18 Jun
Even as the economy starts limping back to normal, increased poverty and unemployment would require effective policy intervention
Mercifully, the disastrous Covid second wave, largely fueled by the delta variant, has begun to recede. It is time now to take stock of the impact that Covid has had on the lives and livelihood of the people. The numbers of cases, as well as the fatalities, were much higher during the second wave in comparison to the first. Almost all my friends have told me that someone near and dear to them has passed away due to Covid. The fear of Covid has entered every home. There was a period from mid-April to the first week of May when people were clamouring for oxygen, ICU beds, medicines and treatment. Even though I have retired from the civil service I recollect getting at least a dozen calls each day requesting help for getting someone admitted to a hospital. That was indeed a very traumatic period. One state government followed the other in imposing various degrees of lockdown to break the infection chain. Things are much better now with normalcy approaching, the lockdowns lifted in most states and economic activity limping back to normal. Of course, there is always the apprehension that the virus is not likely to disappear soon and may even come back for a third wave. The government is certainly not taking any chances this time and is likely to be better prepared. The people also would be more careful now.
The future would be determined by the pace, extent and efficacy of the vaccination campaign. The goal is to achieve the vaccination target by end of December as, only if the majority is vaccinated, will we be able to escape the scourge of the pandemic. Various policy options are being considered, debated and implemented. Normal life would return after the battle is won but the scars of the Covid will take years to disappear. The economy has been badly damaged. The year 2020-21 showed a negative GDP rate of -7.3 per cent and now the growth rate projected for 2021-22 has been scaled down even by the RBI to 9.5 per cent. This has impacted the level of unemployment in the economy. The finance ministry has come out clearly putting growth as its main objective in the current budget. However, the anticipated growth momentum has encountered a roadblock in the second wave. Economists and governments are banking on private consumption demand to pick up significantly after the lifting of lockdowns. We have to wait and see with what pace the economy will bounce back. The finance ministry has clearly stated that everything will depend on the pace of the vaccination process and talked about completing maximum vaccination by September end to push forward the growth of the economy. The government is planning to front-load its capital expenditure and also the private sector is planning major capex infusion. All this would certainly help but it remains to be seen to what extent this would raise the spirits of the economy and in how much time.
The CMIE report on unemployment in the Indian economy shows that as of June 17, 2021, the unemployment rate has been as high as 11.2 per cent with urban unemployment being at a staggering 13.9 per cent and rural unemployment at 10 per cent. The unemployment issue which was already troubling the youth before the onset of the pandemic has now assumed dangerous proportions with its consequential impact on the level of poverty. The poor and the marginalised, especially those in the informal economy, have been the worst hit. The State of Working India Report, 2021 prepared by Azim Premji University before the second wave had indicated issues of serious concern. The report proposes policy imperatives for the government to respond to the impact of Covid on the poor. Firstly, it is clear that the Central and state governments will have to focus on healthcare and education. The pandemic exposed the poor quality of health infrastructure in the rural areas which requires massive investment. The sector will assume greater importance in the coming decade and will be a major job provider.
Additionally, the government has to focus on increased poverty resulting from Covid. The Azim Premji report shows that despite the V-Shaped recovery after the first wave about fifteen million workers remained out of work and the per capita income remained below the pre-Covid level. The huge employment and income losses led to the labour share of GDP falling by over five percentage points to 27 per cent in the second quarter of 2021. Most of the decline in income was due to a reduction in earnings. It also came out that the poorer states suffered more in terms of job losses. The women and the young workers were disproportionately affected and many could not return to work even by the end of 2020. The report says that 33 per cent of workers in the 15-24 age group could not recover their employment by the end of the year.
The most significant finding of the above study was that monthly earnings for all workers fell and that of the poorer households declined more than the others. More than 230 million people were pushed into poverty with a 15 per cent increase in rural poverty and 20 per cent in urban poverty. This is indeed an alarming picture and negates all the poverty eradication efforts made since 1991. The challenge now is to provide gainful employment to these displaced people so that they can come out of the poverty trap. It becomes all the more significant as India is aiming to achieve the dream of a five-trillion-dollar economy by 2025. Agriculture has performed in a stable manner and has been the saving grace yet we have to see how this sector can generate more employment. Increased allocation for MGNREGA and more jobs to people on MGNREGA-related projects would certainly help. In addition, the agriculture sector has to be reformed and modernised with the aim to increase the income of the farmer. The Government of India has promised to double the income of the farmers by 2022. However, we are far away from this goal at the moment. A concentrated effort is required to bring out major reforms in the sector to increase the income of the farmer. The recently proposed structural reforms have run into heavy weather but are in the right direction and, with some modifications to protect the interest of the farmers, they can make a difference. Dairy and other animal husbandry projects can contribute to increasing the income of the farmer. Massive investment in storage and cold chain is required. To shift workers from farm to non-farm activities and discourage migration, there is an immediate need for setting up rural growth centers — each of those being a hub of rural industrialisation, particularly for the agro-processing sector.
A lot more needs to be done to support the worst-hit MSME sector. Merely giving loans will not suffice; a fiscal package of direct support is required because this sector has immense potential for employment. In particular, the services sectors like hospitality and tourism have been badly hit and need a special relief package for revival. The time for such a fiscal stimulus is now and should be done without any further delay. A major scheme for employment in the urban areas has to be implemented to cater to the issue of urban unemployment. Measures like increasing the old-age and widow pension and direct cash transfer to the poor can also bring about faster recovery. The impact of Covid on lives cannot be done away with but we can certainly take urgent steps to see that the livelihood of people is not threatened. The impact of Covid on poverty and unemployment needs to be seriously addressed.
