Mercedes-Benz AG recently presented its Maybach sport utility vehicle in India – in the midst of a fierce second wave of the pandemic. The 50 cars the German automaker wanted to sell by the end of 2021 were broken in in a month. It turns out that just as the rich scrambled to own those $ 400,000 wheels, annual per capita income slipped below $ 2,000, the country falling behind neighboring Bangladesh.
Emerging economies have historically tolerated higher inequalities, hoping to reach the inflection point of the Kuznets curve, beyond which incomes continue to increase but disparities diminish. Whatever the merits of the controversial hypothesis, the gap opened by Covid-19 is not the price of progress. The situation India finds itself in today – sustained sales of luxury cars and skyrocketing net worth for billionaires amid widespread unemployment and depleted savings – reflects a lack of fiscal imagination. State reluctance to do more could prove costly. Poor households ate less last year and economists warn of a new wave of severe food deprivation.
Colleagues at Bloomberg News recently shared a story that is becoming all too familiar: Shoemaker Shyambabu Nigam had to sell his modest home to pay the $ 8,230 medical bill for his wife’s Covid-19 complications. One of his three leather sewing machines is also missing. The debt-ridden couple rent a room in a nearby village. Well-intentioned initiatives, such as a government-backed emergency line of credit that has been available to small businesses since last May, cannot reach very informal micro-units like Nigam’s.
Prime Minister Narendra Modi extended – until November – an existing program to make fixed amounts of free food grains available to 800 million people. Additional tariffs for wheat and rice have helped the poor last year. However, in the absence of income, the bottom quartile of the population had to drastically reduce their spending on eggs, meat and fruit.
To avoid a second consecutive year of nutritional crisis, it is essential to provide poor households with immediate livelihood income: say, a little over $ 2 a day for at least three months. The proposal came from a team of economists from Azim Premji University in Bangalore. It will be, the researchers Argue, be of some help, but maybe not enough. “The proposed cash transfer is just equal to the income lost last year by the poorest 10% of households, leaving out the impact of the second wave.”
Officially, there is no word on such a money transfer plan. Obsessed with limiting the costs of borrowing, the government worsens the situation of the common man by its regressive consumption taxes, including on gasoline and life-saving Covid-19 drugs, and by a very heavy reliance on cheap central bank money. Excess liquidity, reflected in high asset prices, creates what it looks like on paper an oasis of opulence in a desert of despair.
The economic power flowing from workers and small businesses to big business – undisputed, if not aided, by India’s fiscal policy – increases their valuations. This helps create the wealth that fuels the sales of SUVs Maybach and many more.
A $ 43 billion increase in Gautam Adani’s wealth this year catapulted the tycoon from Modi’s home state, Gujarat, to take his place behind fellow Indian businessman Mukesh Ambani as a second person the richest in Asia. Billionaire investor Radhakishan Damani bought a $ 137 million mansion in Mumbai in April, the most expensive real estate deal ever in the country.
Mid-sized and small steelmakers are grappling with suboptimal capacity utilization of 62%, while five large producers, who have increased their market share by 5 percentage points to 58% in just one year, are using their “successful profit” to repay their debt. , according to Crisil, a subsidiary of S&P Global Inc.
When the government closes its annual accounts next March, the budget deficit will likely exceed its target of $ 206 billion. This shortfall, which under normal circumstances reportedly 6.8% of gross domestic product, may be higher now due to the deadly spike in infections in April and May, the first two months of India’s fiscal year. Output growth will be slower and tax revenues lower than expected. When the government collects less taxes than it spends, more money stays in private hands. But are they the right hands? Probably not.
Safety and vaccine administration should have been the obvious spending priority for this year. Even at a hefty cost per dose of $ 10, adding 0.8% of GDP to the budget deficit would be money well spent, according to University of British Columbia economist Amartya Lahiri. He is right. So far, only 5% of the billion adults have been fully immunized. Now that the localized interlocks are relaxed, the 23 million daily employees who have lost their livelihoods since January must go out to rebuild their lives. The salaried class is not doing much better. Of the 8.5 million jobs lost this year, many could be replaced by jobs in the concert economy. New age startups can thrive as Covid-19 has accelerated the pace of digitization. Many traditional small businesses, those that supported millions of people like the shoemaker Nigam, will disappear.
The Taj Mahal, a Mughal emperor’s ode to his late wife, stands in the northern city of Agra. Nigam’s act of love to save his wife was to sell their two bedroom house which took years to own. The house had a view of the 17th century mausoleum and is now owned by someone else.
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Patrick McDowell at [email protected]