Experts explain: how households are coping with coronavirus blockade

Eighty-four percent of Indian households report a decrease in income since closing. A third of Indian households report that they do not have sufficient resources to continue for more than a week before facing distress. (File photo)

The spread of Covid-19 and the economic blockade enacted in response by the Government of India have resulted in significant economic difficulties. These effects are substantial and widespread. Eighty-four percent of Indian households report a decrease in income since closing. A third of Indian households report that they do not have sufficient resources to continue for more than a week before facing distress.

These main statistics, drawn from our analysis of a nationally representative survey of Indian households conducted by the Center for Monitoring the Indian Economy (CMIE) between April 18 and April 30, 2020, should call for the action for Indian policymakers as they try to better balance a public health crisis and an economic crisis.

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Importantly, the data also reveals that the economic impact of the blockade has not been distributed equally between people and places. About 85% of households with monthly per capita income of less than 3,801 rupees before closing, which corresponds to being in the lowest quintile of the per capita income distribution, have experienced a drop in income. At the other extreme, only 66% of households earning more than Rs 12,734 before closing, corresponding to being in the highest quintile of the per capita income distribution, have experienced a drop in income. While both numbers are exceptionally high, more than 90% of households with incomes in this range have experienced a drop in income.

Smaller blockage-induced income losses among those in India’s highest per capita income quintile are consistent with what has been observed in other countries: Higher income people are more likely to work in occupations that allow remote work and therefore are able to continue earning a living despite orders to stay home. The somewhat lesser impact among households in the lowest income quintile compared to the second and third quintiles may reflect their greater representation of occupations that have continued despite the blockade in that quintile (for example, agriculture, food vendors). However, it could also reflect that India’s existing safety net and income support programs are not adequately targeting households in these quintiles that have experienced dramatic job losses due to the blockade.

Although economic losses due to the blockade are widespread among rural and urban households, rural households have been the most affected, with 88% of them reporting a drop in income under the blockade, compared to 75% of urban households. As seen in Figure 1, this difference is due to the fact that higher pre-closure income levels are primarily protective for households living in urban areas. Again, we conjecture that this is a reflection of occupational classification and increased availability of remote work options among salaried workers in urban settings.

Quintiles of monthly per capita household income (as of February ‘20); Data source: CMIE CPHS

Our data also reveal a substantial variation in income losses by state of residence (See map). The five most affected states are Tripura, Chhattisgarh, Bihar, Jharkhand and Haryana. In particular, the economic impact by state does not strongly track the extent of the outbreak. Rather, we conjecture that per capita income and occupational composition prior to confinement, severity of confinement, and effectiveness of aid delivery likely contribute to this variation between states.

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In contrast to much of the variation described above, we did not find much evidence of the differential impact of household religion-based confinement, with an approximately similar proportion of Hindus and Muslims negatively affected in the income quintiles.

Across India, 34% of all households report that they cannot survive more than a week without additional assistance.

Given the generalized income losses documented above and the low reference wealth of many Indian households, it should come as no surprise that a large proportion of Indian households claim that they will not be able to continue, even for relatively short periods, without additional assistance (Figure 2).

Across India, 34% of all households report that they cannot survive more than a week without additional assistance. Among households earning less than Rs 8,142 per month per capita before closing, almost a third report was able to survive for no more than 7 days without additional assistance. Crucially, 14% of the sample are no longer funded and risk immediate and severe deprivation if they cannot borrow or receive additional benefits.

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These figures suggest that a rapid and continuous distribution of transfers in cash or in kind is needed to avoid a sharp increase in malnutrition and severe deprivation. By promoting demand and promoting health, such transfers are also likely to promote a stronger recovery as the country can reopen.

Marianne Bertrand is a professor of economics at the Chris P. Dialynas Distinguished Service, University of Chicago Booth School of Business, and Director of the Faculty of the Chicago Booth Rustandy Center for Social Sector Innovation and UChicago Poverty Laboratory.

Click here to read his full review.

Kaushik Krishnan is Chief Economist, Monitoring Center for the Indian Economy (CMIE). Heather Schofield is an assistant professor, Perelman School of Medicine and The Wharton School.

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