Urban employment guarantee and increased cash transfers to poor: Remedy for emergencies

By Dr Soumyadip Chattopadhyay, Dr Arjun Kumar, Sunidhi Agarwal, Nikhil Jacob

The exodus of migrant workers to their home states due to loss of livelihood in the wake of the Covid-19 induced lockdown was unprecedented. It brought unimaginable hardship to these city makers who thrived on the low paid and unstable jobs provided by their foster cities. The pandemic exposed the ill-preparedness of the urban spaces in handling such a crisis. This is corroborated by data which shows that the urban areas were much more affected during the lockdown and had a poor recovery rate post lockdown, in comparison to the rural areas, noted Dr Amit Basole. He was delivering a special lecture on urban employment and social policy in the wake of Covid-19, organized by Impact and Policy Research Institute (IMPRI), New Delhi.

Dr Basole added that a slowdown was in operation in the economy several quarters before Covid-19 and multiple factors like demonetisation, the goods and services tax rollout, the non-performing assets crisis, the long-run structural weaknesses in the economy, insufficient domestic demand etc contributed to this. The growth rate of employment was lower than the growth rate of the working-age population. It is during this turbulent situation that the pandemic made a landfall, remarked Dr Basole.

The pandemic led to the unfolding of the migrant crisis because the lockdown impacted the large employer sectors like trade, transport, hospitality, construction, manufacturing etc the most. These sectors are largely informal employers who offer no job security and social protection. In fact, the Social Security Net is rooted in domicile and not the workplace. Also, the urban migrants have low incomes and possess poor savings. They found themselves at the intersection of all of these issues and hence they had to leave, added Dr Basole.

The Urban Unemployment Challenge

Dr Basole highlighted that the Indian pattern of metro focused economic growth is imbalanced and not able to create the needed employment. There is a regional imbalance in labour demand and supply as well which leads to long-distance migrant flows in the first place. Even amongst the educated youth, he noted that there is a mismatch between their aspirations in the urban areas and what is actually on offer in the labour market. This is proved by the higher rate of open unemployment amongst the educated youth. There is also a poor social security net in the urban spaces. All of this leads to a very tricky situation in urban employment, he added.

Impact of COVID-19 on Employment

Based on the findings of various surveys and CMIE data, Dr Basole highlighted two important factors:

  • Irrespective of the urban/rural or male/female categorization, the workforce participation rate dipped sharply in April (lockdown), and started recovering by August (post-lockdown), however by December, the recovery rate more or less stalled.
  • The impact of the lockdown on employment has been higher in urban areas while the recovery has been lower compared to the rural areas. 45 percent of urban workers were at high risk. Comparing this to the meagre proportion of 12 percent of urban workers who are at the lowest risk, shows the extent of the effect.

Dr Basole also analysed the gendered impact on employment during COVID-19 where women were at disadvantage. The post lockdown recovery was poorer for women than men with about 47 percent still haven’t recovered by December against seven percent in men. The recovery has led to informalization of the workforce.

Impact of COVID on Income

Dr Basole highlighted earnings dip during the lockdown, either due to loss of workdays or due to the fall in wage rate. However, compared to the rural sector, the recovery in income levels post lockdown shows that the urban sector is lagging. The trend is same for per capita household income.

Policy Response to COVID-19 and its Effectiveness

Dr Basole dwelled upon the immediate policy responses to the pandemic like the additional spending through Public Distribution System (PDS), increased allocation for the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS), cash transfer through Jan Dhan accounts, front-loading of Pradhan Mantri Kisan Samman Nidhi (PM – KISAN), assistance under the National Social Assistance Programme (NSAP) and the Pradhan Mantri Garib Kalyan Yojana (PM – GKY) etc. He noted that the fiscal outlay spanned about two – four percent of GDP, which is on the lower side than international peers. He remarked that there is room for India to do more on the fiscal side.

Speaking on the effectiveness of some of these measures, Dr Basole added that the provisions through Public Distribution System (PDS) were effective, however, there were last-mile service delivery and leakage issues. Also, its effectiveness in the urban areas was weaker due to poorer Public Distribution System (PDS) network compared to rural. The assistance under Jan Dhan had issues of penetration and access as only 30-40 percent of the population possess a Jan Dhan account.

Dr Basole also spoke about the various state level innovations and augmentations like the expansion of Public Distribution System (PDS) to include the Above Poverty Line (APL) beneficiaries, further augmentation of cash transfers schemes and employment guarantee programs that were put in place by few state governments.

Way Forward

In the short term, he postulates measures such as a cash transfer of Rs 6,000 (50 percent of average per capita GDP) for three months to as many households that can be reached with current digital infrastructure; expanding the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) entitlements to 150 days at wages on par with state minimum wages; formulating a National Employment Guarantee Scheme; universalising the Public Distribution System (PDS) and an increase in the Centre’s National Social Assistance Programme (NSAP) contribution to at least Rs 500 per month.

On same lines, Prof Mehrotra added that a Cash Transfer of Rs 500 per month to 60 percent of the population and a social security net/old-age pension will raise aggregate demand and revive the economy. All of this together will cost not more than 1.2 percent of GDP i.e., Rs 2.5 lakh crores, he added.

Drawing on the medium to long term measures to be taken, Dr Basole added that there should be policies put in place to improve the social protection system; formalise the enterprises; create a wider cash transfer net, establish an unorganized sector welfare board as put forth by Prof Santosh Mehrotra and widen the microenterprises policy net such that direct income support or wage subsidies can be delivered.

Dr Basole laid special emphasis on the need for a National Urban Employment Guarantee Scheme, which could de be designed as a self-targeted one on the lines the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) with 100 days’ work guarantee at near urban casual wage. The works carried out under this should be public works, ecological services and care services and the urban local bodies should be key players in its implementation. Prof Mehrotra believes under such scheme, people will be pulled out of the villages which will in turn reduce the demand for the rural employment guarantee scheme and thus soothe the fiscal position of the government while facilitating infrastructure and urban development.

Mr Sameer Unhale, Joint Commissioner, Govt of Maharashtra, opined that the utility of wage employment programme in urban areas has been outlived and it may not be feasible or sustainable in the long term. He suggested that since the cities are service-centred, a wage program in the service sector may be considered in the short term but on the long term, there should be a focus on upskilling and training the people. Technology is the key, he added.

Prof Mehrotra states that urban guarantee should focus on hundreds of tiny towns which provide poor public services as the urban local bodies are extremely poorly funded. Through such an urban employment guarantee it should be aimed to improve the quality of public service in Tier 3 and Tier 4 cities and only that will create employment that can pull workers from agriculture, added Prof Mehrotra. He emphasize on skilling program, which needs to be demand-driven and provided by the private sector for it to be effective. In response to reservation of jobs in some states, he commented that domicile issue is a short-term political response to a very constricted labour market which are not creating non-farm jobs. He went on to add that what India needs is a long-term effort in the form of an employment policy and a revised industrial and manufacturing policy.

Dr Basole maintained that even in an ethical society where all the necessary measures are put in place, a pandemic like Covid-19 will bring about losses. However, in the present context, the losses are placed disproportionately with the greater brunt faced by the most vulnerable. He further stated that there are urban labour markets where there is a serious underemployment problem. Creation of public works through an urban employment guarantee will cater to the underemployment issue and bring up the earnings. In response to a query raised on floor minimum wages, he stated that such laws are ineffective. Rather, tightening the labour market and a rise in productivity will lead to a rise in wages. Legislating the wage is not the way to go ahead, he added.

Dr Basole cautioned that the Metro driven growth model is not the ideal way forward and instead a far more distributed pattern of growth and employment generation should be envisaged. There should be a focus on the small towns and cities as there is a serious undersupply of public goods. Increased creation of public employment is needed to provide the necessary services and to make the small towns dynamic job creators.

Others who participated in the webinar were Mr Neeraj Prassad, Assistant Professor, O P Jindal University; Mr Varun Aggarwal, Founder, India Migration Now; Ms Urvashi Prassad, Public Policy Specialist, NITI Aayog; Mr Sameer Unhale, Joint Commissioner, Govt of Maharashtra and Dr Arjun Kumar, Director, IMPRI.

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