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Modi Govt is Blind to the Crushing Jobs Crisis

Additional funds for MSMEs and MGNREGA are not going to create enough jobs, and the economy will remain in doldrums.
Blind to the Crushing Jobs Crisis

There has been much mutual patting on the back and self-congratulation, after the Narendra Modi government announced two policy measures that could have a direct impact on job creation. These were: a special credit line of Rs.3 lakh crore for MSMEs (medium, small and micro enterprises) and an additional allocation of Rs.40,000 crore for the rural job guarantee scheme (MGNREGA). Coming as these did nearly two months after the countrywide lockdown was suddenly announced by Prime Minister Modi, the destruction wrought in the interim is far too huge to be erased by these palliatives.

Take a look at the jobless numbers, as estimated by Centre for Monitoring Indian Economy or CMIE through their weekly sample surveys. In rural areas, some 22 crore persons were estimated to be employed on May 10, 2020 [see chart below]. This is 5.6 crore less than the number of employed on March 22, two days before the lockdown began. And it is 6.1 crore less than one year ago (May 2019). The average employment in rural areas was estimated at 27 crore in 2019. This means that just to get back to last year’s level, another six crore jobs need to be created.

chart rural emp

In urban areas, the situation is even more dire. At least MGNREGA will address some of the unemployment issues. But in urban areas, there is no such cushion. As shown in chart below, since the lockdown began, some 4.1 crore persons lost jobs in urban areas. One part of this was dramatically visible in the fleeing migrants, the searing images of their distress and fortitude, shocking the world. But this is just a fraction of the enormous job losses that have happened in urban areas.

urbN EMP CHrt

So, if you add up the two, something like 9-10 crore jobs need to be created just to get back to last year’s normal. Remember: this normal was not something highly desirable. Unemployment was running at a 45-year high and averaged 7-9% throughout the year. But, even if you ignore that bit, just getting back to last year’s levels is a daunting challenge. And the Modi government has shown itself to be comprehensively incapable of tackling it.

Offering easy credit to MSMEs is not money in their hands. How many will take loans, and to what purpose, remains an unknown. More importantly, since there is no demand in the economy, whether mere availability of easy loans will motivate them to expand or restart their activities is an open question. So, the likelihood of this measure boosting employment in any significant way, is unlikely.

How Much Can MGNREGA Help

Now let’s turn to the rural jobs scheme. The additional fund allocation is welcome, as it had been a long-standing demand. It is also welcome that the Modi govt - in typically belated fashion – has acknowledged that spending money is a necessity today.

But, after taking care of last year’s pending payments, and other price increases, the best the additional funds can do is generate additional 10% jobs. That would mean that the current number of employed would go up to, say, 24 crore. So, another 3-4 crore people will be left untouched, still burning in the fires of joblessness.

And remember also: MGNREGA doesn’t provide jobs throughout or consistently. In the current financial year, starting April 1, the average number of days worked is a mere 14.24, as of May 22, according to the official website run by the rural development ministry. The same source also reveals that the total number of persons who worked in the scheme was 7-8 crore each year, each working between 40 to 50 days on an average.

So, even if this most minimal, subsistence level work is counted as ‘employment’ it is going to be very meagre. Working for 14 days at an average daily wage of Rs.201 on an average, a worker would have earned – Rs.2,814 in the past month. Wages may or may not be given immediately, but even if they are, is that sufficient for a family of five, in today’s India?

Urban Crisis Untouched

In urban areas, where about 60% of MSMEs are located, the crisis will remain as it is. There is no urban jobs guarantee scheme to provide crumbs. And, urban areas are mostly hotspots for COVID-19. So, even if some reopening of productive activity does take place, workers will be earning under the looming threat of the disease.

It is unlikely that the proposed credit easing will provide a spur to manufacturing or service sector activities because MSMEs were already deep in distress much before the pandemic struck. Goods and Services Tax and, before that, demonetisation, had dealt a death blow from which they had hardly recovered when the slowdown in the economy further pushed them deeper into the crisis. Debts had mounted and many had already downed shutters.

Jobs Crisis Will Continue

So, in sum, the employment-creating potential of Modi government’s policies announced recently, is severely limited. This, in turn, will not put money into the hands of the people in sufficient quantum to revive the limp demand. And hence, any revival of the economy is very unlikely.

A different approach, adopted by many other countries, would have helped much more. This would entail giving money straight to people apart from food items. This would take the form of wages for lockdown period, or straight transfers to their accounts, or unemployment allowance, or a combination of all these. This would directly create demand as people would have the buying power in their own hands. Demand would then automatically spur economic activity, including manufacturing and services.

But Modi and his advisers have yet again made a wrong choice. And the country will have to pay a heavy price for it.

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