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Sunday, April 11, 2021

What impact will 18.9mn job losses have on the Indian economy?

The pandemic and the ensuing lockdown has had detrimental effects on the lives of millions. The recent data from the Centre for Monitoring Indian Economy (CMIE) said that more 18.9 million salaried employees have lost their jobs since April when the lockdown was severe in the country. But that’s not all. Five million people have lost jobs just in the last month — July. What impact will the 18.9 million job losses have on the Indian economy?

 

What are the job loss numbers like?

“Most of the employment that was lost immediately after the imposition of a nationwide lockdown has repaired. An estimated 121.5 million jobs were forfeited by the lockdown in its first month, in April 2020. This loss narrowed down to 100.3 million in May and then dramatically to a much smaller, 29.9 million in June. July 2020 saw a further reduction in this loss of jobs to 11 million,” said CMIE CEO Mahesh Vyas in a post on the CMIE website.

While one-third of those who were previously employed had lost their jobs, by July less than three percent were deprived of their source of sustenance. “While the magnitude of this loss pales in front of the big loss of April, at 11 million, it is still a significant setback,” added Vyas.

There has been a recovery in the employment side. And that goes on to show that opening the lockdown has had a positive effect. The lockdown had stopped all economic activities barring the few essential sectors and the economy had come to a standstill for more than two months. But it also goes to show that there was a separation to get back to work — any kind of employment after the country went through a forced break that no one wanted.

 

Will it recover?

But this instant recovery has majorly happened in the informal sector. These people had lost their jobs because suddenly the entire nation was sitting at home and the economy had stopped moving. The informal sector only generates employment if the economy, in general, is doing well and there is a sense of growth. Now, the Indian economy has not been doing well for quite some time — even before the lockdown, the economy was suffering from a decline in demand. The sudden stoppage of activity resulted in worsening that situation. But as everything started opening slowly, the informal sector bounced back. This is the sector that gets hit the first but also bounces back the first. “The situation has worsened for the relatively better jobs, i.e. salaried jobs. While jobs have recovered, this recovery has left out healthier, salaried jobs. In this sense, it is an unhealthy recovery,” said Vyas.

The other part of the story that is in contrast to this reassuring tale of reaching a semblance of normalcy is of the salaried employees of the country. Salaried jobs are the ones people keep an eye out for because of the level of security they provide and the assurance of regular income. “Only 21 percent of all employment in India is in the form of salaried employment. These are more resilient to economic shocks than the employment of say, a daily wage laborer. As a result, job losses among them accounted for only 15 percent of all job losses in April,” said Vyas in his commentary. But he also added, “17.7 million salaried jobs were lost in April 2020. An additional 0.1 million jobs were lost in May. Then, 3.9 million jobs were gained in June. But, 5 million jobs were lost in July. On a net basis, the plight of salaried employees has worsened since the lockdown began. In April, they lost 17.7 million jobs. But by July, their losses had swelled to 18.9 million.”

“While salaried jobs are not lost easily, once lost they are also far more difficult to retrieve. Therefore, their ballooning numbers are a source of worry. Salaried jobs were nearly 19 million short of their average in 2019-20. They were 22 percent lower than their level in the last fiscal year,” Vyas added.

 

Not just job losses, but more

But job losses alone are not the area of concern right now. While job losses are the extreme decision a company takes, salary cuts can be equally detrimental to the economy. It not only reduces the amount of money in their hands, ie their disposable income, by that much it also increases their propensity to save. Companies in every sector have reduced their employee expenditure over the last few months of lockdown — Mahindra Finance (36.7%), Havells India (27%), Tata Motors (26%), HDFC Life Insurance (21%) and Maruti Suzuki India (15%. Close behind are InterGlobe Aviation (14.8%), Bajaj Finserv (13%) and United Spirits (12.9%) — reported Indian Express.

Another worrying statistic is the increase in the withdrawal of EPF or Employee’s Provident Fund. According to the government, a total of 11.27 lakh employees have filed claims through the ‘UMANG’ app from April to July 2020. This is a huge jump of 180% when compared to the pre-COVID period — December 2019 to March 2020 — at which time merely 3.97 lakh claims were submitted through the same government app. Now it can also be argued that more people have started using the app but that change would have been marginal and not as high as twice the number.

The government also mentions three reasons why this increase might have been triggered — pandemic-related job losses, salary cuts, and medical expenses. But that is not reassuring either.

What is close to encouraging is that many new firms have been registered in July is the highest in not just the past few years but the highest in seven years — it supersedes the Modi regime. The month of July alone saw the registration of 16487 companies. This is the highest it has been since January of 2013 when it was 5508.

Companies have come up in every sector including agriculture which is the focus of many an economy debate in today’s times. But whether this actually bears fruit only time will tell. Till then, the government, according to experts should consider handing out help to the companies so that there are fewer job cuts and salary slashes.

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