Covid-19: Saving the informal sector

Numbers tell their own stories and some of them are not pretty at all. India’s vast informal sector, the largest in the world, which employs about 91% of the country’s total workforce and contributes more than 45% to the country’s gross domestic product (GDP), suddenly finds itself in dire straits.

The vulnerable sector which is still reeling under two consecutive domestic shocks—the government’s demonetisation drive of November 2016, which saw 86% of the currency vanishing overnight and the haphazard implementation of the Goods and Services Tax (GST) in 2017—now faces a far greater challenge. Covid-19 has resulted in a combination of demand destruction, supply disruption, and a pandemic shock that has resulted in a countrywide lockdown.

Out of a total Indian workforce of 465 million in FY18, 422 million were reported to be in the informal sector. These are basically self-employed and casual workers, both in the organised and in the unorganised sector, who mostly lead a hand-to-mouth existence. Even in the non-farm sector, like manufacturing and services, their share is 84%. While it is true that their percentage may be declining--from 93.8% in FY05 to 90.2% in FY18-- the numbers continue to remain quite substantial.

Moreover, as a recent study by NABARD shows, only 23% of the rural income for households comes from agriculture (cultivation and livestock). The rest--44% comes from wage labour, 24% from working in government and private services, and 8% from other enterprises like running small establishments like kirana stores, mobile repairing shops, etc. With rural manufacturing and local services badly hit by the current lockdown, even rural incomes will take a hit because non-farm incomes contribute a major share to rural income.

“The informal workers were already facing problems with low wages and income in the pre-Covid period because of the economic slowdown. Daily wage labourers and informal labourers are the worst hit during the lockdown and will continue to be adversely affected even when the lockdown is relaxed,’’ says S. Mahendra Dev, director and vice chancellor at the Mumbai-based Indira Gandhi Institute of Developmental Research.

With almost all economic activity coming to a halt particularly in the urban areas, he adds the lockdown has already led to large-scale losses of jobs and incomes of these workers. After all, with a large chunk of the potential customers staying at home right now and withdrawing from non-essential expenditures, the survival of the informal sector will become questionable with every passing day.

A recent report by the International Labour Organization says, “Covid-19 is already affecting tens of millions of informal workers. In India, with a share of almost 90% of people working in the informal economy, about 400 million workers in the informal economy are at risk of falling deeper into poverty during the crisis.”

To be sure, last month finance minister Nirmala Sitharaman rolled out a relief package of ₹1.7 lakh crore targeted at the most vulnerable sections–including construction workers, farmers, poor women, and the urban poor. This included additional rice, wheat, and pulses for the poor, a hike in Mahatma Gandhi National Rural Employment Guarantee Act (MNREGA) wages, and an ex-gratia amount of ₹500 per month for the next three months for women account holders under the Jan Dhan Yojana.

A subset of this informal sector is the 68 million inter-state migrant labourers, who too have been badly bruised by the lockdown. Most of them, who are employed as workers in building roads, factory production, and in the services sector, are now out of work as businesses and establishments have shut down. “In the absence of money, jobs and any savings or shelter in large cities, they are desperate to go back to the villages to be with their families,’’ says Dev. But that is not happening because many of the borders have been sealed.

Deepanshu Mohan, associate professor and director, Centre for New Economics Studies, Jindal School of International Affairs, O.P. Jindal Global University, says, ”What a shock like this does is whatever workforce is out there as a part of the contributing force for production activities, has now withdrawn.’’ This will result in two major hits: one, the cost of labour will go up significantly and second, the flexibility of the labour markets in the states will take a beating because of the absence of contractual labour, casual labour, and self-employed labour.

It will mean that promoters will find it difficult to complete even the existing projects because many of the workers may not be willing to come back and second, government work in railways, and the public distribution system will take a hit, says Mohan.

There is an urgent need to address their problems and their need for food, shelter, and security-related issues need to be taken care of. One of the best ways to take care of the worst-hit migrant workers is to use the network of aganwadis, panchayat bhavans, government colleges and schools, railway stations, bus stations, community halls, etc to set up feeding centres to arrange free cooked food, medical care and sanitation. “After the lockdown, an orderly return of migrant workers to their respective workplaces must be arranged,’’ adds Dev.

So what is the kind of stimulus that will be required to help the informal economy? According to some economists including Amir Ullah Khan, professor at the Telangana-based NALSAR University of Law, a back-of-the envelope calculation shows that it would cost the national exchequer around ₹3 lakh crore to help the approximately 500 million people in the informal sector to take care of absolute basic needs in the next six months. “And that’s not a big ask given that India has a ₹28 lakh crore annual budget,’’ he says.

More importantly, if each of these families are given ₹5,000 a month for the next six months, they will have some money left to spend after the Covid-19 lockdown opens. “It will also start a consumption growth story,’’ adds Khan.