Young Indians In Labour-Intensive Sectors Worst Hit As Economic Pain Deepens

Bhubaneswar, ODISHA — When Prime Minister Narendra Modi announced an unplanned total national lockdown on March 24 to stem the transmission of the novel coronavirus, Pronab Sarkar, president of the Indian Association of Tour Operators (IATO), was concerned but far from panicked.

“Whether it was the Mandal commission protests or the Bombay blasts, or the Kargil war, or even 9/11. All of these events [had] hit tourism in India very hard; but the pain lasted for only about 3-4 months, and after that the sector always revived itself and business was back,” Sarkar, a veteran in the tourism business with over four decades of experience, told HuffPost India. 

“I thought that even this time things will get better soon. The lockdown would control the spread of virus in the country and then business will be back,” he said.

Eight months later, Sarkar says he was wrong. The coronavirus has infected more than 8.5 million Indians and killed about 128,000 . While the lockdown did not contain the virus, it upended India’s economy — which is expected to contract by 10% this year. 

Sarkar’s industry has been hit particularly hard: Tourism which contributes about 10 percent to the national GDP, is one of the most labour intensive sectors in India. It provides employment to about 24 million people, according to the Centre for Monitoring Indian Economy , but industry associations peg the number at more than 50 million. Earlier this year, KPMG, an auditing firm, warned of potential job losses of about 38 million in the tourism and travel sector in the country. Worse, the sector has received little government support despite the tens of millions of workers it employs. 

The tourism sector’s plight, experts say, is illustrative of a broader crisis of joblessness sweeping across the Indian economy and lays bare the Modi government’s inability to deal with a crisis of this scale. Labour intensive sectors such as garments, retail and food processing have been suffering from the dual blow of lockdown and pandemic since March.

Santosh Mehrotra, a professor of economics at New Delhi’s Jawaharlal Nehru University and former head of development policymaking in the Planning Commission, said implementing the harsh lockdown sans any real planning spelt disaster for labour intensive sectors such as tourism. 

“The entire administration was in the dark about what they were going to do,” Mehrotra said. “You lock everybody down where they were...Under such a scenario, the government could not have done anything because it had stopped itself from doing anything.”

Mehrotra said, and pointed out that it was not just tourism, but almost all sectors in the economy had been badly hit except for a few that are still thriving such as e-commerce.

Young Workers

Sectors such as travel and tourism have long acted as a sponge for India’s economy by absorbing a large share of a young workforce fenced out of the high-skills services sector that has powered India’s growth for the past two decades. The reasons include low to medium level of education, lack of generational social mobility, and limited number of factory jobs, owing to the country not industrialising enough.

“Just how young people from mofussil towns who have less education get into the real estate brokerage business because of low entry barriers, it is the same with travel and tourism,” Mehrotra said, explaining that this is why there is more informality in the sector. “Plus it is a good source of remittance going back into their households.”

Travel agents and consultants, parking contractors, owners of roadside shacks and small eateries, tour operators, restaurant staff, airline staff, tour guides, hotel managers, receptionists, taxi drivers, sales managers, chefs, rental services: these are just some of the job roles that provide direct and self employment to tens of millions of young people and migrant workers.

Most of these jobs were badly hit when the lockdown came into effect, with some of them vanishing overnight. Worst affected were people who were self-employed in the sector or owned small and medium sized businesses. 

“The industry was waiting for some kind of support from the government, but when it didn’t come, people began firing staff,” Sarkar said.

He said that his association, IATO, approached the government several times to request assistance from the Ministry of Tourism, Ministry of Commerce and the Finance Ministry. Sarkar said they were assured of support each time, but the government has since failed to provide any. On one occasion, employees at tour and travel companies sent even postcards to the prime minister with a simple message: Save Tourism.

Sarkar vividly recalls how Modi had flagged the importance of tourism to India’s economy in his independence day address in 2019. 

“It is very surprising that the government is not supporting us,” he said.

Contrary to Sarkar’s expectations, the lockdown didn’t control the spread of the virus in the country, and today, at a time when India is clocking one of the highest surge in daily infections globally, politicians are taking part in election rallies where there is no social distancing.

“I think the government is aware of the fact that the damage has already been done, and we will settle down on our own. This is what the government is expecting,” Sarkar said. 

“In our country people are always left on their own.”

Government Clueless

Finance Minister Nirmala Sitharaman and Prime Minister Narendra Modi have both pointed to improvement in economic indicators such as IHS Markit’s Purchasing Managers Index (PMI), e-way bills, and growth in auto and FMCG sectors as signs of economic revival even as employment has declined for seven consecutive months.

Economists say that these numbers suggest a slow recovery in the formal sector that employs a relatively small share of the total workforce, while a majority of workers are engaged in the informal sector, and India’s 63 million strong Micro, Small & Medium Enterprises (MSMEs), both of which are under considerable pain.

“I think pointing to a couple of indicators and calling it a recovery isn’t the right way to go about it,” Radhicka Kapoor, a senior fellow at Indian Council for Research on International Economic Relations (ICRIER) in New Delhi, told HuffPost India.

“The narrative in India is one where there is a disconnect in growth in GDP and growth in employment precisely for the fact that we have high GDP growth in sectors that are not employment intensive,” Kapoor said.  “The challenges to future employment are a worry.”

Economists are surprised that the government has taken the monetary path of extending loans and credit guarantees to businesses and individual entrepreneurs, rather than ramping up fiscal spending and providing cash support to heavily labour intensive sectors.

For instance, in a much publicised move in May, the finance ministry announced an Emergency Credit Line Guarantee Scheme (ECLGS), in which an additional amount of Rs 3 lakh crore of cheap credit would be available to eligible MSMEs.

“This is utter nonsense. You are essentially giving loans to businesses and calling it relief. If I’m facing fixed costs and I have zero sales or revenue then how does a loan help?” Ananth Narayan, professor of Finance at SP Jain Institute of Management and Research (SPJIMR) and an additional director nominated by the RBI on the board of Yes Bank, told HuffPost India.

Sarkar from IATO said that businesses cannot take loans at a time when there is no business. “Nobody will take a loan to pay salaries.”

Narayan said that the government’s attempt at managing narrative about the recovery is ill founded.

“I think we have been fooling ourselves and saying that everything is getting okay [as the economy is gradually opening up]; it is not getting okay. The research that we have conducted suggests that there is substantial pain among MSMEs, and about 30 percent of them are facing an existential crisis,” Narayan said, stressing that a lot of MSMEs have closed down owing to no business for months.

Instead of extending credit, Narayan said, the government can really help the MSMEs by providing full interest subvention —meaning the government will pay the interest on the loans — to all of them for at least six months. MSMEs have about 20 lac crore in outstanding loans, and this relief would cost the government about 1.2 lakh crore, if the rate of interest is at 12 percent.

“It is just about 0.6 percent of GDP. It’s not the end of the world; it is easily doable.” 

Stimulus Needed

In the months since the pandemic, there has been an outcry for more government spending not just by a variety of industry associations but also concerned economists. The government has either dodged these calls or delayed announcing a fiscal stimulus. And the result of it has been damaging to the economy.

This was evident in the International Monetary Fund’s World Economic Outlook report in October which forecast a 10 percent contraction for the Indian economy this year, the worst slide among all emerging economies. The Fund blamed India’s lack of enough spending for this slide.

Mehrotra said that the government cannot spend enough to save millions of jobs because it doesn’t have the money to do so. India entered the pandemic with a weak fiscal position, which he blamed on an already slowing economy before the pandemic, and a slew of decisions reeking of gross mismanagement such as the corporate tax rate cut in 2019, which cost the government about 1.45 lakh crore in tax revenues, but failed to stimulate the then slowing economy; and failure to resolve the non performing assets in the banking sector.

He said that in order to provide for a strong fiscal stimulus, the government would need to borrow more. But others say that it will be hard and the government’s hands are tied.

“In [the times of] Covid-19, there are no villains, there are only victims. Nobody planned for it. A fiscal stimulus would have managed to save the firms, but I don’t see how it would have saved jobs. So I don’t think any kind of solution is easy,” Rituparna Chakraborty, executive vice president at TeamLease Services, a staffing firm, told HuffPost India 

“I don’t think India can afford such a stimulus. We are...a poor country.”

But Narayan says that even with the government’s reluctance to spend more, the combined total fiscal deficit of the centre and the states for this year is already going to be 15 percent of GDP. 

“I’m a fiscal hawk but even I won’t suggest that bring down the fiscal deficit,” Narayan said. “I think we have to ask this existential question: What happens if we print money to spend?”

Narayan said that the only argument against such a measure among policymakers is the threat of a sharp spike in inflation. But according to him it is okay for the government to spend as long as it is confident that it is creating jobs and output.

Narayan pointed to what happened in China in the last three decades. China, he said, created money to create jobs and output, which led to the creation of demand for the output already generated, and this, he said, generated more investment, which lead to more savings.

“It becomes a nice virtuous cycle which goes on forever. We [in India] broke down this cycle because we created money but couldn’t follow it up with jobs and output.”

Narayan warned that if the government didn’t spend enough to create jobs and output, India could be staring at a humongous disaster.

“Without enough jobs, I think we are sitting on tons of demographic time bombs anyway.”

He said that even if some of the policies of the government such as the recent labour reforms and the expansion of the production-linked incentive (PLI) scheme to boost domestic manufacturing were in the right direction, there is cause for concern.

“Where I’m not confident about the powers that be right now is the fact that policymaking  is entirely concentrated in the prime minister’s office (PMO),” Narayan said, adding that even though the PMO boasted of some fantastic bureaucrats, to make the above mentioned big changes in the economy there would be a need for an empowered group of experts, which he said is lacking.

Thus, Narayan said, there is a lack of expertise to draft a longstanding vision for the economy.

Green Shoots, Anyone?

The International Labour Organisation defines the NEET rate as the share of youth not in education, employment or training as a percentage of the total youth population. For India, even before the pandemic, the rate was about 27 percent. “These are basically young people who are doing nothing, and if they can’t find jobs they would just drop out of the labour force,” Radhicka Kapoor, of ICRIER, said.

“My worry is that in this scenario when the economic situation is so bleak, India’s NEET rate could go up,” Kapoor said.

Economists such as CMIE’s Mahesh Vyas have said that the downward trend in India’s labour force participation rate is a cause for concern. “Globally this number is of the order of 66% or so. Where are we in India? According to us, we are at a pathetic 41%,” Vyas told the Indian Express in September.

Even though the unemployment rate has come down since April, when, according to the CMIE, about 122 million people lost their jobs, a large share of the jobs that have come back are informal in nature. In addition to this, the huge demand for MNREGA jobs has coincided with a reverse migration from urban to the rural areas.

And most of the people—a majority of them young— employed in labour intensive sectors such as tourism and travel have ended up in the small towns and rural areas, where, according to Mehrotra and Kapoor, are earning less.

“Millions of workers have returned to rural areas and there are too many people looking for jobs there. This will lead to a collapse in rural wage rate,” Mehrotra said, while Kapoor pointed out that there has been a deterioration in the quality of employment and even in the earnings because MNREGA offered wages that were below the minimum wage in many of India’s states.

“So the argument that the rural economy might be able to push through and sort of kickstart is also flawed,” Kapoor said.

The only way to alleviate the economic suffering, according to Mehrotra, is an immediate rollout of a minimum income guarantee—“I have been saying this for six months now”—of rupees 2000 for atleast three months for the bottom half of the country’s households.

Mehrotra—yet again—brings attention to the fact that the lockdown shouldn’t have been too harsh; that the timing of it was completely wrong; and even after it damaged the economy and failed to control the spread of the virus, the government later claimed that it had actually worked.

Mehrotra said that the only thing that will satisfy everybody and bring a sense of relief is the return of our per capita income to 2019-20 levels. But this, he said, would not happen for another 2 and a half to 3 years; and the only recovery that the economy is witnessing at the time is pent up demand owing to the gradual unlocking of the country.

“So I want to know where are the green shoots?”