Written by : Dr. Anjan Chakrabarti
Co-authored by : Pooja Sharma
Photo credit : Shutterstock.com
The pandemic created by the outbreak of coronavirus or COVID-19 has shaken the world, which is unparalleled in the modern world. The US, Europe,got into a deep crisis that has threatened life and economy simultaneously and injected unprecedented uncertainty into the psyche of the capitalist economy. India also failed to remain insulated. However, the death toll remains much lower in comparison to the West. Unlike many countries, including Singapore and South Korea, India has opted for a nationwide lockdown, initially for 21 days, started at midnight on 25th March 2020. It has further been extended till 3rd May 2020. India does not go for aggressive testing because it is logistically, economically too ambitious to afford.
Nonetheless, the Indian economy has reached a standstill situation with a complete halt in all types of economic activities. Both supply-side and demand side of the economy became claustrophobic. These have multi-layered short-term and long term ramifications on the lives and livelihoods of Indian people.The projected economic growth has been slashed down by most of the International agencies. World Bank projected a growth rate for India in 2020-21 between 1.5 per cent and 2,8 per cent. IMF and Crisil’s projection stand at 1.8 per cent and 1.9 per cent, respectively. It is estimated that the fiscal deficit may be closer to 9 per cent of GDP in 2021 (The Economic Times, 13th April 2020). Barclays Research in a note 14th April estimated that the loss of output due to the closure of factories and offices is about $ 26 billion per week. It is much higher than their previous estimates of $ 16.6 billion primarily due to higher-than-expected output losses in agriculture, utilities, construction, wholesale and retail sectors. The overall loss was estimated to $ 234.4 billion or 8.1 per cent of GDP. Barclays pegged the economic growth for this year at zero (Iyer, 2020).Unemployment is likely to reach a historically highest level in the post-independence period. According to CMIE data (CMIE, 2020), the unemployment rate has reached at 23.60 per cent, and for the urban area, the rate stands at 25.30 per cent, and forrural India, the rate is 22.80 per cent on 28th April 2020. The emerging scenario has exposed the glaring reality of India’s informal sector, which does not receive much attention before the outbreak of a pandemic. Besides, the pathetic plight of daily wage-earners, migrant labourers that have been unfolded during the lockdown period, raised few fundamental questions on efficacy and outcome of economic reforms in India and on the theoretical underpinning of the philosophy of neo-liberal economy.
It has been constantly debated whether the upsurge in average growth rates in post-1990s have only benefited a few and pushed up disparities and inequalities (Gustafsson et al. 2008; Dev and Ravi 2007; Bhaduri 2008, Sarkar and Mehta, 2010). Many studies have the opinion that the rising growth of GDP has entailed higher income inequality (Chandraseakhar and Ghosh 2007; Sengupta et al. 2008). It challenges the basic argument of Solow’s growth theory, which advocates that competitive forces and inter-regional migration will allow regional inequality to disappear through gradual factor prices equalisation (Solow 2000). Solow’s argument has further been challenged by new growth theorists like Romer, Lucas, Krugman, Venables and Fujita. According to Lucas, uneven distribution of human capital and according to Romer, it is the differences in research and development causes regional inequality (Barro and Sala-i-Martin 1995).
As Sen (1991a, 1991b, 1992) consistently cautioned that growth does not ensure the well-being of each individual and to achieve well being of every individual, more focus should be given to developing human resources. To him, income cannot be used as a sole measure to evaluate inequality, as it does not entirely ensure the capability or freedom to an individual to achieve what he desires. On the contrary, economic inequality takes into account not only income but also education, health, justice, credit and other productive resources and opportunities which provides an incentive to an individual to better his overall situation (Sen 1997). The COVID-19 pandemic brought this argument to the forefront again.
Government Economic Measures During Pandemic
On 27th March 2020, Reserve Bank of India (RBI) announced its bi-monthly monetary policy statement, 2019-20 resolution of the monetary policy committee (MPC) to infuse liquidity in the economy through banking and non-banking financial institutions. Repo rate has been reduced by 75 basis point and brought down to 4.4 per cent, and the reverse repo rate has been cut down by 90 points and brought to 4 per cent. This rate cut intervention by RBI has come after central banks across the world announced rate cuts to stave off a coronavirus related recession. Cash Reserve Ratio (CRR) has also been reduced by 100 basis points (1 per cent) and stands at 3 per cent(RBI Press Release, 27th March 2020). On 17th April 2020, the RBI announced a second set of relief measures aimed at alleviating economic crisis resulted out of COVID-19 pandemic.The measures include a reduction in the reverse repo rate of 25 basis points which will bring down the rate to 3.75 per cent. A special refinancing facility of 500 billion to institutions such as National Bank for Agriculture and Rural Development (NABARD), the Small Scale Bank of India (SIDBI) and the National Housing Bank (NHB) has been announced. These institutions play an essential role to meet up the long-term funding requirements of agriculture and the rural sector, small industries, housing finance companies, Non-banking Financial Companies and Microfinance Institutions (RBI Press Release, 17th April 2020). The cumulative impact of these measures is in addition to the Rs. 6.6 trillion (3.2 per cent of GDP) injected over the past two months.
Fiscal Policy Response
Immediately after the lockdown, Finance Minister announced a fiscal package of Rs. 1.7 lakh crore, which is closer to 1% per cent of GDP to ensure food and cash for the poor and vulnerable section of the society (Thomas, Chakraborty, 2020: 16). It has been announced that under the Pradhan Mantri Garib Kalyan Anna Yojana Food Scheme), everyone within this scheme receives 5kg of wheat/rice in addition to the current 5 kg allocation for coming three months for free. 1kg of a preferred pulse (basedon regional preference) will be given for free to each household will also be provided through Public Distribution Scheme. 23 crore of families who are having ration cards or roughly 82 crore population or two-third of the population is supposed to be benefitted. Under PM-KISAN scheme (minimum income support scheme), farmers currently receive Rs. 6000 every year in three equal instalments. The Government has decided to release first installment upfront in April, the starting point of the fiscal year 2020. It is expected to benfit around 86.9 million farmers. The wage rate under MGNREGA has been increased from Rs. 182 to Rs. 202 and is likely to provide benefit to 50 million families. The wage increase will add additional income to Rs 2000 per worker. 30 million senior citizens, widow, disabled to get the one-time-exgratia amount of Rs. 1000 in two installments over the next three months. Under Jhan Dhan Scheme, 200 million woman account holders shall be provided ex-gratia amount of Rs. 500 per month for the next three months. Women in 83 million families below the poverty line covered under Ujwala scheme get free LPG cylinders for three months. Government is also providing collateral-free loans amounting Rs. 200,000 for 630,000 Self-Help Groups (SHGs), which is likely to help 70 million households. It is further stated that the District Mineral Fund tuned Rs, 310 billion shall be used for the people who are facing economic disruption due to lockdown.
The Policy Impact
Considering both monetary and fiscal measures, few pertinent questions are to be raised. From the monetary policy perspectives, the general observations say that it will temporarily reduce the volatility in the share market. Borrowers will feel relieved because there shall be interest cut on loan taken by industries, big, medium and small. Housing loan shall be cheaper and those who are paying Equated Monthly Installments (EMI), their interest payment will be reduced and which will be resulted in lower EMI payment. Credit requirements for the agricultural sector will be eased out. Moratorium on loan repayments and interest payments will help the small borrowers from the transport sector, especially who run SUVs, Auto-rickshaw, Battery driven Rickshaw and even a rickshaw. Those who are running micro-enterprises and trade shall derive some breathing space. Microfinance may ease the supply of consumption loans mostly given to women clubbed under Self-help group. The interest rate cut on fixed deposits will discourage the medium income groups, especially older people. Small savings might receive a hit.
However, this supply-side intervention can bring any substantial short-term change, and here, the scepticism occurs and demands explanation. India is experiencing an economic slowdown since the 2019s. The growth rate is slowly but steadily declining and hovering around between 4-4.5 per cent (pre- COVID 19 Pandemic period). The euphoria of 7-8 per cent growth rate got vanquished. Growth of Industrial Production (IIP) reached the nadir (-4.3 per cent). Almost all the entire manufacturing sectors were facing a severe slowdown. A colossal job cut was initiated by various corporate bodies or in the organised sector even much before the onset of a pandemic. During the lockdown period, the industry, manufacturing and services is bound to entail double-digit negative growth. Reduction corporate tax rate and bringing it down to 30 per cent failed to revive growth of industries. After the COVID-19 pandemic, severe erosion in demand has occurred. Entire supply chain got disrupted for almost every sector. Trade and Commerce, including retail businesses, transport and Communication, Tourism and Hotels, Banking, entertainment industries and every segment lost momentum to the maximum possible extent. Therefore, until and unless, the demand side intervention and income of the large section of the population are getting better off, availability of cheap credit shall make hardly any difference. The primary question the producers will confront who is going to buy, how much will they be able to afford to buy, and how much to produce? A fundamental, mundane macro-economic question has remained unanswered.
The fiscal measures, especially those announced for the poor and vulnerable section, can not be treated as new and innovative measures. Except for provision for additional food grains, rests are already budgeted in 2020-21. The only change that has been brought, that in most of the cases provisions for ex-gratia payments for three months have been ensured. Rest was already pronounced in the last budget of 2020-21. The budgetary provision for the social sector has been 7.7 per cent of GDP in 2020-21, which was 6.2 per cent in 2014-15. A marginal increase in took place in education, from 2.8 per cent of GDP to 3.1 per cent of GDP during the same period. The allocation on health was meagre 1.2 per cent of GDP in 2014-15 and has been increased to 1.8 per cent 2020-21. Flagship programme like MGNREGA (Mahatma Gandhi National Guarantee Scheme), popularly know as 100-Days Job scheme, Swacch Bharat Mission, Welfare of SCs received a cut in allocation in the budget of 2020-21. The budget allocation for the agriculture sector has been received a 75 per cent hike. Total of 122 schemes have been announced, and among them, 22 schemes are designated for the poor and vulnerable section. However, most of the schemes are the continuation of the schemes launched by the previous Government. Schemes are namely, Food subsidy to FCI under National Food Security Scheme, National Health Mission, National Livelihood Mission, National UrbanRenewal Mission, National Education Mission, Integrated Child Development Scheme, Sarva Siksha Abhiyan, Mid-Day Meal for school-going children, PM Awas Yojana, Subsidy on Urea, etc. If these are the scheme to be considered as a social safety net, then the scenario that has been emerged during lockdown period as well as pre-COVID time raise questions on the outcome three-decades-long economic reforms in India. Given the fact that India is going to have less revenue collection due to the fall in GST and severe erosion in demand for various goods and services.
India will continue to remain least prepared to fight the pandemic because of feeble public health structure. As per World Bank data, The hospital bed availability is 0.55 per thousand population in 2019, which was 0.718 in 1980. Physician per thousand population stands at 0.739 in 2011 in comparison to 0.27 in 1981.Community health workers per 1000 population stood at 0.504 in 2011 and which was 0.627 in 2003. The figure for nurses and midwives was 0.9 in 2011, which 0.787 in 1991 (WorldBank, 2020). In overall human Development performance, in 2019, India achieved a human development score of 0.647 and ranked 129th among 189 countries which are falling medium Human Development Category of Countries. On the contrary country like Sri Lanka made considerable progress and ranked 71 with an HDI value of 0.708 and is falling under high Human Development Category of countries and also outperformed the rest of the SAARC countries, including China. Entire Health care system has been left in the private hand, and Government preferred that middle and rich income category should rely on medical insurance. Announcement of Auyshman Bharat has made doubly clear that Government is ready to expand health insurance net so that dependence of medical care from the private sector can further develop. During COVID-19, it got widely exposed that corporate medical sector is no longer ready to shoulder the burden of this pandemic. In addition, community health and immunisation of children and childbearing mother is in complete jolt because a scanty number of health workers have been put up at the front to fight the battle against the pandemic. Stress and strain of poor rural health care system have been accentuated.
Employment and Unemployment
It is already pointed out that the unemployment rate has already touched at 23 per cent. The average economic growth rate during the entire reform period remain closer to 6 per cent. Now growth –employment relationship itself get into serious doubt. In 2019-20 Budget, Agriculture and Rural Development together find an allocation closer to 11 per cent of GDP together, but numerous schemes for these two sectors failed to improve the rural economy. The situation is such that around 43 per cent of the agricultural community is sharing only 14 per cent of income. The rise in rural distress has increased the supply of labour force in the urban informal sector and increased the percentage of migrant labourers. In brief, Economic reforms and expansion of the informal sector went hand in hand. The definition of the informal sector manifests the degree of uncertainty and vulnerability of the labour force. Informal workers do not have any written contract, paid leave, health benefits or social security. Closer to 90 per cent of the workforce are engaged in informal sectors. UNDP estimate reveals 76.7 per cent of the workforce can be termed as vulnerable employment, in 2011, the percentage was 80.6 per cent and in 1991, it was 83.3 per cent (UNDP, 2019). The vulnerable employment is defined by ILO as the percentage of employed people engaged as unpaid family workers and own-account workers (ILO, 2019).In rural India, 85 per cent of the workforce do not have a salaried job, and for urban areas, the percentage stands at 53 per cent.
Among those who are in a salaried job, 46 per cent have no ‘paid leave’ and 70 per cent work without any written contracts (NSO 2019). According to the annual survey of NSO (46th Round) combined percentage of self-employed and casual workers was closer to 77 per cent in 1991. Therefore, it is evident that three-decades of economic reform has expanded the informal sector with a high degree of casualisation and vulnerability with constant degradation of the quality of jobs. As per 2011 Census, 4.1 crores or 8.5 per cent of total population work as migrant workers and 3.5 per cent are temporary migrants. They mostly migrate from Eastern region and UP to Western and South Western Coastal districts. These indicate that many states, agriculture as well as rural economy fail to ensure year-long subsistence income.Regional disparity over time. Therefore, lockdown situation and concomitant severe economic recession have created a scenario where both life and livelihoods of 90 per cent of the workforce and their survival areat stake.
Fall in Consumption Expenditure
In spite of having a plethora of schemes for rural India, it has become gradually clear that the economic condition of rural India has started deteriorating much before the outbreak of COVID-19 pandemic. As per the “Key Indicators: Household Consumer Expenditure in India” conducted by the NSO, the average monthly spending by an individual has been reduced to Rs. 1446 in 2017-18 from Rs. 1501 in 2011-12. This implies that there is an overall decline in per-capita consumption expenditure by 3.7 per cent. But the worrying factor is that in rural India, consumption expenditure has been reduced by 8.8 per cent and for urban India by 2 per cent. The crucial issue is that Rural India’s monthly spending on food has declined by 10 per cent between 2011-12 and 2017-18. Rural India spent Rs. 643 per month on food items and in 2017-18, the spending has been reduced Rs. 580. The figures are inflation-adjusted, and hence the decline is in real terms. Both rural and urban India spent drastically less on essential food items such as oil, salt, sugar and spices. The former Planning Commission member opined that a fall in food spending, especially in villages, shows that that malnutrition has increased along with a rise in poverty level (The Economic Times, 2019). It also indicates a lack of job opportunities in the non-farm sector and slows down in the farm sector (Editorials, EPW, 2020: 7). During the lockdown period and in post lockdown period, disruption in supply chain prices of vegetables and other food items has already been increasing. Lockdown and halt in economic activities are going to throw minimum employment and income opportunities for both rural people as well as people associated withthe large urban informal sector. The spread of hunger and impoverishment has become imminent.
Almost three decades passed away since India initiated economic reforms in 1991. The country many times have tagged as a fastest-growing country or second fastest growing country after China. The average growth rate during this entire period is closer to 6 per cent. The moot point is that does growth bring equity or increase income inequality. The theory says that the nature of economic growth is such that at an initial period, with the rise in economic growth, income inequality will increase. Nevertheless, in the later period, income inequality will tend to fall with every increment of growth. India’s economic growth pattern and change in the degree of inequality does not say so. The famous research paper of two well-known economists Lucas Chancel and Thomas Piketty (Chancel & Piketty, 2017) highlighted that India’s income inequality reached at the highest level since the income tax was introduced in 1922. The study further revealed that between 1951 and 1980, the gap between rich and poor was narrowing, but the trend was reversed during 1980-2014. The Gini coefficient is estimated to be close to 0.50, which would be an all-time high. A general rise in the Gini coefficient indicates that government policies are not inclusive and may be benefiting the rich as much as (or even more than) the poor. The survey conducted by Oxfam India in 2018 suggests the rising inequality in India in the recent past. The report stated ‘73 percent of the wealth generated last year went to the wealthiest one percent
In comparison, 67 crore Indians who comprise the poorest half of the population saw one percent increase in their wealth’, and ‘Number of billionaires has increased from only 9 in 2000 to 101 in 2017’ (Oxfam India, 2018). It is beyond doubt that the pandemic has created an unprecedented economic crisis. Still, the vulnerability of 90 per cent of the workforce, which has now become the point of a significant argument, is the outcome of unfettered faith on market forces which India considers sacrosanct.
How to strike a balance between lives and livelihoods is possibly the primary concern before the country at this crucial juncture of COVID-19 pandemic. The short-term solution lies to keep the demand side alive so that the supply side of the economy shall have a breathing space in future. Therefore, the focus should be on people associated with the informal sector of the economy, including agriculture. Cash and kind transfer are one of the options. Rice/Wheat and pulses have been provisioned through the Public Distribution System (PDS). Due to good harvest and procurement in the last Kharif season, Food Corporation of India is having 59 million tonnes of food grain, which is almost three times of the buffer stock norms of 21.04 million tonnes. Rabi crops collection is also underway. Therefore, providing rice and wheat roughly 81 crore ration cardholder is not a daunting task.
However, there is a need to reorient the food items distributed through PDS. Addition of egg, soybean, mustard oil, salt, Potato, onion and milk will keep the nutritional level intact and save the millions of vulnerable people from fighting hunger and starvation. Following the poverty estimates of Rangarajan Committee (2014), all jobless people should receive a transfer of cash Rs. 1407 for urban area and Rs. 972 for the rural area. Having an ADHAR card-linked bank account through Jondhan Yojana, cash can easily be transferred without any pilferage. The budgetary allocation under MGNREGA, Rural and Urban Livelihood Mission, Mid-Day Meal, Swarnajayanti Gram Swarozgar Yojona, Pradhan Manti Kishan Pension Yojona, Atal Pension Yojona can be clubbed to ensure the cash and kind transfer till the normal economic activities are taking off. India’s debt-GDP ratio stands at 69.04 per cent (Union Budget 2020-21). Given the fact that revenue collection will be much lower as anticipated, India must relax its fiscal deficit to remain contained within 3.5-4.5 per cent, and at least 5-6 per cent of GDP should be spent to support the families associated to the informal sector. Export has already reduced by 35 per cent, and the entire West is facing a severe recession. Therefore, Global Trade and Commerce will take backstage. In this situation, the revival of the domestic economy and domestic demand is the only option. It is only possible if the people of the informal sector survives with ensured food and cash. Besides, complete reorientation public health care system is the need of the hour, although health is a state subject. Then only a balance can be struck between lives and livelihoods. Economic reforms without a safety net for the poor and vulnerable section will continue to pose questions on growth-oriented outcomes and philosophy of economic reforms in India.
*Part of the article was published in Mulitidimesion Magazine on 1st May 2020
Dr. Anjan Chakrabarti
Associate Professor, UGC Human Resource Development Centre
The University of Burdwan, West Bengal, India
Assistant Professor, Daulat Ram College, University of Delhi
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