COVID-19 hurts the backbone of the Indian Economy

India, the world’s second most populous country, is under an unprecedented eight-week lock down. While the lockdown is necessary to contain the spread, it has a rippling effect on the economy, particularly those engaged in the large informal economy.

Just like rest of the world, the COVID-19 pandemic has disrupted life across India. The government has taken several socio-economic measures to bring respite to the people. For many fortunate ones the lockdown turned homes into home offices overnight, but many others have been left high and dry. While technology is in full bloom, there are millions of gig workers now at the mercy of the state and charity. Pollution levels have gone down, the air is less suffocating in mega cities like Delhi or Mumbai, but then there are women struggling under double burden of work and care and cases of domestic violence are on the rise.


The real capital

With around 90 per cent of workers in the informal sector, that is approximately 400 million workers, the informal economy contributes between 50 and 60 per cent to India’s GDP as per varying estimates. The Indian economy was already bracing for an economic slowdown coupled with rising unemployment prior to the pandemic. COVID-19 has further aggravated the situation. The Centre for Monitoring Indian Economy (CMIE) puts India’s unemployment rate at 23 per cent compared to 7.7 per cent in February 2020. This was post-nationwide lockdown, in the fortnight of March end and beginning of April 2020. According to the National Sample Survey (NSS), almost 136 million workers could be staring at unemployment in the future.  

Presently, the worst hit are workers in small industries, service sectors like hotels, restaurants and transportation, street vendors and daily wage workers. They are already struggling for the bare minimum, whether in cities of work, transit camps or at their native places. The desperate situation may be gauged by the fact that many of these workers tried to get back to their hometowns and villages coveringhundreds of kilometres on foot.

Meanwhile the government is putting up a plan to start phase-wise operationalising of services and activities like healthcare, agriculture, work under the Mahatma Gandhi National Rural Employment Guarantee Act, movement of goods, industries and manufacturing units, construction activities amongst others. This may encourage migrating workers to get back to cities or places of work, but the ambiguity over movement of people and means to do so may come as a hinderance. According to Barclays, the Indian economy may lose up to 234.4 billion US$ in the lockdown period.


Rise and fall of gig workers

Gig workers, once boasting of quick income and freedom of work, have been badly hit too. The lockdown impacted app-based services like taxis, food delivery, courier services, grocery delivery and so on, affecting the livelihood of this young, low to semi-skilled workforce. While gradually some of the services are starting again, even though not in full strength, the workers became unintended victims of social profiling. Unfortunately, the government bodies, service providers, residential complexes, put the onus of contact-free delivery and maintaining social distance on the workers. Only a few companies provide protection gear like masks and sanitizers, whilst others expect the workers to manage the same.


Under distress, at the margins

The pandemic has added to the vulnerability of the workers at the margins, including home-based workers, transgender people living off the streets, domestic workers, sex workers – predominantly women and other genders. It may take a while before the numbers for marginalised workers impacted by lockdown are out. However, the severity of the impact can be inferred already from the fact that women constitute nearly a third of workers in the informal sector.

The current crisis has exposed the weak social security system prevalent in the country. It has further ignited the debate on extending a universal basic income and minimum social protection for all. Further, the lack of credible workers data is hampering tracing of workers and thereby excludes them from the intended state-sponsored benefits.

Informal workers are equal partners in development. The country does not just need their economic contribution but also their skills and services. How well the country supports and addresses their needs in these times of crisis, will determine how quickly it can recover from the loss. Now more than ever, the issues related to the informal economy need to be at the centre stage. The goal should be to come out of this crisis stronger and collectively pursue the UN’s Sustainable Development Goals - Leaving no one behind.


The article has been prepared with joint inputs by colleagues of FES India, working on Labour and Industrial Relations, Gender and Social Justice and Economy of Tomorrow.

The views expressed in this blog series are not necessarily those of FES.

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