What derailed the Indian economy? This book asks how the livelihood crisis will be addressed

There is a livelihood crisis which is yet to register with the government. One reason is high health expenditure. By 31 March 2021, India had 12.2 million cases and 162,927 deaths. A SBI paper said households would have spent additional Rs 66,000 crore in FY21 over FY20 (11% higher) due to the pandemic.

In normal times, official documents show that 60-63 million people slip below poverty line (BPL) every year due to “exorbitant” health expenditure (also high out-of-pocket expenditure). Imagine the cost the pandemic would have imposed on the millions of households, far more than the official numbers reveal because of gross under-reporting.

The Azim Premji University’s State of Working 2021 paper shows that in 2020, India lost 100 million jobs due to the lockdown, of which 15 million jobs were lost permanently. It also showed a 50 per cent rise in informal workers as the maximum impact was on salaried/regular wage workers and they moved to informal self-employment (30%), casual (10%) or informal salaried (9%) work. It also found a fall of 17 per cent in average monthly income of workers and impoverishment of 230 million who fell below a minimum wage threshold of Rs 375 per day recommended (but not accepted or implemented) by the Anoop Satpathy Committee.

The US-based Pew Research Institute showed that 35 million low-income people would have slipped below $2 dollar of living expenses (extreme poverty) and 32 million middle-income people below $10 (low income) due to the pandemic in 2020.

This estimate does not include those who would have slipped into extreme poverty earlier because of the slowing economy and the impact of demonetisation, GST (as explained in earlier chapters) or the second wave in 2021. This is a reversal of India making historic record of lifting 271 million out of poverty during 2005-2006 and 2015-2016. A large number of them would now be back to BPL status.

The massive job loss and rise in low-paying informal work were reflected in the rising demand for job guarantee scheme MGNREGS, which provides manual work, in FY21. Households who worked under the scheme went up from 54.8 million in FY20 to 75.5 million in FY21. During the same period, individuals who worked went up from 79 million to 111.9 million. The budget for FY22 reduced allocation for the scheme, which needs to be brought back.

The aforementioned Azim Premji University study said that food intake fell as 90 per cent households suffered a reduction in food intake during the 2020 lockdown. Net physical assets have been falling fast – from 16.3 per cent of the GDP in FY12 to 11.7 per cent in FY20 – indicating liquidation of physical assets (including gold and silver) to meet demands for essentials before the pandemic hit. Past few months have seen a big step up in auctioning of gold kept as collateral for loans by gold financers like Manappuram Finance due to factors like income stress.

The National Accounts Statistics reveal that per capita income (GDP) shrunk by 8.2 per cent and per capita disposable income (gross national disposable income) by 3.8 per cent in FY21 (PE).

The GDP numbers, however, don’t tell the full story of the impact of the pandemic, particularly on household pain because of the loss of lives and livelihoods and additional expenditure on healthcare.

Per capita income (GDP) takes into account all incomes – households, government and corporations – thus, masking the sufferings of households. India doesn’t have data on household expenditure (proxy for income) after 2011-2012. The 2017-2018 NSSO survey of household consumption expenditure was junked for showing that the real expenditure had fallen for the first time in 40 years – from Rs 1,501 in 2011-2012 to Rs 1,446 in 2017-2018.

RBI’s latest report shows that household financial savings fell to 8.2 per cent of the GDP in Q3 of FY21, reflecting a sequential moderation from an unusually high of 21 per cent in Q1 when the lockdown led to high financial savings. The moderation, it said, “was driven by a significant weakening in the flow of household financial assets”, with the ratio of household (bank) deposits declining to 3 per cent of the GDP in Q3, from 7.7 per cent in the previous quarter.

More worryingly, household debt, which has been increasing steadily since March 2019, rose sharply to 37.9 per cent of the GDP at the end of December 2020 (Q3) from 37.1 per cent in the previous quarter. No data is available about physical assets of household for FY21 yet.

That the economy didn’t recover fully is clear. The IIP fell in January and February before picking up in March and gain in employment reversed as Q3 saw 3 million job loss.

As Indian states went into another round of lockdowns because of the second wave, job loss and unemployment rate mounted. According to the CMIE, India lost 22.3 million jobs during April-May 2021, 17.2 million of them daily wagers (25.3 million jobs during January-May 2021). The unemployment rate rose to 11.9 per cent in May 2021 – double the unemployment rate of 6.1 per cent in 2017-2018, which was at a 45-year high.

As a consequence, labour force participation rate never recovered from the 2020 lockdown. Industrial hum came down and labour shortages hit due to the second wave of workers’ migration and when they returned, they found work hard to come by in places such as Delhi, Mumbai and Goa. Services sector contracted in May, reversing the gains made in previous eight months, forcing job cuts at the fastest pace since October.

All these were before the far more devastating second wave of the pandemic hit in late February and peaked in April-May 2021. Our World in Data shows, as against 12.2 million cases and 162,927 deaths until 31 March 2021, the numbers climbed up to 30.1 million cases and 393,338 deaths as on 25 June 2021 – a quantum leap. More cases and more deaths mean higher cost to the economy and more pain on households in terms of loss of income and higher health expenditures too – apart from the loss of lives.

Excerpted with permission from An Unkept Promise: What Derailed the Indian Economy, Prasanna Mohanty, Sage Select.