The financial crisis appeared imminent well before Covid-19 as the global economy faced turmoil due to trade wars, a credit crunch and slow growth. The real GDP growth rates of the top 10 countries, including India had already slowed in 2019 which kept the global economy in an unsecured position to absorb any shock. The Covid-19 economic shock is unique, sudden, and pandemic. As I write today, over 3 million people are infected globally, and India has recorded the highest new cases of infection per day of 1.9 thousand to 27.8 thousand confirmed cases. Comparing the infection figures of India with other countries around the world, we can expect our course of recovery to be smoother and faster.
However, our economic curve towards recovery depends on how far we can push the infection down. The longer it takes to bring down the infection, the slower the recovery would be. Flattening the pandemic curve has a tradeoff with a steep economic cost.
The virus outbreak has not only disrupted manufacturing but also has spread to the service sector. Fall in manufacturing and service PMI in India indicates contraction across the sectors. The CEO Snap Poll of Lockdown impact due to Covid-19 conducted by CII in early April 2020, indicated an anticipated revenue decline, in Q120 by more than 10% for 74% of Indian firms. Nearly half of the Indian firms anticipated job losses in their respective sectors post lockdown. The job losses in this category of anticipation have risen to 30% or more. These figures will increase as the situation worsens and if the lockdown extends.
The economy is like the soul of a body, and it tends to take precedence over Covid-19. In the process what was less essential will become more and more essential. Some sectors of the economy will gradually receive partial relaxation. Large scale lending programme and other stimulus with special focus on MSMEs may be necessary to pick up businesses. But as we strive to rebound our economy to normal as much as possible, we must not take extreme measures and push people to go out to work.
The Demand Shock and Private Consumption Workers
The economic slowdown in India has a common symptom with the world, which is driven by a steep fall in private consumption of non-essentials items during the lockdown. Consumption is one of the major contributors to India’s GDP. According to the Ministry of Statistics and Program Implementation, Food & Beverages, Clothing & Footwear, Housing, Transport, Restaurants & Hotels form over 65% of private consumption. And around 37% of regular wage/salaried employees in urban India are informal workers who support this private consumption directly or indirectly. Most of the Indian rural-to-urban internal (state to state) migrant workers fall in this bracket and they have faced uncertain income, mostly with zero income by the end of March 2020. Our domestic airlines, railways and highways are shut, and they are stuck at their rented house or makeshift houses with no money to pay rent and barely a square meal a day supplied through state government programs, by NGOs and some individuals.
The Indian Migrants and of The North East
As per National Sample Survey 64th round of Migration report, in 2007-08 (no later report is found), it was seen that at all-India level, nearly 29% of the persons were migrants with significant rural-urban and male-female differentials. This rate significantly increases for urban and male migration. This was a decade ago, now the rate would have significantly increased.
Random samples (some villages and localities) in Ukhrul district, a small town of Manipur show that on an average, roughly 10 per cent of its population has migrated to urban cities of India, outside the state for employment related reasons and studies. Put together all North East region, there are a significant number of North East migrants in urban cities of India. Evidently, a major portion of these migrants is Private Consumption Informal Workers who are also termed to be disadvantaged workers.
Economic crises always hit disadvantaged workers more disproportionately than advantaged workers. They are the people with lower skill, education and lower paid, but are key sections of people who play a vital role in our economy. The informal migrant workers in urban India in sectors such as construction, restaurants, hotels and non-essential retails are the hardest hit in this crisis. They are hit by triple blows of no work – no pay, Covid-19 fear and being stranded in a different state.
Manipur government may be one of the first movers in India to effectively transfer cash directly to its migrants stranded outside its state. The Central government is also learnt to be contemplating on cash transfer option but collecting data and their bank accounts is a daunting task. Perhaps the Central government can collaborate with state governments in the North East region to work this out. Fear of moral hazards, of lending money to those who do not need it, from the government side and scrutiny, of selecting the most needed people, by the government or non-government (in case there are such non-governmental programs) should be minimal in this safety net programmes.
The Ripple Effects on Rural India
An award-winning entry for Exim Bank International Economic Research Award 2015, the paper Migration and Remittances in India mentions that domestic remittances finances over 30% of household consumption expenditure in remittance receiving households that formed nearly 10% of rural India. And 70% of domestic remittances were estimated to be channelled in the informal sector.
We have seen that the informal workers are out of work from the middle of March. And unless people in India begin to have positive moods, starts going out to eat in restaurants, flying and shopping, it is unlikely that the workers in private consumption sectors especially the informal workers will come back to work. Even if the fear of infection is totally gone, in the best case scenario, 30% of jobs will be lost in 50% of the firms as per CEO Snap Poll by CII. This is worrisome for all private and corporate jobs including formal and blue-collar workers.
This means that consumptions in rural areas, especially those that are dependent on most affected informal workers and even formal workers will be profoundly impacted. Action towards sustainable living, especially in rural areas may be our safety nets in the future.
Some political think tanks suggested Universal Basic Income for the Economically Weaker Sections of the country. However, such programme may be implemented as a temporary aid and not as a permanent solution because it divorces people from hard work.
A Big Risk
In such event, if the government adopts cluster sealing strategy when the travel industry is relaxed, and when railways and airlines are open, these migrants will storm into railway stations and airports like we have seen before in state bus station in Delhi and railway station in Mumbai. Their immediate stops will be small towns and villages. Unfortunately, our rural areas are not equipped to handle Covid-19 patients. Most districts lack ventilator in both private and public health centres. The North East States need to ramp up their Covid-19 Test capacity in terms of scale and quality, build enough quarantine facilities with proper sanitation in their capital cities and in districts headquarters while we prepare to absorb the influx of the migrants back to the states.
As mentioned earlier, the economic cost has a trade-off with flattening pandemic curve which is our priority.
The writer is a Management Consultant