UNEMPLOYED: Lakhs of migrants employed as contract workers in the big metropolitan cities of Mumbai and Chennai literally took to walking back to their home state and towns and villages in the absence of public transport. The urban workers not only lost their jobs but were also made to pay landlords and landladies who evicted them – because their humble tenants were not able to pay up the rent.
By Arvind Pinto
The last financial year has been disastrous for the Indian economy. Covid-19 and the consequent lockdowns that commenced in March 2020 have not only affected production and productivity but also led to a huge number of job losses. The only industries which are thriving are hose connected with digital technology!
THIS is indeed the time to look at the state of the economy, since within less than a month, the government will issue its annual economic review, while detailing the budget and its tax proposals for the year to come.
The last fiscal year has been a disaster for the economy. The coronavirus contagion Covid-19 and the consequent lockdowns that commenced in March 2020 and continued for the major part of the year gone by has left the economy in shambles. Hopes of a trillion-dollar economy faded as soon as it was announced, thanks to the onset of Covid pandemic and the lockdowns. In the months of April, May and June of 2020, with total lockdown being enforced, all but essential production came to a stop. It was as if the country had stopped functioning.
While future studies will research on the logistics of the lockdowns, the statistics have spoken eloquently. As per most economic indicators, India’s GDP is estimated to contract by 7.7% for the year ending 2020-21. The issue now before the country is how to get the economy back on track.
While we are still to get the official government figures, the majority of economic surveys have set the GDP growth for the last fiscal year 2020-21 at 6-6.5%. This is because both the manufacturing and service sectors were hit by the lockdowns that all but shut down the economy from end- March to continue till June, 2020. Interestingly, the agricultural sector was not as badly affected, although essential food prices did increase. With the stoppage of the manufacturing and service sectors the economy was almost brought to a halt.
Similarly, the financial sector, especially the banking and the credit sector were similarly impacted. Fortunately, with Reserve Bank of India directions for a moratorium on repayment, and directives on financial incentives to creditors, banks and other credit institutions were able to limit the spread of a large majority of its loan book from becoming bad. Interestingly, the net asset position of the majority of the banks has not significantly increased.
Much of the growth was primarily supported by government spending, especially in the social sector. This massive government spending, while it did increase the fiscal deficit beyond the statutory limit, it helped by putting money into the hands of people and especially the poor, which helped in the increased consumption.
The mass migration of urban workers back to their hometowns had created another piquant situation. In the first place, there was a loss of employment in the country. While we do not have real statistics for employment since many of these urban workers were not registered, neither were their payments recorded in any of the statistics, there was a drastic fall in employment in urban centers and this was one of the factors that contributed to the migration of labor back to their home states.
Today when the economy has restarted, many entrepreneurs find that the shortage of good and skilled workers is hindering them from taking up contracts for work once again. Labor today especially in the cities is a scarce commodity and several establishments are finding it difficult to restart without adequate labor
The migration of labor to towns and villages has resulted in another set of issues. Many of these migrants who didn’t return home would not be able to find work in their home state towns and villages. For one, the wages they earned in the cities were higher than that being paid in the smaller towns. Further, working conditions are also different. Migrant workers prefer to be unemployed for the time being while waiting to return to the cities, and at the same time having no disposable income back home. Would these migrants using their savings have brought a rise in the economic activity in their regional settings?
While rural India, did not really feel the impact of Covid- 19, there is no real study of whether the savings if any brought back home by returning migrants contributed to any economic regeneration of the countryside.
Similarly, India also witnessed a reverse migration of our labor force from the Gulf countries. Covid-19 also affected the Gulf countries, where there are thousands of Indians employed in labor intensive jobs, who contribute to our economy by their remittances.
Gradually, with the lifting of the lockdowns, we see green shoots in the economy as both manufacturing and the service sectors have once again begun operations. While production has resumed, we do not see areas of shortage, there is little demand since the confidence of the nation is still to be restored.
What does the future portend? With the easing of the restrictions, the economy is slowing finding its feet. Economic activity has slowly started. Many of the industrial companies have started production but with stagnant demand there is a buildup of inventory but sales are sluggish. This can be seen in the automobile sector, where there is more stock of cars but a slack demand despite the incentives and cuts that the industry is offering. Similar is the case of the real estate sector. Builders have built up inventory of housing units that are still unsold in most of the cities.
Interestingly, the cost of flats and apartments has not decreased significantly. Therefore, builders have excess stock, but are not willing to significantly reduce prices.
There is an increased need for the government to increase spending. Worried of the ballooning fiscal deficit, the government is cautious of increased spending. But unless the government creates a stimulus, the economy will continue in its present sluggish stalemate of incremental growth.
Following the government, banks have also taken the camel approach of caution. Instead of an aggressive lending policy, banks have taken to playing the money market, with assured returns rather than put this money into sectors that require finance to grow. Public consumption has also decreased, with little spending on conspicuous consumption and with the entertainment industry at rock bottom, there is an increase in household savings to the detriment of the economy. Goa seems to be an exception given the crowds flocking to this entertainment paradise.
Will the economy move into the high trajectory that it was once? Will it come back to the high levels of growth that the country witnessed before the pandemic? Let’s see what good news that this year’s budget brings!