In an earlier post on the Impact of Lockdown on the India’s Informal Economy, we had highlighted how the virus has impacted the livelihood of millions of Indian individuals employed in the unorganised sector.
Standing in 2021, with India battling yet another deadly wave of virus infections, the individuals employed in the unorganised sector are continuing to struggle.
We know, by some estimations, that at least 90% of India’s workforce is employed in the unorganised sector.
With continuing lockdowns and restrictions in rail and transport movements, large sections of the Indian population have been left without a source of Income.
The impact is not just on the livelihood of these individuals but also on the economy as a whole.
In order to revive the economy and provide support to India’s informal economy, the following measures may be suggested:
Increased government spending in employment generation schemes:
The government should directly increase spending in sectors that are likely to generate large-scale employment opportunities and at the same time provide tangible benefits in the long run.
For example, the government should increase spending heavily in infrastructure projects like building of roads, expansion of railway and freight networks, modernisation of ports etc. Expansion of infrastructure facilities would greatly benefit businesses in the long run.
The government could also increase spending in social infrastructure activities like cleaning and preservation of rivers and waterbodies, collection and proper disposal of plastic wastes, afforestation activities and planting of more trees in cities and urban areas.
All this activities would not only help generate more current employment opportunities; thereby pulling a large section of the Indian population out of poverty, but also have a positive long-term impact on the Indian economy.
Micro Credit delivery:
A large section of India’s informal workforce primarily comprise of individuals who are either self employed or are employed in micro and very small scale industries. These individuals and industries have been the hardest hit by continuing lockdowns in the wake of the covid-19 crisis.
It is important for the government to ensure targeted credit delivery to such individuals and micro-enterprises to help them recover from the crisis and set-up business once again.
Micro-finance organisations have a great role to play in this regard. However, micro finance is not exactly cheap, with the lending rates often twice as high as the rates at which large corporations borrow in the debt markets.
The government could frame policies and extend direct support to banks and micro-finance institutions that could help make credit more ‘accessible’ and ‘cheap’ for these individuals and industries.
Direct transfer of benefits:
Measures like increased government spending in employment generating avenues and targeted credit delivery could be effective in re-building India’s informal sector once the lock-down restrictions are completely lifted.
However, till the time we are battling the effects of the virus and people continue to be confined to their homes, business would continue to take a hit.
In such a situation, direct transfer of benefits to the economically affected sections of the society could help them tide these difficult times.
The government should resort to large scale borrowing to ensure direct transfer of money to the bank account of the Individuals affected by the lockdowns.
This would help them survive the difficult times.
Direct transfer of benefits would also help in reviving demand in the economy – which ultimately would mean more businesses opening up to meet the increased demand – leading to more employment generation and a revival of the entire economic cycle.
Putting money directly into the hands of people could be more effective than doing something like a quantitative easing – which might not have a trickle-down effect and lead to asset price bubbles.
Image source: Debmalya Mazumdar