The Covid-19 pandemic has delivered a tremendous blow to the global economy. In India, two waves of infections with associated containment measures have caused a massive disruption in the labour market. As the economy emerges from the second wave, far deadlier than the first, it is necessary to take stock of what we know regarding the impact on employment and livelihoods, and what can be done to revive these, going forward.
The nationwide lockdown in 2020 hit the majority of Indian households very hard, with incomes falling by anywhere between 40 to 100 per cent depending on type of occupation and geographical area. As per CMIE data, nearly half of formal salaried workers moved into informal employment in 2020. Incomes for the bottom 10 per cent of households collapsed during April and May 2020. The burden of the income shock was regressive and resulted in a sharp rise in inequality. Due to job losses and wage reductions, during 2020, poverty shot up with the number of individuals who lie below the proposed national minimum wage increasing by 230 million.
Both employment and income bounced back after relaxation of the lockdown in June 2020. But thereafter, recovery stagnated. As per CMIE data, in December 2020, nearly 20 per cent of workers who lost work during the lockdown were again (or still) unemployed. In April 2021, the male working population rate (WPR) was four percentage points below its pre-pandemic level, indicating that 20 million fewer men were in employment, even before the second wave effects were fully felt. As more states went into lockdown, this number is bound to have increased. As of December 2020, real per capita household incomes were, on average, 12 per cent below their pre-pandemic (December 2019) level.
The policy response to the first wave consisted broadly of fiscal and monetary as well as credit-based measures, with the latter accounting for much of the Atmanirbhar relief package. The fiscal response consisted of expanded food relief, cash transfers, expanded MGNREGA and a few other smaller measures such as EPFO-based subsidies and NSAP payments. The policy response to the second wave has thus far focused mainly on credit-based measures. Additional spending has been limited to an extension of the PM Garib Kalya Anna Yojana till November 2021. Given the depressed demand conditions as well as the continued welfare crisis, a lot more can and should be done on the fiscal front.
Going beyond immediate relief, a comprehensive National Employment Policy that incorporates CII’s physical (developing clusters of growth), enterprise (supporting formalisation of the workplace), educational (promoting vocational training), and legislative (labour laws) agendas is called for.
The pandemic has revealed the stark consequences of under-investment in public goods, most significantly healthcare and social protection systems. But, it is equally clear that India’s physical, social and digital infrastructure is in need of large-scale investment. Such investment can address the problem of employment from both, demand as well as supply sides, by creating work as well as by improving the quality of workers. Public investment also spurs private sector employment by alleviating bottlenecks that constrain MSME growth, including lack of local physical and digital infrastructure.
I end with three policies that can help achieve the above aims and promote recovery. An Udyog Sahayak Enterprise Network (USENET) can be created for spurring micro-enterprise growth by helping them go digital, find markets, secure credit, avail of government schemes, and meet compliances. USENET is an entrepreneurship model akin to Banking Correspondents and Common Service Centres. An urban public job creation programme can reduce urban underemployment, particularly among casual and self-employed workers, while creating public assets, making towns greener and more liveable, and helping local businesses flourish by improving infrastructure. Finally, a key public sector intervention that operates on the demand side as well as the supply side of the labour market, is effective spending on health and education. On the demand side, such spending creates employment in the delivery of these crucial services. On the supply side, it improves the quality of the labour force. Hence, there is a strong case for augmenting public investment in health and education via a Universal Basic Services model.
India’s employment crisis was real even prior to the pandemic. Now its resolution called for nothing less than an unprecedented, bold and imaginative partnership between the public and private sectors.
This is an abridged version of the article by Dr Amit Basole, Member, CII Economic Affairs Council & Associate Professor of Economics, School of Arts and Sciences, Azim Premji University. It first appeared in the June 2021 issue of CII Economy Matters. Click here to read the complete article.