Save Lives By Extending Lockdown, Save Economy By Unlocking Credit

Modi government will have to treat getting the economy back on track as a war effort.

If there’s one thing that I hate to do, it is to iron my clothes. So, I am a regular client of our local presswala. But, ever since the lockdown began, I have been too scared to send my clothes to him. What if he coughs on them? I might get COVID-19 while pulling my kurta down my face. I did meet him the other day, since he sits right behind my friendly neighbourhood sabziwalah. He asked me if I had any clothes that needed ironing, looking pointedly at my disheveled appearance. I said, no I didn’t, but he had guilt-tripped me into giving him two crisp 500-rupee notes, as financial aid.

Now, I had already been touched for cash by my carpenter, the plumber, and I had transferred some money to our old dhobi. I felt elated at my own kind-heartedness, till I read the latest CMIE data. It appears that a large number of people, who employ people or hire their services on a regular basis, have been paying wages, even when they haven’t got anything in exchange. That is the only thing that can explain the unemployment data that CMIE has released for the first week of April.

• As per CMIE data, over 23 percent of those who are willing to work were unemployed—but it is much lower than what we should have expected.
  
• This is because employers and buyers of services are probably still promising to pay for labour they have not utilised.
  
• Several companies have asked their employees to go on leave without pay, others have imposed pay-cuts or have rolled back increments.
  
• If white-collar workers don’t get paid, it is unlikely that they will continue to be charitable towards the poor.
  
• Government must say goodbye to fiscal fundamentalism.
  
• Increased MNREGA expenditure, tax holidays/deferrals, easy credit lines, cash assistance—India needs to do all of this and more.
  

Unemployment Issue Bigger than Official Data

It looks huge—over 23 percent of those who are willing to work were unemployed—but it is much lower than what we should have expected. A survey done by CSDS-Premji University, between 2017-19, found that 40 percent of India’s workers get paid daily and another 6 percent get weekly wages. Only 26 percent got monthly salaries, which means the remaining 28 percent have no fixed earning cycle.

The government’s own PLFS (Periodic Labour Force Survey) data shows that over 77 percent of workers in India do not have regular jobs. Out of the remaining 23 percent, less than half get paid leave. That means 90 percent of workers in the country will not get paid if they do not turn up for work even for a single day.

So, what should the total lockdown have done to India’s workforce? Except for those who have regular jobs and can work from home, and those who qualify as providing essential services including agriculture, everyone else should have become unemployed.

A conservative estimate suggests that the unemployment rate should have been at least 40% and not the 23% that CMIE found.

The only reason why the number is lower than expected is because employers and buyers of services are probably still promising to pay for labour they have not utilised.

Devastating Domino Effect of Coronavirus Lockdown

Clearly, this cannot last for long. My friends who run small businesses are finding it very hard to pay their employees. They have no revenue right now, so they are taking loans to meet payroll demands. News reports tell us that several companies have asked their employees to go on leave without pay, others have imposed pay-cuts or have rolled back increments.

If white-collar workers don’t get paid, it is unlikely that they will continue to be charitable towards the poor.

So, expect these unemployment figures to rise if the lockdown doesn’t end after 21-days.

This will have a massive domino effect on domestic demand – both from consumers as well as corporates, as the chain of income generation gets disrupted. Therefore, India needs a proper plan on how to exit this mess after the economy begins to get unlocked. The government has already dropped loud hints that not all of India will be let out of their homes at one go. So, economic disruptions and movement of goods and services will continue to be affected for some time to come.

India’s Twin War Against Hunger & Fiscal Fundamentalism

So, what can the government do to smoothen things out? It must say goodbye to fiscal fundamentalism. The entire developed world has already done it. Morgan Stanley’s latest report estimates that China and developed markets, together, will expand their fiscal deficit, this year, to 9.2 percent of their collective GDP. That’s 40 percent more than what they did in 2009, after the Global Financial Crisis ripped the world economy apart.

Developed countries have announced an entire range of measures to help workers – direct cash transfers, income subsidy, increased social security benefits. Companies are being offered debt repayment holiday, cheaper loans and tax deferrals.

Germany has announced that companies can borrow as much as they want, without any limit, to stay afloat during the pandemic.

India has a more complex economy, and needs a wider range of solutions. The government’s good first step of giving free rations to 80 crore people for the next three months, needs to be extended. In fact, it should be made universal – those who don’t want the coarse quality of the grains supplied will automatically opt out.

Employed, Self-Employed or Unemployed, Indians Need Financial Handholding

Expenditure on MGNREGA has to be increased significantly. The law says everyone who seeks work under the employment guarantee scheme has to be given employment. It is currently limited by the government’s tardiness in implementing it.

The PM himself can address the nation and say that anyone who wants work under MGNREGA will get it, without exception.

The vast number of India’s self-employed—about 54 percent of all workers—need to be given cash assistance and a low-interest line of credit to stay in the game once the lockdown is over. About 70 percent of these self-employed people are ‘own account’ workers, such as Uber drivers, for instance. Another 26 percent are helpers who do not get paid – my presswala’s wife who often collects and delivers clothes from homes is one such unpaid helper. They will all need assistance to get back on their feet for days of lost income, after the lockdown ends.

Small and medium entrepreneurs will need to be given subsidised loans, tax holidays, and their loan repayment schedules need to be reworked, so that they can revive their businesses. Shopkeepers and traders will need GST deferrals and lines of credit. Even big businesses in retail, transport, tourism and hospitality will need government support to get back in black.

This is War, Treat it As Such

In short, the government will have to treat this as a war effort to get the economy back on track. In fact, as I have argued earlier, Modi Sarkar should use this as an opportunity to spend and direct the economy, without international rating agencies and Big Finance breathing down its neck. If it doesn’t, then our economy, which was already dangerously close to the edge, might fall right off the precipice.

(The author was Senior Managing Editor, NDTV India & NDTV Profit. He now runs the independent YouTube channel ‘Desi Democracy’. He tweets @AunindyoC. This is an opinion piece. The views expressed above are the author’s own. The Quint neither endorses nor is responsible for them.)