India: fighting coronavirus in an informal economy

Alyssa Ayres

India has been under a nationwide lockdown to halt the spread of the coronavirus. The government’s decision, like those by many other countries around the world, has occurred at great economic cost. Because of India’s economic structure, patterns of internal migration, and tougher economic times in recent years, the impact of a lockdown is even starker.

Under India’s initial three-week lockdown, the federal government instructed states [PDF] to prevent the spread of the coronavirus disease (COVID-19), closed down all but the most essential businesses, and halted interstate transportation and railways. Some easing of restrictions began on April 20 with the resumption of agricultural, fisheries, animal husbandry, and tea and coffee plantation work. Cargo transportation was also reopened.

Many mandated precautions are still in place, including mask-wearing in public, social distancing, prohibitions on gatherings of more than five people, and a ban on spitting in public. These moves to flatten the curve of the virus have allowed states to carry out contact tracing, quarantines, and other health measures. The state of Kerala in particular has built on lessons of the 2018 Nipah virus outbreak to carry out a careful and effective response.

The country had already been in an economic slump. A year ago, unemployment reached a forty-five-year high of 6.1 percent. In January of this year, the International Monetary Fund lowered its estimate for India’s 2019 economic growth to 4.8 percent, which is bad news for a country that aims to clock up at least 8 percent growth simply to absorb those entering the workforce each year. What’s more, even before the lockdown, India’s public finances were strained, with the fiscal deficit at 3.8 percent of gross domestic product (GDP), above the 3.3 percent target. Some economists estimate the true figure to be even higher.

Most of those employed in India work in the informal economy—more than 86 percent, according to the International Labor Organization. These daily-wage earners generally lack employment certainty, protections, or safety nets. Working women are particularly affected; according to the India-based trade union Self-Employed Women’s Association, more than 94 percent of India’s female labor force is employed in the informal sector. Not surprisingly, the lockdown has badly hurt livelihoods. Although official unemployment data is not yet available, data published by the Centre for Monitoring Indian Economy showed a spike in unemployment to 26 percent as of April 19.

India also has an estimated forty million migrant workers, who move from rural residences to other areas where job prospects are better. When the lockdown went into effect, many migrant laborers found themselves without work and stuck in big cities where they could no longer afford to live and were without transportation home. Many began walking hundreds of kilometers to their villages. In the national capital territory of Delhi, for instance, an estimated 88 percent of migrants are from other states, according to research

The Indian government crafted a relief package of more than $23 billion, designed to provide cash transfers and food rations to the poor. Totaling about 0.8 percent of GDP, this relief is more modest than those of China (2.5 percent) and Italy (1.4 percent), let alone the much larger stimulus packages of other large economies. Anecdotal reports continue to highlight problems in rural areas, where recipients face challenges accessing a bank to withdraw distributed funds. Some have faced difficulties accessing food rations. Meanwhile, the government has been discussing a second package that could provide relief to small businesses.

The lockdown seems to have helped prevent the spread of COVID-19. The country has reported a relatively low number of cases given its enormous population.  But some in India have begun to ask whether the lockdown has come at too great a cost to the economy.  India is not testing widely enough to report the scale of the virus’s spread. But the country’s health-care system has not collapsed, so the worst-case fears have not become reality. Moreover, mortality rates have actually decreased in some places, including Mumbai, where the rate was down by 21 percent in March compared to a year earlier. As in other countries, the hard policy decisions for the months ahead should address the need, scale, and targeting of additional relief, as well as the pace and scope of reopening the economy, especially in India’s urban areas, which are among the world’s most densely populated.

This pandemic has prompted special concerns for India about the future of its vast informal employment sector, including how to plan for the organized return of migrant laborers to urban employment sites once cities reopen more fully. How well small businesses weather the lockdown will shape the availability of jobs in the months ahead. At the same time, public health experts warn of the possibility of a second wave of the virus some months in the future. For now, the coronavirus presents India—along with everywhere else—with more questions than answers. India’s health experts and economists have a busy summer ahead.

Reposted from under a Creative Commons Licence

Article by: Alyssa Ayres (Council on Foreign Relations)

Scroll to Top