In a bid to curb the spread of Covid-19, Prime Minister Narendra Modi extended the lockdown till May 17. While the move was imperative to save lives, taking stock of the massive impact of the extended lockdown on jobs and livelihoods is equally critical. The effects of a prolonged lockdown have begun looming on the economy with businesses downsizing their workforce, start-ups shutting down, and job losses in India.
CMIE’s figures indeed portray bleak times ahead. According to a survey by the Centre for Monitoring Indian Economy (CMIC), 1.78 crore salaried employees, 9.13 crores small traders & labourers lost their jobs further 1.8 crore entrepreneurs shut their businesses, in total employment of 122 million population plunged in April, forcing businesses to shut and pushing up the jobless rate to 27.1% from March’s 8.74 per cent. Moreover, the country’s growth estimate now stands at 1.9% for FY21 down from 5.8% in January 2020. Mahesh Vyas, CEO of CMIE has been quoted as saying ‘Supply chains need to start working before businesses run dry of finances.
The Centre had last announced a ₹1.7-lakh crore stimulus package under Pradhan Mantri Gareeb Kalyan Scheme on March 26. India’s COVID relief package was at 0.8 per cent of GDP; Not only was the fiscal package grossly inadequate to tackle the crisis, but many of the measures such as the wage increase of ₹20 per day under MGNREGA (already notified by the Ministry of Rural Development, earlier on March 23) and the frontloading of payment (of ₹2,000) under the existing PM Kisan Yojana, were already part of the Budget or routine annual exercise, and hence, it did not offer any specific additional relief to the poor.
The figures also reveal another staggering fact. India’s unemployment figures are four times higher than that of the United States and More than 3/4th of those who lost jobs are wage labourers and small traders; Tamil Nadu is among the worst-hit States.
Businesses cut jobs and salaries to stay afloat
Amid the retarded economic activities, businesses are taking measures to stay afloat during the crisis. They are re-prioritizing their activities. In a bid to streamline the cash flows, companies have put production on hold. They are focusing on selling more of what they already have. Reduction in salaries, perks, and overtime hours, as well as job cuts, are some of the other ways companies are now adopting to go lean in the wake of the crisis.
Devise ways to open the red zones
Even those that are employed may not be able to return to active work any time soon as most of the hubs of economic activity currently lie in the red zone. These red zones house districts that are the most urbanized and industrialized in the country. According to McKinsey, the districts in the red zones account for nearly 41% of the national economic activity, 38% of industrial output, 40% of non-farm employment, and more than half of the country’s consuming-class households.
There are 130 red zones in the country that also face the maximum restrictions in terms of lockdown enforcement and movement of the people. This translates into marginal economic activity and industrial outputs. Considering the contribution of districts in the red zone to the economic activity, it is critical to devise ways of opening them up as soon as possible. As further delays will only worsen the economic crisis and impact the livelihood of millions of people.
More importantly, the Centre will have to announce big bang fiscal measures soon, to address the fallout of the virus-induced lockdown that is costing the economy dearly.
The Centre had last announced a ₹1.7-lakh crore stimulus package under Pradhan Mantri Gareeb Kalyan Scheme on March 26. Not only was the fiscal package grossly inadequate to tackle the crisis, but many of the measures such as the wage increase of ₹20 per day under MGNREGA (already notified by the Ministry of Rural Development, earlier on March 23) and the frontloading of payment (of ₹2,000) under the existing PM Kisan Yojana, were already part of the Budget or routine annual exercise, and hence, it did not offer any specific additional relief to the poor.
What others have done
Governments across other countries have announced way larger stimulus packages constituting up to 4-10 per cent of GDP. Many governments have been announcing a series of packages over the past two months, scaling up the quantum of packages substantially to tackle the evolving crisis. More importantly, the measures announced across most countries seek to address the urgent cash flow needs of small businesses, low-income households, and income support to informal and unemployed workers. The Indian government’s measures so far have failed to address the needs of small businesses and tackle the issue of job losses, which will only get accentuated with the extension of the lockdown.
Australia has announced three economic stimulus packages totalling 9.7 per cent of GDP through FY2023-24, the majority of which is to be executed in FY2019-20 and FY2020-21.
France has announced a package of more than 4 per cent of GDP. In Germany, in addition to running down accumulated reserves, the federal government adopted a supplementary budget of 4.9 per cent of GDP.
In Singapore, the authorities have announced three packages amounting to a total stimulus of 12.2 per cent of GDP. In Japan, on April 7, the government adopted the Emergency Economic Package against Covid-19 totalling 20 per cent of GDP,
In the case of Indonesia, which has announced about 3,200 confirmed Covid-19 cases as of April 9, the government, in addition to its first two fiscal packages that amounted to 0.2 per cent of GDP, announced a major package on March 31 amount to 2.6 per cent of GDP.
In the US, the $2.3 trillion (around 11 per cent of GDP) Coronavirus Aid, includes $250 billion to expand unemployment benefits has been announced by the government.
There is no telling when the tides will turn, however, a government bailout will certainly help to prevent the current recession from turning into a full-blown depression.