Written by CA CFE Harshad Tekwani
Till now the government has announced four lockdowns (currently lockdown 4.0 is in phase) to protect the nation and to flatten the infection curve and so far the government has succeeded in it. However, the said gain has come at a mammoth cost of national economic activity (Kwatra, 2020). Due to lockdown, India is now facing the most worrisome slowdown in its economy. India’s Service Purchase Manager Index was recorded at the record low of 5.4 points in the month of April 2020 compared to the 49.3 Points in March 2020 (Mishra, 2020). This index demonstrates whether the market conditions are going to expand, remain the same or contract. This record low indicates that there will be a huge plunge in business activities across the economy. With a decrease in business activity, employment in those businesses will also get impacted. Low employment will consequence low purchasing power, more poverty and increased unemployment. Since the first phase of the lockdown, reverse migration has started in India. As per the Economic Survey of India of 2016-17, there are annual 9 million people who migrate from rural to urban areas in search of a better future and life. The annual migration from the year 2011-12 to the year 2015-16 is depicted below (Government of India, 2016-17).
Figure 1.1: Annual New Migrants (Source Economic Survey of India for the year 2016-17).
If we calculate based on the average 9 million people annually then post-financial crisis i.e. since 2009 total 100 million people have migrated from rural areas to cities. Out of the said migration, the largest recipient of the migration is Delhi region which accounts for more than half of the migration in 2015-16. Bihar and Uttar Pradesh are the top states where people are have migrated the most (Mehrotra, 2019). Out of the said migrants, 13% migrate due to the job. The total people migrated for work-related increased from 2.8 million to 4.8 million for urban areas in the year 2011 compared to 2001. This shows an increase of 71% in a decade and 7.14% annually (Migration, 2017). If we keep the increment rate same then post 2011 38.40 million People have migrated due to work-related reasons.
Now, why are discussing these numbers? The answers lie in the impact of the COVID-19 Pandemic over the migrations, unemployment and people living below the poverty line. Let us discuss the issues faced by these people.
If you look at the daily headlines of the newspapers and news articles, and some of which I have quoted below, they all present that the migrants are facing huge issues. Some of the headlines are
‘I will never come back’: Many Indian migrant workers refuse to return to cities post lockdown – Scroll.in or Will Migrant Workers Return To Urban India Post COVID-19 or Where do we go from here? India should consider self-registration, inter-state welfare schemes for migrant workers’ social security or Time has come for complete overhaul of obsolete legislation regulating migrant labour in India.
As per the ILO Monitor published in March 2020, this Pandemic will have far-reaching effects over the economy and its position (International Labour Organisation, 2020). One such impact will be a significant rise in unemployment and poverty. Pandemic in itself is not causing these troubles, rather the measures which are enacted by the government to flatten the infection curve is adversely affecting the national economy. To flatten the curve, most of the nations, including India, have imposed partial or full lockdown i.e. no or partial economic activity. As a result, countless migrants who used to survive over temporary jobs are facing huge unemployment. The unemployment rate reached new heights of 24% in the month of May 2020 compared to 7.03% a year ago (CMIE, 2020).
With no jobs in hand, the migrants (especially below the poverty line) who used to survive on the temporary vocational employments now are facing money crunches and food scarcity. As per a recent estimate, there are 12 to 18 million migrants who have either lost their job or are at risk losing (Magazine, 2020). Due to the lockdown, most of the migrant does not have any income source and money even for their necessities.
In such a case these migrants started moving back to their home towns and villages i.e. the process of reverse migration. Till 30 May 2020, 4000 Shramik Special Trains have already ferried around 5.4 million migrants back to their home. (Nandi, 2020). This shows how many migrants lost their jobs and vocation. This will directly impact their purchasing power and the overall poverty level.
As we have already seen that the unemployment rate has rocketed up to the heights of 24% in May 2020. This is a very grievous concern as unemployment is directly correlated with poverty (ACHARYA, NA). An increase in unemployment is directly correlated with spending and poverty. As per the experts, due to this lockdown, at least 100 million new people will move under the category of poverty as defined by the World Bank (Das, 2020). This will increase the poverty rate back in India. Also, as predicted, the impact of this lockdown on poverty will be of long term in nature. Moreover, in the month of April, the labour force fell by 68 million compared last year (CMIE, 2020). This shows that more people have lost their jobs and source of income. This will result in a further increase in the poverty levels in the nation.
To summarise, India will face the following issues in the longer term and India need to prepare for the same:
- Increased poverty rates over the long term and degradation in the lifestyle of people. This may also result in the fall of the quality of life index.
- Increased unemployment and loss of jobs. Many workers and employees will see pay cuts, less quality/paid jobs and less career growth.
- Increase reverse migration from urban to rural areas. This will burden the rural infrastructure and may result in more issues in rural areas.
- In the longer run, cumulative of unemployment, poverty and reverse migration will impact negatively the
To address these issues government need to bring a few out of the box solution which can be risky in the short term. However, these are exceptional times and require exceptional measures. In this regard, I have tried to enumerate a few solutions which the government can adopt.
In such a case the Government need to bring out reforms and measures to tackle these issues. Following suggestion can be implemented to normalize the situation for the unemployed, Poor and Migrants:
Other than the Moratorium relief and low-cost loan the government should focus on the longer-term solutions to boost employment and entrepreneurship. For that, the following proposals can be implemented.
- Special Purpose Vehicle for Investment in MSME: Government can create a special purpose vehicle to invest in MSME in the form of equity, not debt. In the long run, the debt will result in a burden over the MSMEs in the absence of sales and revenue. This SPV will invest in MSME by obtaining funding from RBI by way of debt bonds or such other relevant instruments. Post which this entity will invest such amount in MSMEs and over the period will sell the said investment for profit once the MSME starts growing. By this way, MSMEs will grow, employment will grow and unemployment will come down
- Guaranteed Income: It is time that Indian and the government should focus on the guaranteed income for the people who want to be employed but are unemployed due to certain relevant reasons. By this way, an assured income for the unemployed people will also help them to come out of poverty.
- Labour Law Reforms: In the Atmanirbhar Bharat – 2 government announced labour code reforms which included universalization of right of minimum wages and timely payment of wages. However today, as per a report, almost 90% of the workforce is employed in the informal sector where such laws are not applicable (Sharma, 2020). Formalization of such informal sectors employees and reforms which can reach till them are required in the current times.
Government is already distributing free ration and pulses to the poor. However, to tackle and to effectively address the poverty issue, the Government needs to focus on the solutions which can have long term impact. Such as:
- Encouragement to Rural Entrepreneurship: By encouraging the entrepreneurship at the rural level also, the Government can create a base for the self-employment and income. By this way, poor people will earn on their own and will come out of poverty in the long run.
- Price Deregulation for Farmers: Currently, too much price regulation also negatively impacts farmers. As per Index of Economic Freedom, India gained 55.2 points in 2019 which terms Indian Markets as “Mostly Unfree”. Even after imposing the stock limits the price of essential commodities fluctuates more than earlier refer the below graphs for the same:
This shows that excessive regulation of the essential commodities by the government impacts negatively to the farmers. A Negative Impact on the farmers, in turn, impacts their earning capacity and restrict their income and growth.
- Universal Basic Income: It is time that Indian and the government should focus on the universal basic income for the Indian citizens. This should be taken as long term goal rather than a shorter term. In the phased manner, the government should try to bring every Indian citizen under this scheme. Universal Basic Income should be in way of kind also for eg: Food for all, Medical for all, and Education for All. By this way, a government can create an environment where poor doesn’t need to spend on his necessities and only need to earn for his growth and development.
It is nothing new today to see certain cities flooded with migrants. We have already seen the problem of over migration as mentioned above. Under this lockdown, due to job loss and no income, these people are migrating back to their home towns thereby providing another opportunity to focus on its demographic and overpopulation issues.
- Utilization of SEZ space: As per a report in 2017, over 60% of the area allotted for the development of the SEZ lies vacant and undeveloped that makes to 44,177.69 hectares of land (Sasi, 2017). By utilizing that space government can redirect the migration to the areas where there is the capacity to grow rather than a few selected cities like Mumbai, Delhi, Bangalore, Surat and Ahmedabad. By this way, the government will be able to focus on the development of the respective areas easily.
- Internal Migration Laws: In this pandemic, certain states sealed their borders for migrant movements. These states have stopped accepting the migrant back due to following reasons:
- Health issues: As these can be infected with the Coronavirus.
- Infrastructure: The villages and areas where migrant are headed back are not having appropriate infra to support their return. Like sanitation, water, food, shelter and medicine.
These internal migration laws will help the state governments to maintain the migration and will also help the central government to divert the excessive migration to the areas which have the infrastructure to handle the migration.
In nutshell, to resolves the issues like unemployment, poverty and over migration or reverse migration, which are linked together, the government needs to focus on the root cause of the problems rather than acting based on the surface level issues.
 Purchase Managers’ Index is an diffusion index which is calculated as below:
P1 = Percentage number of answers that reported an improvement.
P2 = Percentage number of answers that reported no change.
The rating of the Index is as follows:
an index reading of 50.0 means that the variable is unchanged, a number over 50.0 indicates an improvement, while anything below 50.0 suggests a decline
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