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The crunch in the labour market can easily turn into a nightmare.

India’s unemployment rate could have climbed to 20%

My view here Lockdown proves to be fatal for the economy

India is currently facing the tsunami of job losses for a massive number of people in the unorganized sector. These groups of people do not earn a regular salary or work on short-term contracts, even without any written contract or are casual labourers or work as migrant workers. It also includes those who work in non-registered small businesses, registered small companies, and even the self-employed. The crunch in the labour market can easily turn into a nightmare.

Millions at Risk

As per the estimation of the National Sample Survey (NSS) and Periodic Labour Force Surveys (PLFS) data, nearly 136 million jobs in the non-agricultural sector are at immediate risk. More than five million Indians have job contracts less than a year in tenure. It is easy to retrench workers without contracts when demand declines, and that is also without serving any notice or severance. Daily-wage earners and casual labourers, in maximum cases, have no written contracts.

The innumerable jobless people include guides of the tourism industry, ground and support staff in the aviation industry, employees of parking contractors, semi-skilled and frontline jobs in the automobile industry, waiters working in restaurants, suppliers of vegetables, fruit, meat and flowers to the hotels, cleaners working in shops, and many more.

According to CII, more than 50% of the tourism and hospitality industry can go sick with a likely loss of over 20 million jobs, if the recovery in the industry extends beyond October 2020.

Since a nationwide lockdown took effect in March last week, India’s unemployment rate could have climbed to 20% and more as the economy lost jobs, according to a survey by the private sector research group, CMIE.

The rate of jobless was 23.4% for the week ended April 5, based on the observations of the sample size of 9,429, Mahesh Vyas, the CEO of CMIE, wrote. “Labour statistics for March 2020 are worrisome,” Vyas said. “These are very big variations and are subject to the usual sampling errors. It, therefore, may not be very wise to focus on the magnitude of those movements but on the certainty of the movements.”

The COVID brunt will be borne by the economically disadvantaged

Soon after the announcement of nationwide lockdown on March 24, thousands of migrant workers from Delhi took the national highways on foot to get back home and safety desperately.

The whole country witnessed an exodus of workers headed to their native lands during the lockdown period. India has an internal migrant population of around 37% (according to the 2011 census data). The movement of migrants on such a scale was similar to the exodus triggered by the Partition of 1947. The state borders, highways, and bus terminals witnessed massive gatherings of people desperately looking for a way to get back home.

The Labour and Employment Ministry has issued advisories to public and private employers and establishments not to terminate their employees, particularly casual or contractual employees, from their jobs or reduce their wages during the lockdown period. The Union Home Ministry directed states through an advisory to ensure that no employer sacks casual or migrant workers or deducts their wages. The migrant workforce welcomed the move, but its potential for enforcement was beyond their imagination.

The sustained demographic disaster

The last government annual unemployment data, released in 2019, disclosed the unemployment rate at a 45-year high of 6.1%. It is already a tough demographic time for India, and the advent of COVID-19 epidemic would only exacerbate a looming jobs crisis. India needs to generate around 10 million jobs every year to absorb the working-age population other than those already unemployed.

In large countries such as India, large unemployment may have a snowball effect. The pool of unemployed workers expands as jobs are lost. A substantial number of fresh graduates enter the workforce every year. India had an estimated 9.3 million fresh graduates.

Manufacturing Industry employs 56.4 million people in India, out of which textiles and apparel employ nearly 18 million, and the non-manufacturing sector, which includes construction, mining, electricity, water and gas, engages another 59 million. However, the service industry is India’s largest employment provider, with an estimated 144.4 million workers.

In India, the combination of massive unemployment, a shrinking economy, and a large addition to the workforce every year can delay employment recovery. That means there will be a significant increase in unemployment numbers (by several times) in both rural and urban areas.

Lockdown proves to be fatal for the economy

According to Christopher Wood, Global Head of Equity Strategy at Jefferies, lockdown in countries like India and Indonesia are devastating for human welfare and economies as there is no help for small businesses, nor are their unemployment benefits.

In countries like India and Indonesia, the situation is in contrast with the US, where under the Paycheck Protection Programme of the Small Business Administration, small businesses will get up to $349 billion in forgivable loans to pay their employees for eight weeks during the health crisis.

“…in countries such as India, with young demographics, such a lockdown causes more human suffering that Covid-19 itself. This continuing lockdown is, unfortunately, making it ever more inevitable that India will suffer a consumer lending cycle,” said Wood.

“The implications of this crisis will be dire. We will inevitably have less fiscal space to make much-needed investments in, for example, education, skills, preventative healthcare, and infrastructure. It will not just prevent us from moving forward but will set us back. Our large and growing youth population will be further disenfranchised, potentially spurring social discord, crime, and instability,” Sabina Dewan, the president and executive director of JustJobs Network, a think tank, said.

Work from Home – A Good side

On the flip side, during the lockdown, the Indian IT industry made employees “Work from Home” (WFH) as per the government’s mandate. About 90% of employees worked from home, out of which 65% are from metros and the rest 35% are from small towns. Some businesses were considering WFH as a permanent feature and started evaluating its merits and demerits. One large company announced to change the current 100/100 model to 25/25, which means that 25% of employees will attend the office at any given time.

The advantages are that operating costs comprising of people and infrastructure can be cut down by 50% to 70%. It will enable equitable distribution of wealth, better inclusivity (more women employees), reduction in migration to metros, etc.

Closing lines…

There have been plenty of labour laws in India, but they were not enforced efficiently for ages. It resulted in wage disputes, hundreds and thousands of wrongful terminations, inhuman working conditions, etc. The lack of enforcement also made migrant labourer disbelieve that the government will act against employers for wrongful termination and salary cut during the lockdown.

Comparte Investment team asks do you have “Nivesh Ki Aadat”.

(About Author:  Arindom is a professional writer, editor, blogger and a member of the International Association of Professional Writers and Editors, New York. A management postgraduate in finance with extensive industry exposure, he is associated with many reputed global online magazines and publications as a regular contributor. He loves to help his readers writing highly informative and well-researched investment-related content to make informed decisions.

The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of organization)

With this one can say “Mutual Fund Sahi hai”,  so let me do Nivesh / Enquire

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