India has completely shut itself off to slow down the impact of COVID-19, leading to a lot of unnecessary disruptions in the food supply chain. While government might open up markets slowly, it will take mammoth efforts to make them fully functional in the current situation. What makes things worse is the scarcity of labour and a sharp decline in the demand due to host of local issues.
During the ongoing lockdown, all enterprises, except essential ones, have been closed and 1.4 billion people are confined to their homes for last 46 days, resulting as an unprecedented shock to the economy. With the workplaces being shut for more than month and a half, the incomes have shrunk for everyone, except for the small salaried class or those with deep pockets. At the same time, the bleak consumer sentiment and business outlook predict that the path to economic recovery is going to be a tough one. Already struggling with low aggregate demand, slow credit flow and rising fiscal deficit much before the COVID-19 outbreak actually began, economy will need a big booster dose.
Weaker sections to bear the worst aftereffects
At the receiving end of the pandemic are vulnerable sections of society including daily wagers such as landless laborers, smallholding farmers, construction workers, and factory workers. In rural India, 85% of the workforce do not have salaried jobs vis-à-vis 53% in the urban areas. Even among those with salaried jobs, 46% do not get “paid leave” and more than 70% work without any written contracts (NSO 2019). This overwhelming dependence on casual jobs and self-employment means that almost 90% of all Indian households will experience a sharp decline in incomes within a month.
Farm incomes are going to be lower and rural wages may stagnate or even decline. A decline in rural incomes will have economy-wide impacts and the recovery will be slow. The shutdown has disrupted the cash flows of all kinds of businesses and no one knows how or when it will be restored. As a result, many small enterprises in food and other sectors of the economy will not recover from this shock and eventually go out of business. This will lead to a further increase in unemployment and a decline in aggregate demand. Low demand from world markets will make domestic problems worse.
To mitigate the suffering of people below poverty line (BPL), Indian government on 25 March 2020 announced a 1.7 lakh crore stimulus, the Pradhan Mantri Garib Kalyan Yojana (PMGKY), to help businesses and poor families. during March, 2020 released a package of INR 1.7 lakh crore. The experts call it a good move that may bring some relief to beneficiary families, but inadequate to match the exact requirements. The package of 1.7 lakh crore is 0.8% of India’s annual GDP and around 5% of the central government’s annual budget in 2020–21. If we compare that with other countries such as the United States Congress, the package offered is more than 50% of the annual federal budget and nearly 10% of the annual GDP of the country. On the other hand, Brazil has announced a fiscal package adding up to 3.5% of GDP and China has approved fiscal measures equal to 1.2% of GDP (IMF 2020).
While it allows increased allocation of subsidized rice, wheat, and pulses for the next three months, there are some basic discrepancies in the PMGKY. Most of the other provisions of this special scheme cover only the rural households and below poverty line households in both rural and urban areas, leaving the millions of urban families at the verge of transient poverty.
26 Apr 2024