July 24, 2022

Profit out of Pain and the Rising Inequality

Sanjay Roy

NOTHING but the astonishing alienation from the realities of India, on the part of some academics close to the policy circle, can explain the futile attempt to show that inequality in India has declined during the COVID-19 pandemic. A widely publicized exercise based on national private consumption expenditure data from National Accounts Statistics (NAS) claims that inequality and poverty have declined in India. NAS consumption expenditure data is derived as a residual measure net of other macro aggregates. Many commentators including the Nobel laureate, Angus Deaton in his Nobel lecture in 2015 discussed at length why the national account's estimates of consumption expenditure have always been higher than the average consumption expenditure measured through household surveys.

The NAS consumption measure includes consumption of non-profit organisations and unincorporated businesses as well as imputations from rents and income from financial intermediations. On the other hand, costs of publicly provided education and health care services or expenditures outside the household are not fully captured in household surveys. But historically per capita consumption measured using aggregate data from National Accounts Statistics has been higher than the per capita consumption estimated from household consumption expenditure surveys. Hence the claim that extreme poverty has declined and real inequality has become the lowest in the past forty years is primarily based on overestimated consumption expenditure data and the forecast of consumption growth based on that. It is claimed that such a change has happened in poverty levels because of the in-kind food subsidies of rice and wheat provided by the government schemes during the pandemic. It is also argued that inequality declined during the low growth phase because of very low inflation during the same period.

There is no doubt that in-kind transfers of food might have reduced real expenditure on cereals for the poor during the pandemic but at the same time growing inflation on other food and non-food items pushed up the consumer price index. The CPI-food reached an unprecedented high level marking a growth of 12.16 per cent in December 2019 that continued to remain higher than 8 per cent till November 2020.  Many people lost jobs or suffered a drastic decline in income which has surely impacted the consumption expenditure of individuals which may not be reflected in estimations based on assumed consumption distribution derived from the past.


It is now widely acknowledged in several well-acclaimed reports that inequality has sharply increased in the world during the pandemic. The pandemic did not have a uniform impact on people across the world. The impact was different on different sectors given variations in contact intensity of jobs, was different based on geography and per capita income of countries, within the country the impact widely varied by distinctions of class, caste and gender and also in terms of rural and urban settings. As the Oxfam study suggests that 263 million people would be below the poverty line in 2022 and at the same time 573 new billionaires are being added to the list of the rich. Despite the fact that the majority of the poor people were facing problems in procuring bare necessities but the tech companies, pharma giants, food and agribusiness corporates and oil companies made huge profits during the time when all the working people of the world were facing the worst hardships in recent times. The rise in food prices might be pushing a huge number of people below the poverty line but global agribusiness which is owned by the richest eleven families in the world has made huge profits out of this price rise.

The margin of oil companies has doubled during the pandemic and profit in the energy sector grew by 45 per cent since 2019. Huge profits are being made by five giant tech companies, Apple, Microsoft, Amazon, Tesla and Alphabet who could increase their profit by 94 per cent compared to 2019. The vaccine companies such as Moderna or Pfizer produced vaccines at a pre-tax margin to the tune of 70 per cent and 43 per cent respectively. Scientists have estimated that pharma companies have sold vaccines at about seven times the cost of production and in most cases, this has been funded by governments using public resources. Many pharma companies restricted their supplies only to rich countries and didn’t cooperate to establish production facilities in low and medium-income countries. In fact, 40 new pharma magnets joined the list of billionaires during the pandemic. Developing countries, particularly low-income countries proposed to waive intellectual property protection for vaccines so that they can be manufactured at a lower cost in low-income countries. The rich nations and the vaccine companies put all their efforts to resist this waiver because that would drastically reduce their profits. But as a result of this profiteering and exclusion new variants of the virus keep evolving causing death and illness to the vast section of the world population.

Therefore, the pandemic and the consequences that followed due to supply chain disruptions of food and energy, lack of mobility of goods and services during the lockdown, increasing dependence on e-retail and online transactions and most importantly private monopoly on vaccines, were used as opportunities by the big corporates in making windfall gains. This has resulted in rising inequality across the world going to the extent that the richest ten persons in the world have wealth that the bottom 40 per cent of the population of the world together possess.


In the case of India, the impact of the pandemic has been estimated by several researchers including the Pew Research Centre. Even before pandemic India has evolved into a very unequal country with a vast number of poor and an affluent elite. The World Inequality Report estimates that the top 10 per cent of the population earns more than twenty times what the bottom 50 per cent earns. The top 10 per cent and top 1 per cent accounts for 57 per cent and 22 per cent of the total national income and the share of the bottom 50 per cent has gone down to 13 per cent. More importantly, Pew research suggests in the context of the pandemic that the middle class (20-50$/day) is likely to shrink by 3.2 crore compared with the number it may have reached in absence of the pandemic. Before the pandemic, the estimate was that the size of the middle class in India would be close to 9.9 crore but after the pandemic, the number is revised below to 6.6 crore. On the other hand, the number of poor is likely to increase by 7.5 crore compared to the pre-pandemic estimates. It is amply clear that inequality has increased across the world and also starkly in the case of India which already had been very unequal in terms of the income distribution. What is even more important is the fact that the corporates made windfall gains during the pandemic when almost 99 per cent of the population was suffering from illness, death, income loss and cost of living crisis. CMIE data suggest that net profits of corporates in India have increased from 3.2 lakh crore rupees in 2019-20 to 7.6 lakh crore rupees in 20-21.

There is a growing demand across the world that this extra profit made during the period of pain should be heavily taxed. Proposals to tax this extraordinary profit at an extraordinary rate and redistribute the income to provide food and vaccine or health care to all would contain the widening inequality. It has also become very clear that globalization was essentially a discourse of capital. During the global financial crisis, capitalists of the world came together to bail out the sinking ship so as to keep the finance afloat, it was about saving global capitalism. While during the pandemic, despite much rhetoric about the humanitarian crisis, ‘vaccine nationalism’ and proprietary rights over vaccines dominated the global concern of fighting the virus. The simple reason being the survival of the poor is not a prerequisite for capitalism to thrive but profit-making by any means is, and hence, capitalists became nationalists to protect the profits of companies rather than serving global humanity.