Policy Response to Coronavirus (COVID-19): Impact on Unorganized, Agriculture, MSME Sectors and Labour Market in India
Abstract
Millions of people are infected and thousands of people have died due to spread of Coronavirus (COVID-19) across the globe. India is also witnessing a rapid spread of the infection due to Coronavirus, leading to the Government putting the whole country on 21 day nationwide lockdown. Apart from this Government of India declares COVID-19 a 'National Disaster', establishing COVID-19 Economic Response Task Force, announcement of ‘Janata Curfew’, Relief package to help fight the COVID-19 outbreak and measures taken by Reserve Bank of India, Emergency Response and Health System Preparedness Package, etc. Due to the mass exodus of migrant workers, vulnerability in rural areas and huge existence of unorganized sector; Government is facing difficulties in implementing lockdown in India. Government is facing several challenges viz. limited testing, lack of strong and well equipped public healthcare, amount of elderly people and high population density, less number of Personal Protective Equipment (PPE) and ventilators while combating with COVID-19. Consumption is getting impacted due to job losses and decline in income levels of people, particularly the daily wage earners due to slowing activity in several sectors. The coronavirus lockdown will have an adverse effect on the MSMEs and agriculture sector in India. Government, economic policy makers and planners have to formulate appropriate economic policies and strategies once when the lockdown is lifted (sooner or later) to sustain and increase growth rates of different sectors of an economy without compromising with the social welfare of different segments and sections of society in days to come.
Introduction
India is a country with more than 130 crore people having huge economic, social, cultural, political and geographical diversity. Over lakhs of people are infected and died due to spread of Coronavirus (COVID-19) across the globe. India is also witnessing a rapid spread of the infection and deaths due to Coronavirus pandemic.
Question / Issue
To combat with spread of Coronavirus (COVID-19) government of India has imposed nationwide lockdown. During lockdown and once when lockdown is lifted; providing employment / investment opportunities and social safety net to people working especially in unorganized sector including agriculture, MSME and migrant / daily wage earners will be one of the major challenge faced by government of India.
Government of India’s Response to Coronavirus (COVID-19) pandemic
Following are brief account of various steps / measures taken by Government of India to combat from spread of Coronavirus pandemic.
I. Declares COVID-19 A 'National Disaster': Amid the coronavirus outbreak, the central government on March 14, 2020 declared COVID-19 as a national 'disaster' and announced to provide ex-gratia relief of Rs 4 lakh to the families who died of the virus. The move by the Centre would allow the states to spend larger chunk of funds from the State Disaster Response Fund (SDRF) to fight the pandemic (ABP News Bureau, 2020).
II. COVID-19 Economic Response Task Force: To deal with the economic challenges caused by the pandemic, Prime Minister Narendra Modi on March 19, 2020 announced the creation of ‘COVID-19 Economic Response Task Force’ under the Union Finance Minister Nirmala Sitharaman. The Task Force will consult stakeholders, take feedback, on the basis of which decisions will be taken to meet the challenges. The Task Force will also ensure implementation of the decisions taken to meet these challenges (Modi, N., 2020).
III. ‘Janata Curfew’: The Prime Minister Narendra Modi, in a televised address to the nation (March 19, 2020), announced a ‘Janata Curfew’ from 7 am to 9 pm Sunday, March 22, 2020 to stop the spread of coronavirus and pushes social distancing. This nationwide voluntarily 14 hours self-quarantine exercise led to a complete lockdown in various states with some even resorting to Section 144 (Chandra, H. and Basu, M., 2020).
IV. Nationwide lockdown for 21 days: Prior to this announcement, numerous containment measures had already been imposed, varying in intensity across the country, including travel restrictions (complete restriction of incoming international commercial passenger aircraft and some restrictions on domestic travel including cancellation of domestic passenger air traffic); closing educational establishments, gyms, museums, and theatres; bans on mass gatherings; and encouraging firms to promote remote work or work from home. On March 24, 2020, the Government of India under Prime Minister Narendra Modi ordered a nationwide lockdown for 21 days from March 25, 2020 to April 14, 2020, limiting movement of the entire 1.3 billion population of India as a preventive measure against the 2020 coronavirus pandemic in India. The announcement came in the backdrop of the COVID-19 outbreak and is intended to enable the concept of ‘social distancing’ to contain the spread of the virus. The order of lockdown was issued under the Epidemic Diseases Act, 1897 and Disaster Management Act, 2005 (Wikipedia, 2020).
V. Relief package to help fight the Covid-19 outbreak: Finance Minister Nirmana Sitharaman on March 26, 2020 announced a relief package worth Rs 1.70 lakh crore (valued at approximately 0.8 percent of GDP) to help the nation's poor tackle the financial difficulties arising from Covid-19 outbreak. The economic relief package will focus primarily on migrant labourers and daily wage labourers. The package includes a mix of food security and direct cash transfer benefits which shield poor families during the lockdown (India Today Web Desk, 2020). The key elements of the package are: in-kind (food; cooking gas) and cash transfers to lower-income households; insurance coverage for workers in the healthcare sector; and wage support to low-wage workers (in some cases for those still working, and in other cases by easing the criteria for receiving benefits in the event of job loss). These measures are in addition to a previous commitment by Prime Minister Modi that an additional 150 billion rupees (about 0.1 percent of GDP) will be devoted to health infrastructure, including for testing facilities for COVID-19, personal protective equipment, isolation beds, ICU beds and ventilators. Several measures to ease the tax compliance burden across a range of sectors have also been announced, including postponing some tax-filing and other compliance deadlines. Numerous state governments have also announced measures to support the health and wellbeing of lower-income households, primarily in the form of direct transfers (free food rations and cash transfers)—the magnitude of these measures varies by state, but on aggregate measures thus far amount to approximately 0.2 percent of India’s GDP (IMF, 2020).
VI. Measures taken by Reserve Bank of India: On March 27, 2020 the Reserve Bank of India (RBI) reduced the repo and reverse repo rates by 75 and 90 basis points (bps) to 4.4 and 4.0 percent, respectively, and announced liquidity measures to the tune of 3.7 trillion Rupees (1.8 percent of GDP) across three measures comprising Long Term Repo Operations (LTROs), a cash reserve ratio (CRR) cut of 100 bps, and an increase in marginal standing facility (MSF) to 3 percent of the Statutory Liquidity Ratio (SLR). Earlier in February, the CRR was exempted for all retail loans to ease funding costs. The RBI has provided relief to both borrowers and lenders, allowing companies a three-month moratorium on loan repayments and the Securities and Exchange Board of India temporarily relaxed the norms related to debt default on rated instruments. At the same time, the implementation of the net stable funding ratio and the last stage of the phased-in implementation of the capital conservation buffers were delayed by six months. On April 1, the RBI created a facility to help with state government's short-term liquidity needs, and relaxed export repatriation limits. Earlier, the RBI introduced regulatory measures to promote credit flows to the retail sector and micro, small, and medium enterprises (MSMEs) and provided regulatory forbearance on asset classification of loans to MSMEs and real estate developers. CRR maintenance for all additional retail loans has been exempted, and the priority sector classification for bank loans to NBFCs has been extended for on-lending for FY 2020/21 (IMF, 2020).
VII. Emergency Response and Health System Preparedness Package: Government of India has announced significant investments to the tune of Rs.15000 crores for 'India COVID-19 Emergency Response and Health System Preparedness Package'. The funds sanctioned will be utilized for immediate COVID-19 Emergency Response (amount of Rs.7774 crores) and rest for medium-term support (1-4 years) to be provided under mission mode approach. The key objectives of the package include mounting emergency response to slow and limit COVID-19 in India through the development of diagnostics and COVID-19 dedicated treatment facilities, centralized procurement of essential medical equipment and drugs required for treatment of infected patients, strengthen and build resilient National and State health systems to support prevention and preparedness for future disease outbreaks, setting up of laboratories and bolster surveillance activities, bio-security preparedness, pandemic research and proactively engage communities and conduct risk communication activities (PIB, 2020).
VIII. Relief package of 20 trillion rupees: On May 12, the PM announced a relief package of 20 trillion rupees (around 10 percent of GDP), including previously announced monetary and fiscal measures. The package of Rs 20 lakh crore has been divided between measures that the government is taking now and the measures that it has taken earlier. The measures announced by Nirmala Sitharaman in her 5 days of economic stimulus press conferences sum up to Rs 11,02,650 crore while the measures that were taken earlier along with the measures taken by the Reserve Bank of India sum up to Rs 9,94,403 crore. The finance minister announced the package details divided into 5 press conferences. The first part of the economic stimulus was worth Rs 5,94,000 crore, the second worth Rs 3,10,000 crore, third worth 1,50,000 crore while the fourth and the fifth were of a combined value of Rs 48,100 crore. Earlier measures taken by the government sum up to Rs 1,92,800 crore while the measures taken by the RBI amount to Rs 8,01,603 crore (India TV Business Desk, 2020).
Difficulties in implementing lockdown and Challenges faced by India while combating COVID-19
Following are some difficulties faced by admiration of central, state and local government in implementing nationwide lockdown and challenges faced by India while combating pandemic spread of Coronavirus (IA Staff, 2020).
The mass exodus of migrant workers:
The announcement of 21-day lockdown with little to no time for preparation forced migrant workers, who travel to the cities for work to commute to their home states. This lockdown coincides with the harvest season, the time when the migrant workers seek harvesting jobs in large states. To return to their homes, these migrant workers walked a long distance. However, they were stopped by authorities, which led to them being stranded in large masses. In response to this crisis, shelters and food were provided for these migrant laborers by the state government, voluntary organizations and NGOs. Yet, their accommodations do not provide for social distancing.
The vulnerability of rural India:
Majority of the Indian population live in rural areas. In comparison with urban areas in India rural areas in India has limited access to the healthcare system, making it difficult for these people to be tested and treated. This, as a result, makes it highly difficult to monitor the spreading of infections in these areas.
The ambiguity of the term ‘essential items’:
The Centre has exempted ‘essential items’ manufacturing in its 21-day lockdown notification. However, there is no clear definition of the term ‘essential items’, leading to states having different views on what is essential.
Unorganized Sector:
The people who would face the worst impact of the lockdown would be those relying on the unorganized sector, which amounts to about three-fourths of India’s working population. These individuals are vulnerable because they do not have financial security due to the lack of jobs during the time of lockdown.
Challenges faced by India while combating COVID-19
Limited testing:
During early stage of the outbreak, the Indian Council for Medical Research (ICMR) only allowed testing of those who have travel history and those who have come in contact with them and then have gone on to develop symptoms to be tested for COVID-19. This led to India having one of the lowest testing rates in the world. Also, initial tests didn’t specifically test for COVID-19 but just any strain of Coronavirus, including SARS and MERS. As of March 24, 2020, India has just tested 18 individual per million people.
Lack of strong and well equipped public healthcare:
In India, states control their public healthcare system. The biggest states are the most vulnerable as their healthcare may be overwhelmed due to their dense population. Though the majority of healthcare is provided by private hospitals; which are generally better-run and better equipped, is costly and inaccessible for many. Beside, Government hospitals in India especially in rural areas are ill-equipped to handle this situation. This means that India’s healthcare is not well equipped to deal with Stage-3 of the COVID-19 infection.
India’s elderly population and population density:
Around 100 million people in India are over the age of 60. This is the age group that is the most susceptible to the infection. This figure is higher than Italy’s population, the country that is worst hit due to the pandemic. India’s population density is about 450 inhabitants per square kilometer. China, which has the world’s highest population, has a density of 150 inhabitants per square kilometer. About 120000 people share 1 km2 in Mumbai, which is 12 times more than New York City’s population density. Also, one-sixth of the population lives in the slums, making them even more vulnerable to the infection.
Less number of Personal Protective Equipment (PPE) and Ventilators:
India has less number of PPE which provide protections to medical professionals including doctors and nurses from Coronavirus infections. Not only that there is a shortage of ventilators also; which are useful to critical patients. As the number of coronavirus (Covid-19) cases is on the rise in India, the central government has estimated a steep rise in demand for personal protective equipment (PPEs) and coronavirus diagnostic kit in the coming months. The country would require an estimated 27 million N95 masks, 15 million PPEs, 1.6 million diagnostic kits, and 50,000 ventilators by June 2020 (BS Web Team, 2020).
Problems faced by Micro Small and Medium Enterprises (MSME):
Along with tackling healthcare on a war footing, the government will have to pay attention to the brewing economic crisis. According to CII data in a report released last year, the MSME sector added 13-15 million jobs annually. It is vital that this sector, a key component of the Indian economy, be protected during times of crisis. However, even if global economies bounce back sooner than expected, Indian MSMEs are likely to pay a high price. These companies are too small to have enough of a cushion to last through a pandemic like this one. Add to this the fact that many of these companies have been asked to down shutters or curtail operations while still paying employees and that’s apart from meeting costs for taxes, power, and other utilities. In the wake of a pandemic like this one, demand is likely to soar, while supply will be extremely weak. Raw materials will likely be in short supply, as free trade will be curtailed for a while. Wuhan, the center of the pandemic, is also one of the largest auto hubs in the world. With Wuhan shut for months, there’s going to be a huge shortage of components too. At this point in time, China seems to have entered the post-peak period. According to the WHO, this is when levels of the disease drop from the peak and the process of recovery begins. Much of the rest of the world is still in the early stages of the pandemic. This means China could get its industries up and running in time to meet the global post-pandemic demand. While that may be good news for a connected world, it could be another severe blow to Indian MSMEs who manage to survive. Given raw material, transportation, and labour issues that manufacturers are likely to face, they are not going to be able to drop their prices. China, with its head start, could still manage to get low-cost products to the world, creating a massive competition issue for Indian exporters (Mukewar, P., 2020).
Effects on Agricultural Sector:
More than half of India's workforce engages in farming, while agriculture contributes around 16% to the country's GDP. India is one of the world's largest producers of crops like rice, wheat, sugarcane, cotton, vegetables and milk. The coronavirus lockdown will have an adverse effect on the agriculture sector in India. The sector is facing a lot of trouble with labourers and movement of goods. As Rabi harvest season approaches, farmers worry about their standing crops. Farmers growing wheat, mustard and pulses already complained about their crops damage due to untimely and heavy rainfall recently. This led to farmers fixing their crops but amid Coronavirus lockdown most of the labourers available fled to their homes. As the restriction on movement of goods continues amid the lockdown, the farmers are likely to feel the pinch in their income. Moreover, farmers fear the sowing of summer season crop as none of the shops selling seeds, fertilizers and other vital inputs. Besides, several farm machines like combine and harvesters lie stranded on highways as there is no one to operate them. Coronavirus lockdown has impacted the supply chain of agricultural commodities. By taking a toll on the loading and unloading of agricultural produce. Also, the lockdown has hampered the movement of trucks carrying essential commodities. Several cold storage and warehouse owners complained regarding the dearth of laborers. Unwillingness to work fearing police beating, many labourers are staying home or leaving for their hometown. In all, the COVID-19 caused clampdown has caused disruption and will eventually lead to a dip in farmer’s income (Kaur, G., 2020). Central government will pay Rs 6,000 to each farmer in three instalments in a year under the Prime Minister's Kisan Samman Nidhi Yojana.
Government agri-research body Indian Council of Agricultural Research (ICAR) is assessing the impact of Covid-19 lockdown on agriculture and allied sectors and taking measures to minimize its effect on the country’s food security. ICAR had issued crop-specific advisories to farmers, asking them to take general precautions and safety measures during harvesting, post-harvest operations, storage and marketing of rabi crops. While the government has exempted many agricultural operations from harvesting to movement of produce to mandis from lockdown rules, the ICAR study will help the government take further action (PTI, 2020).
Effects on Employment, Unemployment and Labour Participation Rate: As per Centre for Monitoring Indian Economy (CMIE) recent report; in March 2020, the labour participation rate fell to an all-time low, the unemployment rate shot up sharply and the employment rate fell to its all-time low. The employment rate fell to an all-time low of 38.2 per cent in March 2020. The fall since January 2020 is particularly steep - almost spectacular. It seems to have nosedived in March after having struggled to remain stable over the past two years. Then, there is a precipitous fall. The Labour Participation Rate in March 2020 was 41.9 per cent. It was 42.6 per cent in February and 42.7 per cent in March 2019. This fall in the LPR in March was the result of a sharp 9 million falls in the labour force - from 443 million in January 2020 to 434 million in March 2020. Fall in labour participation rate is largely associated with the national shutdown to contain the spread of Coronavirus. But, this fall seems to have happened even before the lockdown. It gets much worse as we move into the lockdown. The unemployment rate in March was 8.7 per cent. This is the highest unemployment rate in 43 months, since September 2016. The unemployment rate during this last week of March, 2020 was 23.8 percent. Labour participation rate fell to 39 percent and the employment rate was a mere 30 percent. These are very big variations and are subject to the usual sampling errors. It, therefore, may not be very wise to focus on the magnitude of those movements but on the certainty of the movements (Vyas, M., 2020).
Consequences of lockdown in India
Nationwide lockdown in India has not only effected unorganized sector, labour market, agricultural sector and MSME but it has affected almost all sectors of an economy and all segments of society. This will ultimately resulted in relative low growth rate and substantial increase in unemployment and poverty in India in days to come. It will have catastrophic economic consequences that may lead to civil unrest in the society.
Way Ahead (Immediate and Medium term): The coronavirus pandemic and nationwide lockdown have adversely affected various sectors and industries and segment of society in India. This comes at a time when India’s economy and public finances were already under substantial stress. India must think about how to deal with the public health crisis and rebuild its economy once lockdown is lifted.
* After lockdown; restarting requires accurate data on infection levels. The government must strengthen public healthcare infrastructure, particularly in smaller towns and villages. Government ensures more and rapid testing, rigorous quarantines, availability of masks and PPE kits to health professionals. Appropriate measures to identify and contain new infections should be adopted.
* So far there is no medicine or vaccine to protect against infection of Coronavirus, boosting immunity of people is one of good alternative. Government should distribute immunity booster to everyone. Considering regional and cultural diversity in India, localized (house made) immunity booster recommended by homeopathy or Ayurveda can be recommended.
* The areas with no Coronavirus cases and no migration of workers should allow all sectors and services to operate. The public transport will be partially restored and limited movement on roads will be allowed. However, considering possibility of further spread of Coronavirus pandemic people have been asked to avoid any unnecessary travel.
* Considering nature of Indian economy and present situation where lakhs of people who have lost their jobs especially in agriculture, MSME and unorganized sector. After the lock down is lifted; more emphasis should be given to labour intensive sectors from demand and employment perspective. Government can boost scheme like MGNREGA and other employment oriented programmes to enhance domestic demand. This will help circulation flow in economy.
* To boost agricultural sector farmers and farm labourers could be allowed to work with reasonable safeguards as long as social distancing norms are maintained. Harvesting season is on and scarcity of labour has affected the agricultural sector; to ensure maximum harvesting
* MSME sector and small and tiny businesses may be affected extremely by the ongoing lockdown and crisis. The government should impose higher import duties on non-essential commodities, raw materials and final product for a time being which will give protection and boost to the domestic producers.
* MSME sector should be given GST and Income tax relief for the financial year 2020-21.
* Government should provide low interest term loan to MSME sector. Also, about six month extension should be given to payment of existing EMI. This will help them to invest in this difficult time and accumulate capital.
* Government can expand the scope of MGNREGA by reducing constraint of providing employment for stipulated days only. For the time being this restriction can be removed. MGNREGA workers should be used in agricultural sector for harvesting as well as they will be provided employment in MSME sector where higher skills are not essential. On one hand it will give good grains whereas on another hand it will give employment and wages to MGNREGA workers. This strategy will boost demand and active supply chain in Indian economy.
* Direct transfers to households may reach most but not all, the quantum of transfers seems inadequate to see a household through a month. Government needs to ensure that the daily wage earners, poor people and non-salaried workers will be prevented from the pandemic of Coronavirus.
* In this situation, India can gain maximum benefit from demographic dividend too. Healthy youth, stiff with appropriate distancing at the workplace in agriculture, manufacturing and service sector viz. aviation, hotel, hospitality and tourism etc. for restarting.
* Government should ensure to provide uninterrupted social safety net in the form of cash and kind to vulnerable sections of society along with orphans, widows, elderly people, pensioners and persons with disabled (PwD).
Conclusion
Government, economic policy makers and planners have to formulate appropriate economic policies and strategies once when the lockdown is lifted (sooner or later) to sustain and increase growth rates of different sectors of an economy without compromising with the social welfare of different segments and sections of society in days to come.
References
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Gaurang Rami, Professor, Department of Economics, Veer Narmad South Gujarat University, Surat – 395 007, Gujarat, India, E-mail: grami@rediffmail.com, grami@vnsgu.ac.in