India was already in the grip of a severe economic slowdown when the Covid-19 pandemic broke out. The disease and the lockdown announced to slow its spread has hit the economy hard. India may experience the first contraction of the economy in more than 70 years. Unemployment in both formal and informal sectors is at levels unseen in recent history. This may push a large number of working class people into poverty. A new book, Reviving Jobs: An Agenda for Growth (Penguin), the third in Samrudha Bharat Foundation’s Rethinking India series, edited by Prof. Santosh Mehrotra, sheds light on the current crisis and comes up with policy prescriptions. Prof Mehrotra spoke to Policy Circle’s Anil Nair on the state of the Indian economy. First part of the edited excerpts:
The world is witnessing probably the worst economic crisis in the last 100 years. What will be the shape of the post-Covid world?
We know that demand will collapse around the world. The global economy will contract perhaps for the first time in more than 70 years. Even countries like China and India are likely to see contraction. The economies of Africa and Latin America witnessed contraction between 1980 and 2000 and there was no growth in per capita incomes during the period. Asia never experienced contraction, India never experienced it.
We already know that our economy was slowing even before the Covid-19 outbreak and unemployment was at a 45-year high. Over the course of this year, unemployment would increase by an additional 50 million from the 2018 number of about 30 million; there were 10 million unemployed in 2012. This is unprecedented. The government has to respond powerfully, with a bigger stimulus than post-2008 crisis. The response so far has been pretty much confined to what the RBI has done. The Rs 1.7 lakh crore package announced by finance minister Nirmala Sitharaman was essentially rejigging of expenses, frontloading many already committed expenditure. So, we are hoping that there would be a much bigger package. MSME minister Nitin Gadkari has announced something, but much more is needed. The crisis is going to challenge the competence and the capability of India’s political and administrative leadership as never before.
READ PART II OF THE INTERVIEW: How India lost out to China, rest of Asia in development race
What it implies is that given that these are unprecedented times, the government needs to call upon outside experts into the decision making and policy advisory process. This government is uncomfortable to do this. It should have done this before the Covid-19 outbreak. It’s not just experts, but truly knowledgeable NGOs also need to be called upon — not just the politically correct ones. They have valuable local knowledge and some of them have sectoral knowledge. This needs to be a ‘whole of society effort’; it cannot be done by those within the government or party structure alone.
Studies indicate that around 136 million jobs are at immediate risk because of the Covid shutdown. Where are we losing these jobs?
That is pretty clear. First of all, the migrant workers tend to work in the construction sector, which is one of the most labour-absorbing activities outside agriculture. Secondly, a lot of people work in agricultural commodity distribution — I am not talking about production. The supply chains have been broken, affecting distribution of agricultural commodities. Thirdly, the majority of MSMEs are badly affected, this was so even before the Covid-19 pandemic. The lockdown is the second big shock that MSMEs have received in a matter of four years — the demonetisation was the first. This is going to be catastrophic for them. Fourthly, we know the specific sectors in the organized segment that will be hit. Tourism, aviation, hotels, restaurants, and trade will be impacted. The only things that seem to be functioning are a set of retail stores that sell grocery.
After Lockdown 3.0. we will see something of a boom in online grocery shopping, and also in some online non-essential goods. But not everyone shops online, only the middle class and above do so. What about the majority whose income has fallen, and whose jobs are lost? They are own account self-employed, and the casual day labourers, most of whom would be in the category of poor. We estimate that the numbers of the poor as estimated by the Tendulkar poverty line were already rising between 2012 and 2018.
With unemployment rising further after 2018, and then again post-COVID, the numbers of the poor by the same poverty line will rise further. So, this is a very grave threat to India’s demographic dividend, which will end by 2040, when India will have become an aging society. China’s leaders, despite achieving a per capita income four times that of India (China started at the same level as India in 1979), they are complaining since 2015 (when their demographic dividend ended): ‘Europe became old after they rich; we have become old without becoming rich’. Imagine what India’s youth will inherit from India’s current leaders.
India is witnessing unprecedented levels of unemployment. What are the socio-economic implications of high unemployment in a poor country like India?
Catastrophic. Evidence of that is already showing in the last five years. Let me give you evidence. In the last five years, we’ve seen agitations by upper castes seeking reservation in government jobs. You’ve had a violent agitation by Jats in Haryana, Patels in Gujarat, Kapus in Andhra Pradesh and Marathas in Maharashtra. I was already saying then that this was only the tip of an iceberg and the situation will only get worse. Sure enough, the economy slowed further post 2017, and unemployment reached a 45 year high. The unemployment will get worse due to Covid and we will see the same kinds of demands surfacing again in different states.
Another consequence of unemployment of rural youth who have just recently got educated, and between 2012 and 2018 thenumber of youth Not in Education, Labour force or Employment (NLET) jumped by 25 mn to over 110 mn.. Go to any village or small town, and you see many young jobless people hanging around doing nothing. Such people are drawn to all kinds of activity. If there is a cow slaughter ban, the youth hanging around can use this opportunity to extract money from cattle traders. One reason for the sudden increase in lynchings is that there are plenty of lumpen unemployed youth hanging around.
Another problem is that the unemployed youth feel a sense of hopelessness. What is the demographic dividend? It consists of a rise in the share of working age population. They look for jobs when they get educated. But the data tells us that there has been a decline in labour force participation of both boys and girls. This is completely counterintuitive. You would expect that as young people get educated, the labour force participation will increase. The opposite is happening because non-farm jobs are not available and they don’t want to be in agriculture. Their parents also don’t want them to be in agriculture.
Seeing rising unemployment, they stop looking for work and fall out of the labour force. They are called the discouraged workers. As I said, the number of those not in the labour force, not in education, and not in training has risen sharply by about 25 million to 110 mn between 2012 in 2018. So, in other words what you get is lumpenisation. There is a possibility that some of them will get radicalised and become part of fundamentalist movements. So, we have a serious problem ahead of us. This is discussed briefly in our book.
(Santosh Mehrotra is a Professor of Economics, Jawaharlal Nehru University, who specialises in labour, employment, and the economics of education. He has been an advisor to the United Nations and the government of India. Kindle edition of the book, Reviving Jobs: An Agenda for Growth, is available on Amazon.)
READ PART II OF THE INTERVIEW: How India lost out to China, rest of Asia in development race?