The pandemic will leave India with worse inequality -Rahul Jacob

-Livemint.com

A failure to protect incomes could widen the gap between have-nots and haves and thus hurt growth

When the facts change, I change my mind," John Maynard Keynes is believed to have said almost a century ago. Responding to the economic after-shocks of the covid pandemic, governments and central banks have been living by this maxim. In the UK and US, supposedly fiscally conservative governments have spent with abandon to prop up the incomes of the poorer sections of society. In the US, a pay cheque protection programme and expanded unemployment insurance gave the poorest 10th percentile of households an increase in income of 165% in April and 14% in May, compared with February 2020 levels. More than 80% of workers in the retail, restaurant and hotel sectors in the US were eligible to receive more benefits from unemployment insurance than from working.

Developed-world governments have been seeking to protect what a recent paper by Martin Sandbu for the International Monetary Fund calls the “precariat" of service workers: “Those with insecure employment and income …(the) shockingly many people in the world’s richest countries with thin financial buffers." The plight of these workers, many in the gig economy, is not dissimilar to informal workers in developing countries such as India. Sandbu proposes more unconventional policies, even as countries such as the US have seen interest rates drop to near-zero, compared to 3% at the outset of the global financial crisis. “High demand pressure is necessary to benefit those on the margins of the labour market—the young, ill-educated, and minorities—who tend to be fired first in a recession and hired last in an upturn," he writes. “Concretely, this means running macroeconomic policy ‘hot,’ calibrating monetary and fiscal policies to keep demand always slightly ahead of the economy’s capacity."

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