As India battles the second wave of the Covid-19 pandemic, it has inflicted a heavy toll on the incomes and savings of the country’s households due to the demise of a breadwinner, job losses or salary cuts.
Mahesh Vyas, who heads the Centre for Monitoring Indian Economy, a think tank that tracks the country’s employment, has said that about 97% of people surveyed are poorer than last year.
In an interview with internet portal IndiaSpend, he said: “When we ask people in our survey, how’s their income today compared to a year ago, only 3% tell us today that their income is better than a year ago.”
A total of 55% claimed it was worse than a year ago, and the remaining said it is “no better, no worse.”
“This means, if you account for inflation, that more than 97% of India’s population has gotten poorer compared to where they were in terms of income (a year ago),” he added.
He pointed out that since April this year, unemployment has been on the rise and labor participation rates have remained stagnant. On a monthly basis, the unemployment rate shot up from 6.5% in March to 7.97% in April.
As for May, he said: “We saw the situation worsening. The unemployment rate rose to 14.5%, then became 14.7% in the week ended May 23. We also have a 30-day moving average number. The weekly numbers only (show) what happened during that week. But if you look at the 30-day moving average, it gives you a slightly longer and slightly more reliable number and that number has gone up to 13%.”
It must be noted that since March various state governments have imposed curbs on the movement of people to contain the second wave of Covid-19. These localized lockdowns have stopped people from seeking employment and caused a fall in labor participation.
At present, the country’s major cities like New Delhi, Mumbai, Chennai, Bangalore and Kolkata, which are also major employment providers, are facing lockdowns. This has also led to an exodus of workers to their villages and hometowns, but in rural areas jobs are scarce due to a lull in agricultural activity.
Vyas also expressed concern about the depletion of salaried jobs. He said before the pandemic the country had 403.5 million salaried jobs, but now it is down to 390 million.
“So, we are much worse off. Everybody has not got (their) job back. And those who have got their jobs back have not necessarily got the same quality job. And salaried jobs are still falling,” he said.
He also noted that the rise in the gig economy was not a healthy development, though the government was encouraging it. It will hurt savings and retirement benefits and make employees more vulnerable.
“What’s required for an economy is that when we are younger, we earn enough to save for a rainy day. And that rainy day is supposed to be when we are old and cannot earn,” he said.
Uday Kotak, a prominent banker and chief of the Confederation of Indian Industries, said the government should spend up to 1% of gross domestic product, about 1-2 trillion rupees, for direct transfers to the poor. He said he felt this would help improve consumption at the bottom of the pyramid.
Kotak also called for printing cash in order to support the economy. He said this needs to be done to help the poor and to protect jobs for sectors affected by the pandemic. He also wanted the government to extend medical benefits to the poor.
Since 1997, the Indian government has stopped printing cash to monetize the government’s deficit. But the current economic downturn caused by Covid-19 has sparked a debate over the issue.
While former central bank governor C Rangarajan, who was instrumental in ending this practice during his tenure, now believes that India’s monetization of the deficit is “inevitable.”
“Such a large increase in expenditure cannot be managed without monetization of government debt,” he said recently. However, another former central bank chief, D Subbarao, expressed concern and said he felt it could lead to a repeat of the balance of payments crisis India faced in 1991.