Coronavirus Impact: Fear Of Contract Job Losses Prompt Cash Transfer Calls
The lockdowns, in some cases partial & in others total, are likely to first hit contract workers across many of these industries.
Sectors ranging from travel and tourism to retail and hospitality are taking a hit as social distancing becomes the norm to tackle the coronavirus outbreak. At last count, India had 169 detected cases of Covid-19.
The government, businesses and consumers are all taking precautions to limit the spread of the virus. The lockdowns, in some cases partial and in others total, are likely to first hit contract workers across many of these industries. To counter this, economists are now calling for some form of cash transfers to support those who have lost their source of income, even if temporarily.
Contract workers are usually the most vulnerable and the first to be laid off in the event of such downturns, said Mahesh Vyas, chief executive officer at the Centre for Monitoring the Indian Economy. The spread of Covid-19 has started to impact tourism and hospitality industries which are significant providers of employment, Vyas wrote in a recent article on the CMIE website.
The biggest impact of the slowdown in business is expected on MSME entities in retailing, tourism and transportation, self-employed workers in the gig economy and contract workers in the informal economy, said a note from Kotak Institutional Equities. “Small businesses and low-income households do not have the cash flows, balance sheets or savings to sustain the downturn in business or loss of income for a few months.”
Growing Restrictions
On March 15, the Government of Maharashtra issued a notification mandating the closure of malls and theatres. Similar strictures have been passed in other parts of the country such as New Delhi, Haryana, Karnataka, Kerala and Tamil Nadu so far.
A hit to the retail business will mean a direct impact on employment in the sector.
“The retail sector alone employs about 40 million people in the informal sector and 6 million people in the formal sector, said Kumar Gopalan, chief executive officer of the Retailer Association of India. Even in the formal sector, about 3-4 million people are employed on a contractual basis.
“For stores to remain closed for so many days at a stretch is unprecedented. When a store is shut, there is a cash flow crunch. About 85 percent of a store’s expenses are fixed costs and that creates a problem,” Gopalan said.
Tourism is the other sector which provides large contract employment. That, too, has taken a hit. Travel and tourism accounts for 8.1 percent of total employment, said Citi Asia Economics in a report last week.
Real estate construction, which also has a large number of contract workers, has not yet seen a direct impact but the industry is cautious.
So far, construction and infrastructure sites, which employ a large chunk of daily wage labourers, continue to function. Considering that these workers are paid daily wages, that cannot be stopped, said Boman Irani, vice president at industry body CREDAI. Irani added that steps are being taken by real estate developers to educate construction workers and ensure adequate screening at sites.
Also Read: India’s Services Economy Braces For A Hit From Local Spread Of Coronavirus
Assessing The Size Of The Hit
Pinning down the number of contractual job losses is difficult but experts believe the hit can be large.
Anoop Satpathy, fellow at the VV Giri National Labour Institute, said that labour in more sectors will see an impact as the situation unfolds. “Output losses and insufficient liquidity in many sectors have created a high risk of large scale layoffs,” he added.
Satpathy said the share of informal employment in total employment is close to 90 percent, as per his calculations based from the periodic labour force survey of 2017-18. The number of contractual workers, too, has steadily risen in recent years as companies prefer to bring about flexibility in their labour force, added Vyas.
According to data from the survey, casual labour makes up 14.7 percent of all workers when classified by category of employment in urban areas. Self-employed workers make up 38.3 percent while 47 percent are regular wage/salary workers.
Most workers who are self-employed are ‘own account’ workers. Such workers, along with casual workers, provide services on a daily basis and are likely to be hit hard in a scenario where economic activity dips sharply, Satpathy said. Even salaried workers are not immune in the current scenario, he added.
Need For Cash Handouts?
How do authorities deal with such a situation?
So far, the government’s efforts have focused on measures to contain the spread of the virus. The central bank, meanwhile. is intervening to ensure the orderly functioning of financial markets.
While the government is taking measures to contain the spread of the virus, very little is being done to backstop the economic damage, said Satpathy. The government can cover at least fixed costs of self-owned businesses and create an emergency fund to transfer minimum income to impacted workers and labourers, he said.
Jayati Ghosh, professor of economics at Jawaharlal Nehru University, New Delhi, agreed that the government may have to resort to income transfers. The government needs to revive demand and ensure that employers do not lay-off employees, she said.
The Uttar Pradesh government has announced that it will transfer money to daily wage labourers. However, most state governments are already squeezed for funds due to the economic slowdown and lack the fiscal space to take such measures, Ghosh said.
Realistically, the probability that the government will roll out an income transfer remains low for both fiscal and logistical reasons, said Reetika Khera, professor of economics at Indian Institute of Management, Ahmedabad. Khera also questioned how beneficiaries would be selected for such transfers.
Instead, the government can provide additional allocation to those covered under the National Food Security Act via the public distribution system.
“The PDS covers two-thirds of the population, including many of those who are most vulnerable to scenarios like the current one,” Khera said, adding that this delivery infrastructure is already in place.
Also Read: Coronavirus: The Economic Impact Of COVID-19 On India
Sector-specific solutions may also need to be considered.
For instance, for the retail sector, Gopalan suggests that the government temporarily provide working capital and loans at low rates. This would give employers some elbow room. In the case of the construction industry, Irani suggested that the government dip into the large collections made from the labour cess it collects from employers in the construction sector.