The Covid-19 outbreak is likely to have a long-lasting impact on India’s labour market.
In the third week of May, the unemployment rate across rural and urban India spiked as the second wave of Covid-19 persisted, according to independent think tank Centre for Monitoring Indian Economy (CMIE).
Economists believe that some of these job losses may be “long-term in nature.”
“The second wave as well as the mismanagement is definitely going to make the employment situation worse,” said Jyotsna Jha, director at Centre for Budget and Policy Studies. “The jolt to the recovery process is going to push out some businesses from the market, leading to closures and therefore long-term job losses.”
India’s lockdown cost
While the pandemic has pushed several industries and small businesses into a tight spot, the current job crisis finds its roots in pre-pandemic times, economists said. The demonetisation of Rs500 and Rs1,000 notes in 2016 dented the demand and rendered many jobless. Also, the poor implementation of a new tax regime—good and services tax—had hurt the small and medium enterprises, which employs around 110 million non-farm labourers.
Due to these factors “the economy was already dealing with slow growth and sluggish employment when Covid-19 hit,” said Ashwini Deshpande, professor of economics and the founding director of the Centre for Economic Data and Analysis at Ashoka University.
Now this rising unemployment, fuelled by the pandemic-led lockdowns, threatens to translate into a “vicious cycle” of a severe economic downturn.
“Lower surplus available for reinvestment and lowering of incomes in all sectors will impact the demand adversely. It will create a vicious circle of low demand, investment and income,” said Jha. She added that the worst impact of these headwinds will be in the form of not only lowering incomes but also in terms of loss of livelihoods.
This means that the Narendra Modi government can fix the snowballing job crisis only by supporting demand and consumption.
“The government needs to give direct income support to those who have been rendered unemployed; payroll support to small enterprises so that they don’t have to retrench workers during lockdowns and expand the reach of MNREGA (job scheme) in rural areas. Along with this, it must consider urban employment guarantee and/or a universal basic income,” Deshpande said.
This, she believes, will ensure minimum purchasing power in the hands of the people that would be the cornerstone of a gradual recovery.