the surge in covid cases is holding commerce back. This reduces the scope for higher earnings. To compensate, the government should put money in the hands of people. Otherwise, a downward spiral of compressed spending could set in, making it even harder to bet on that “V".

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