If India’s Migrant Workers Don’t Return, It Spells Trouble For These Sectors
An unprecedented large-scale reverse migration of labour triggered by the nationwide lockdown, that saw millions of workers travel across state borders, has put some of the Indian economy’s biggest sectors at risk.
Manufacturing, mining, retail and wholesale trade and hospitality have some of the highest dependence on migrant workers from other states, according to an analysis by India Ratings & Research. The impact will be further exacerbated for medium and small enterprises that rely more on migrant workers than large corporates, it said.
India imposed an abrupt nationwide lockdown to curb the spread of Covid-19 that brought economic activities to a grinding halt. The lockdown, which was then extended twice, hit millions of daily wage earners and migrant labourers who were left without jobs and income. Penniless and stranded, workers left cities for their villages on foot or bicycles, cramped in trucks and later by trains.
The result: a labour crunch which might hit capacity utilisation for several firms, India Ratings said.
Manufacturing is the obvious victim with its high reliance on migrants. The industry employs over 60 lakh migrant workers from other states—more than any other sector, India Ratings said. Besides, almost half of the manufacturing sector's output comes from MSMEs and contributes 8% to the country's GDP.
“The sector might keep facing labour shortage in the near term if labourers do not return to their workplace by Q2 FY21,” India Ratings said. “This will lead to an increase in labour wages in the near term, which may erode MSMEs’ profits.”
Mining activity in India has already plummetted due to lower demand and severe shortage. Another sector impacted severely due to reverse migration, according to India Ratings, is logistics. The shortage of trucks and workers for warehouses has led to lower capacity utilisation of ports affecting India’s external trade, it said.
That said, construction is a sector that’s widely expected to be impacted severely from reverse migration. And while, construction activity has been hit due to local restrictions, India Ratings said the sector’s dependency on workers from other states is relatively lower. The sector relies more on intra-state migrants, it said.
Most Impacted States
Maharashtra, Delhi and Gujarat receive the largest number of migrant workers in India—most of them from Uttar Pradesh and Bihar. And companies in these regions are likely to suffer more than the likes of Andhra Pradesh or Chhattisgarh where only a small portion of the work force is from outside the state, India Ratings estimated.
The impact of reverse migration is more pronounced in Maharashtra and Gujarat due to the large presence of heavy labour-dependent sectors such as manufacturing and construction.India Ratings & Research
A quarter of Maharashtra’s gross value-added product comes from manufacturing. The figure is much higher at over 48% for Gujarat. Manufacturing units in these states employ a total of over 22 lakh migrant workers, highlighting the challenge firms face due to reverse migration.
Impact On Corporates
India Ratings has estimated that in the near term, corporates with manufacturing facilities concentrated in states with a high-migrant dependency will face higher costs and face pressure on its operating margins.
Employers may also choose to offer incentives beyond just wages to woo labour back, leading to further costs.
Companies that have manufacturing facilities in multiple states are better hedged against the labour scarcity, India Ratings said. The impact on such companies will be limited to the share of revenue they get from facilities in states that depend more on migrant labour.