Covid and the deepening divide in society

Even as Covid-19 plays itself out, the pandemic has sharpened social and economic divide in societies the world over. Governments must feel worried because, beyond a point, inequalities generated by such divides hurt both social cohesion as well as growth.

India is a case in point: Income returns statistics for the FY12 and 18 reveal that the top 1 per cent of individual taxpayers had in these years cornered 16.38 per cent and 14.72 per cent of all incomes (before deductions) declared by taxpayers. The pandemic has most likely reversed this decreasing trend in inequality due to two reasons, and this is a matter of concern.

India’s GDP contracted by 23.9 per cent and 7.5 per cent during the first two quarters of 2020-21. This was the direct outcome of the lockdowns. The decline in output and incomes affected the lower middle and working classes disproportionately, because unlike the rich, they could not work from home.

Secondly, when industrial recovery did take place from the middle of the second quarter, profits of listed companies, which led the surge, increased by 25 per cent, despite shrinking revenues. Firms aggressively cut labour costs to achieve these results, despite the negative growth in GDP in this quarter. Currently, labour surveys show that the number of persons employed is 14 million less than in February.

Falling incomes

India, however, is not alone in confronting such problems. In the US, on an average, a post-graduate earns 3.7 times more than a high school dropout. After the pandemic broke, writes Farid Zakaria in his latest book, Ten Lessons for a Post Pandemic World , 39 per cent of the persons with annual incomes below $39,000 found themselves laid off; for incomes above $100,000 this number stood at only 13%.

Over the last 40 years the incomes of the elite in the US have, in real terms, been increasing while those of the working classes have remained stagnant. It is not surprising that the working classes resent the much higher standard of living that the elites enjoy along with the privileges, power and entitlements that come with it — in many cases for no reason other than the mere accident of birth. Rising disparities of income and wealth have thus been a problem in many democracies. The pandemic has only aggravated resentments and deepened fault lines. This has had two consequences.

One, envy of the ruling elite fuelled the vote in favour of Brexit in the UK and Trumpism in the US. In India, the new middle class, which rose in the wake of the Mandal agitation and the Ayodhya movement, has nurtured very similar grudges against the ruling establishment. The BJP was quick to capitalise on this sentiment to attain an absolute majority in Parliament in 2014.

Discrediting of experts is the other unfortunate consequence of this divide: Voicing popular sentiment, Michael Gove, a minister in the Boris Johnson cabinet, said a few years ago that “this country {UK} has had enough of experts.” In India, farmers’ unions continue to reject assurances from agricultural experts and the Central government that the recently enacted reform laws will yield higher incomes for all farmers. The real issue appears to be centred not on the quality of advice experts tender, but issues of domination and power that surround it. The problem is that experts — whether bureaucrats, technocrats, doctors or epidemiologists — are all perceived by many laymen to be part of a corrupt and insensitive establishment.

Ironically, but understandably, people in the US, the UK, France, Brazil, Italy and most recently even India, flouting expert advice, did poorly in handling the pandemic. On the other hand, in Germany, South Korea, Taiwan, and Greece — countries which performed the best — people stuck to the basics, based on expert advice. Partial lockdowns, extensive testing, contact tracing, hand hygiene, social distancing and masking formed the core of the successful strategy of these societies.

We cannot fight pandemics without epidemiologists, public health experts and economists. With their help, decision-makers have often had to choose between alternatives, with humongous costs. The current farmers’ agitation shows that having vast sections of society alienated and distrustful, only makes it more difficult to implement the limited solutions available.

Going forward, restoration of trust amongst large sections of the alienated population must be one of the principal priorities of democratic governments in countries such as ours. For one, writes Farid Zakaria, establishments would do well to listen to such people. But it would also help if people listened more to experts.

The Government would also do well to focus on extending social security safety nets and further stimulating demand in employment-generating sectors such as construction, real estate, infrastructure and manufacturing.

The writer was Chief Commissioner of Income-tax

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