Will the deadlier second wave prompt Modi govt to go for another stimulus?

A recent study found that the poorest of workers earned Rs 15,000 less on average last year. This time, state lockdowns may dent their incomes again

The second Covid-19 wave, which was at one point of time considered to be less severe, has taken more than 100,000 lives in India during the three months since February. While only a handful states had strict lockdowns, with others experimenting with weekend and night curfews, lockdowns have expanded both geographically and in intensity. 

Last year’s nationwide lockdown had chipped away a fourth of the quarterly GDP. Though the lockdowns led by states aren't as severe, Nomura’s Business Resumption Index points to deteriorating economic activity sequentially from February to May. 

It is thus a given that jobs and incomes will be hit this time as well. And while the government sprung into action last year with a slew of Aatma Nirbhar Bharat (self-reliant India) packages, support measures seem imperative this time too. But in what way can the government alleviate the economic pain of the most vulnerable? 

A recent study by the Bengaluru-based Azim Premji University gives a clear insight on this, using data on incomes before and after the nationwide lockdown of last year. 

It proposes that the government transfer Rs 5,000 to each and every household registered under the public food distribution system (PDS), for the immediate three months. This will cost the government Rs 3.1 trillion, which is about 10 per cent of its annual expenditure, or 1.6 per cent of GDP. This spending would be comparable to the subsidies mentioned in Union Budget for the current year, but about 60 per cent of annual capex.

The report uses survey data from the Centre for Monitoring Indian Economy’s Consumer Pyramids Household Survey (CMIE’s CPHS). 

The report, State of Working India 2021, finds that the poorest 10 per cent of workers in India lost Rs 15,700 due to truncated incomes in March-October 2020 (lockdown and post-lockdown), compared to the same period of 2019. The income loss of upper deciles (sequentially better off) is further more than this. Several other studies also documented income losses across various vulnerable professions in 2020. 

Taking this as basis, the report has three findings and linked policy prescriptions. Firstly, the cash support last year was puny in quantum compared to the income loss, and a cash transfer scheme should ideally cover the loss borne by the poorest of families. 

Secondly, the cash transfer component was limited in reach. Rather than transferring money to those holding accounts under Jan Dhan Yojana, the government will reach more beneficiaries if it uses the PDS database.

Thirdly, the cash component was less compared to peer countries last year as a share of monthly per capita GDP. It would serve the people well if cash support was comparable to India’s peers. 

Surveys that pointed to income losses during lockdowns

• Average household lost 65% of its earnings, from Rs 9,960 per month to Rs 4,110 during 2020 lockdown (Dalberg survey)
• Formal workers lost 17%, informal workers lost 63% (London School of Economics survey)
• 44% respondents earned lower in November 2020 than a year ago (NCAER survey)
• Only 10% gig workers earned more than Rs 15,000 a month in August 2020, compared to 90% in March (Flourish Ventures survey)
• Ragpickers' incomes fell 90%, Tirupur workers lost 90%, Ahmedabad workers lost 70% incomes in April 2020
• Pre-Post lockdown incomes: Domestic workers Rs 5,700 fell to Rs 4,800; Street vendors: from Rs 8,500 to Rs 6,140 (SEWA survey)

Small quantum 

Apart from free provision of food grains and expansion of work under rural employment guarantee scheme, the package included cash transfer to women who have bank accounts under the Centre’s Jan Dhan Yojana.

But the cash component was limited to Rs 1,500 per family (Rs 500 each for three months), about a tenth of what the poorest families lost in eight months (March - October).

The study finds that the poorest households lost Rs 15,700 in eight months last year. It also finds that women lost more compared to men, and minorities lost more than dominant communities. 

It quotes a Dalberg survey that found 65 per cent of earnings were lost in the peak lockdown period, and a London School of Economics-Center for Employment Performance survey that put the income loss at 48 per cent of the usual income level. 

To counter similar impacts during the decentralised lockdowns in the current second wave, the study recommends Rs 5,000 each month for three months as the required quantum of transfer. 

Thin reach 

Then, there are only 400 million Jan Dhan accounts in the country, compared to 800 million beneficiaries under the PDS—which targets the bottom two-thirds of the population in the country. 

“PDS had the widest reach among all social safety nets, covering 87 per cent of [interviewed] households, as compared to 56 per cent covered under Jan Dhan Yojana, 42 per cent under MGNREGA and 32 per cent under PM KISAN,” the report notes. 

About 91 per cent of priority households reported that they had availed of free rations announced under the Pradhan Mantri Garib Kalyan Yojana of 2020. “PDS worked much better in rural areas with 83 per cent of priority households receiving free grains easily as compared to only 66 per cent in urban areas,” said the report.

On the other hand, about 78 per cent of poor female respondents have a bank account but only 23 per cent have a PMJDY account, according to the Financial Inclusion Insights survey by Kantar (2018). APU’s own survey also found that 48 per cent of rural households and 63 per cent of urban households did not have a Jan Dhan account.

The report recommends the use of PDS databases to target beneficiaries under a cash support scheme, if it is announced this time around. 

Lowest support among peers

Countries across the globe used cash transfers as a relief measure last year. Globally, Covid relief cash transfers have amounted to 32 per cent of monthly per-person GDP, the APU report notes. 

While upper middle-income countries kept it at 26 per cent, lower middle-income countries gave out 40 per cent of per capita GDP to households. Low-income countries were a step ahead in terms of relative cash support, transferring 86 per cent of monthly per capita GDP

“India’s total transfer of Rs 1,500 amounted to mere 12 per cent of a month's GDP per capita, which is approximately Rs 13,000,” the study noted. 

Raising it to Rs 5,000 per month would take India’s cash support to the global average. 

Rationale for cash support 

Job losses were the most evident—and the most talked about—impacts of the Covid-19 crisis and the lockdown that followed. But unemployment rate came down as the economy gradually found its lost ground. 

The apparent improvement in the employment situation, seen in the falling unemployment rate, masks two other equally severe impacts of the pandemic-led economic crisis. 

One, though jobs are back, they do not offer the same incomes as before. Earnings per job have fallen, and the income losses are the worst among those earning the smallest of incomes. 

Two, informality rose, meaning that new entrants to the employed universe came in as informal workers or self-employed.  

“About 90 per cent of the decline in aggregate incomes was due to reduction in earnings of workers who were employed and only 10 per cent due to the loss of employment,” said the report. 

Between September-October 2019 and SeptemberOctober 2020, real median earnings per worker fell by 30 per cent. It is highly likely that the current lockdowns will have a similar impact, if not more.