India’s poor may have lost Rs 4 lakh crore in the coronavirus lockdown

Professor Amartya Sen argued it wasn’t food shortages that caused famines but the inability of the poor to purchase food. The implication is that famines are tragedies that can be prevented – by effective public action to recreate the lost incomes of potential victims.

The lockdown in India that began on March 25 to contain the coronavirus pandemic has ravaged the country’s economy and rendered millions of its workers without any source of income. Our analysis shows that the incomes lost by vulnerable sections of India’s workforce during the two months of the lockdown would amount to as much as Rs 4 lakh crores, or nearly 2% of the country’s annual gross domestic product. A key priority for any government programme to revive the economy should be the restoration of at least a part of these lost incomes.

What is India’s workforce composition?

Estimates based on data from the Periodic Labour Force Survey show that India’s workforce numbered 471.5 million of an estimated total population of 1358 million in 2018. As the chart below shows, the workforce comprised 114.2 million who received wages or salaries on a regular basis, 115.0 million casual workers, and the remaining 242.3 million who were self-employed.

Of the self-employed, 144.1 million were engaged in agriculture or allied activities, being members of, mainly, small and medium peasant households. The rest of the self-employed – numbering 98.1 million – were engaged in sectors outside agriculture, which include petty traders and those attached to household enterprises as workers or helpers. India’s casual workforce comprised 50.5 million agricultural workers and 64.5 million workers engaged in sectors outside agriculture.

What is labour’s share of income?

The Periodic Labour Force Survey provides data on average daily wages of casual workers, monthly earnings of regular workers, and monthly gross earnings of self-employed workers.

According to the survey done between April and June 2018, casual workers in rural India were receiving daily wages at the average rates of Rs 282 for men and Rs 179 for women. Note that the daily wages received by rural workers on employment through the public works programme Mahatma Gandhi National Rural Employment Guarantee Act were much lower: the national averages were Rs 142 for men and Rs 131 for women.

In urban India, average daily wages of casual workers was Rs 335 for men and Rs 201 for women.

The average monthly earnings of regular workers in rural India were Rs 14,024 for men and Rs 9,895 for women. The corresponding averages in urban India were Rs 18,353 for men and Rs 14,487 for women.

The average monthly gross earnings of the self-employed in rural India were Rs 9,657 for men and Rs 3,922 for women. The corresponding figures in urban India were Rs16,265 for men and Rs 6,556 for women.

We have estimated the total wage incomes earned by all workers (including regular, casual and self-employed workers) in the country in a month. This worked out to Rs 4.8 lakh crores or 2.5% of the country’s annual GDP in 2018.

As per our calculations, the labour share of income or annual wage incomes as a share of annual GDP is 30.5% in India.

This calculation assumes that casual workers manage to get an average of 20 days of work in a month, in every month of the year. However, this is likely to be an overestimate as the demand for casual labour in rural India may dip sharply during certain months of the year.

Notwithstanding the possible overestimation, wage incomes of casual workers is seen to constitute only 12.7% of the overall labour incomes, much less than the proportion of casual workers in the country’s overall workforce (24.4%). Similarly, female workers’ share in the workforce is only 23.0% but their share in overall labour incomes is even smaller: 13.9%. The share of labour incomes received by female casual workers is a meagre 2.2%.

Therefore, as Amartya Sen argued in his work on famines, incomes received by vulnerable sections of the population are a relatively small part of the overall incomes. And the resources needed for recreating the incomes of the poor to avoid a crisis like famine are not very large either.

How has the lockdown impacted India’s vulnerable workers?

According to the Centre for Monitoring Indian Economy, over 122 million people in India lost their jobs in April 2020, a vast majority of them being small traders and wage-labourers. According to a phone survey of 4,000 workers conducted by Azim Premji University’s Centre for Sustainable Employment, 80% of urban workers in the sample lost jobs while farmers and those self-employed in non-agricultural sectors experienced sharp reduction in their earnings.

Some other studies (here and here) showed that 60% to 85% of workers in their samples lost their jobs or incomes during the period of the lockdown. A substantial proportion of these workers did not even receive the salaries they had been due to receive for the month of March 2020.

It appears that almost all casual workers and vast sections of the self-employed in India have lost their wages or earnings during the countrywide lockdown that began on March 25, 2020. Nearly half of all regular workers (49.4%) in the country do not receive any form of social security and the incomes of these workers too may have been hit hard by the lockdown.

Of course, the self-employed are a highly heterogeneous category. It comprises a tiny segment of ‘employers’, which include rich peasants and prosperous businesspersons, who hire other workers. But a vast majority of the self-employed are small traders or workers in household enterprises (‘own workers’), operating their enterprises without any hired workers. At the same time, in 2018, 25.8% of all the self-employed were helpers in household enterprises earning little wages.

We have calculated the incomes of the vulnerable sections of India’s workforce that may have been lost during the lockdown. The vulnerable sections include all casual workers, the poorest 60% among the self-employed, and regular workers who do not receive social security benefits. In our estimations, we have assumed that the earnings of the poorest 60% among the self-employed and salaries received by regular workers without social security benefits are only two-thirds of the average earnings in their respective categories. In estimating the incomes of rural casual workers, we used MGNREGA wages, which have been increased to Rs 202 per day as per an announcement by the government in April 2020.

What is the extent of income losses of India’s vulnerable workers?

We further assume that employment levels, employment structure and wage levels in the Indian economy just before the country entered into the first phase of the lockdown in March 2020 was no different from what they had been in 2018, as documented in the PLFS data. Given these assumptions, we find that the incomes earned by the relatively weak among India’s workforce will amount to as much as Rs 2.1 lakh crores per month.

Since May 18, the fourth phase of the countrywide lockdown announced by the government, lockdown conditions have been substantially relaxed in a number of economic activities, including many areas of industry and services. However, given the severe supply- and demand-side constraints, the economy is likely to operate at only a fraction of its potential capacity over the coming weeks and months. It is quite likely that since the beginning of the lockdown on March 25, vulnerable segments of India’s workforce may have lost a minimum of one-and-a-half to two months of incomes.

Recreating the lost incomes of the weak among India’s workers requires an intervention to the tune of Rs 3 lakh crores to Rs 4 lakh crores, which will be 1.6% to 2.2% of the country’s GDP. Recreating the incomes of urban workers alone, who have been hit the hardest by the lockdown, will require Rs 1.3 lakh crores to Rs 1.8 lakh crores (0.7% to 0.9% of GDP). Providing income support for female workers affected by the lockdown will need a package worth Rs 50,000 crores to Rs 64,000 crores.

In Uttar Pradesh, which has a total workforce of 65.4 million, income losses among the poorer sections of its workers on account of the two-month-long lockdown could amount to Rs 51,000 crores or approximately 3.3% of that State’s Gross State Domestic Product.

Income losses during the lockdown among the vulnerable sections of the workforce account for less than 2% of GSDP in relatively rich states including Maharashtra, Tamil Nadu and Kerala, but more than 3% of GSDP in Uttar Pradesh, Bihar and Madhya Pradesh.

In Kerala, income losses among the poorer sections of its workforce during the two months since the lockdown began on March 25 is likely to be close to Rs 16,000 crores. It is indeed remarkable that Kerala had announced an economic relief package amounting to Rs 20,000 crores on March 20 itself, which was large and early enough to cover the income losses in the state in the weeks that followed.

Will the government’s economic package help?

While the Central government announced an economic package amounting to Rs 20.97 lakh crores in May 2020, close to 85% of the package were measures to increase liquidity in the economy. Workers will not benefit directly from these liquidity-enhancement moves. For instance, the government has agreed to provide credit guarantees amounting to Rs 3 lakh crores for loans that banks will be extending to the micro, small and medium enterprises sector. However, the concern has been whether small firms would risk increasing their debt levels by borrowing more from financial institutions during a period of sagging domestic demand.

The central government’s economic package includes a few measures to provide social security, mainly through the Pradhan Mantri Garib Kalyan Yojana. The government has promised to provide additional allocation of food grains and pulses to people covered by National Food Security Act for the months from April to June 2020. It will give an assistance of Rs 1,500 over a three-month period for women beneficiaries of the Pradhan Mantri Jan Dhan Yojana. There has been an allocation of Rs 3,500 crores for providing free foodgrains to migrant workers for a period of two months. Reports suggest that, between March 26 and May 5, financial assistance provided to beneficiaries across the country as part of PMGKY amounted to Rs 34,800 crores.

These interventions provide only a marginal boost to India’s social security system, which has long suffered due to inadequate budget outlays, its weak coverage of the needy population, and poor implementation of schemes.

Why does India need public works programmes?

An important component of the stimulus measures announced by the Finance Minister was an increase in the budgetary allocation – by Rs. 40,000 crores – for work under the MGNREGA. With this, the government will now have approximately Rs 90,000 crores for MGNREGA work across the country during the current financial year 2020-’21, after accounting for the amount needed to clear the past dues.

But even the enhanced allocation will not be sufficient to address the acute need for work in rural India, especially during the months of May and June when agricultural work is scarce. Even during the previous years, work provided through MGNREGA schemes was hardly sufficient to meet the demand for employment from rural workers.

For instance, in 2019-’20, while 274 million persons had registered for MGNREGA, only 79 million were provided jobs as part of the scheme. With migrant workers returning from urban centres to their villages in very large numbers following the crisis, MGNREGA and other public works programmes will have a central role in averting a livelihood crisis in India.

To sum up: The poorest sections of India’s workforce may have faced income losses of nearly Rs 4 lakh crore since the lockdown began on March 25. A key priority for any intervention by the government during this crisis should be the restoration of workers’ lost incomes, as quickly and comprehensively as possible. However, the stimulus packages announced by the government have been falling short particularly on this count.

To avoid a livelihood crisis of severe magnitude in India, programmes by central and state governments should try to rebuild workers’ lost incomes through assistance in the form of cash or kind as well as through public works programmes.

There is indeed a huge scope for launching a massive public works programme across the country, which will simultaneously address the problem of stagnant demand as well as of supply-side constraints. The large stock of food grains available with the Food Corporation of India could be made use of in such a programme.

At the same time, the public works programme could help build crucial assets in the countryside – including roads, schools, hospitals, and facilities for food storage and processing – which will aid India’s long-term economic transformation.

Jayan Jose Thomas teaches Economics at the Indian Institute of Technology Delhi. The views are personal.