About 100-120 million Indians have lost their jobs due to the nationwide lockdown in the wake of COVID-19, Mahesh Vyas, chief executive officer and managing director of the Centre for Monitoring Indian Economy, a think-tank.

India’s unemployment rate rose to 26.1% as of the week that ended on April 19, 2020, Vyas said. Less than 10 days away from a potential easing of lockdown restrictions, Vyas explains the problems facing the Indian economy as it opens up: issues with supply-chain infrastructure, problems with liquidity for companies, a decline in consumption demand, and a fear among the labour of getting infected/isolated.

People will have lost about six weeks’ income by May 4, 2020, Vyas noted, adding that a one-time grant of Rs 20,000 per household will help spike demand.

Edited excerpts from the video interview:

Take us through the numbers. As of April 12, 2020, India’s unemployment rate has risen to 24%, according to your recent report. In the last week of March 2020, this was 23.8%, and last year, it was between 7-8%. That illustrates the big jump that we have seen.

Let me give you a small update on that. It has gotten worse. [In] the week ended April 19, the number jumped up to 26.1%. Not surprising, as the lockdown prolongs, a few more people will lose their jobs.

Initially [during the survey in the preceding week], they thought they had the jobs, and then they are told/realised that they do not have the jobs, and so there can be a creeping increase to the unemployment rate. The number of people employed and the number of people in the labourforce have all declined.

What would this be in absolute numbers, in proportion of the total workforce in the country?

We will need to wait for the numbers to come in by the end of April to give proper estimates of this, but some back-of-the-envelope calculations can be done. So, for example, we know that the employment rate has declined by about 10-12 percentage points. The total labour force or workforce in the country is of the order of about 440 million people--so, easily losing some 50 million people out of jobs. Maybe the numbers are even larger than that. Actually, if you look at the employment rate, you should look at the working-age population, which is a billion. Now 10% of the billion seem to have lost their jobs, which means about 100-120 million people.

That is, in a month's time, an order of 100-120 million people have lost their jobs. So, in magnitude it is quite large.

And this, as a proportion of population, is unprecedented, at least in recent history?

Totally unprecedented. I do not think that this could have happened [at] any time. We do not remember in our history, or the history we know, when the economy was shut down for a month. If you have an economy shutting down for a month, you will obviously have unprecedented unemployment rates and unprecedented [numbers of] people losing employment. Mind you, [the] population is at an unprecedented high. We are talking of a large base, so the number of people who will lose jobs will be higher than ever before.

You are also saying that you are surprised at the unemployment numbers--that you did not expect them to be so high. Why is that?

That is right. This is the lesson that we had learnt from demonetisation. We found that, when there is this kind of sudden economic stress that we saw in demonetisation, people were not losing jobs as much as people were saying that there are no jobs available, and therefore just stop looking for jobs. So, typically a person in the Thane-Belapur area or in the Faridabad or Gurgaon region would say that there are no jobs available over here; so, there is no question of asking whether I am looking for a job. “There was no looking,” they were saying, “we are out. The situation is so bad that we are not looking for jobs.”

We had expected the same thing to happen this time. We thought when you have this big a shock, people will not even look for jobs.

But what seems to have changed--and what we have learnt from this exercise or incident--is that people did leave the labour market. But so many have lost jobs this time, that many were forced to look for jobs even in such desperate times. We had expected a fall in the labour participation rate--which has happened, mind you. When the labour participation rate falls, the unemployment rate also falls. This time, it became a double whammy: The labour participation fell, and the unemployment rate went up. This is worse than anything seen before.

What is the usual correlation between the number of people who have jobs and the size of families they support?

This ratio changed during demonetisation. To put this same question differently, a fairly large proportion of households had two people working [during demonetisation]. So, in a family of 3.5 [people], on average, you had two people working. This number reduced substantially to lower than two, [and] it came close to one. This was the shrinking of the labour force, which happened mostly amongst women and young people. That means that young people--seeing that the labor markets are quite stressed--and young women, particularly, quit. Today, we are seeing that the ratio is most likely just one person working in a family, which could be one person supporting 3.5 people.

We are looking at a full lifting of the lockdown in most parts of the country by May 3, 2020. What is it going to take and how is normalcy likely to return, for the economy and particularly the migrant labour force?

I think recovery is very important. While it was important to shut down the economy to stop the pandemic from getting worse, or getting completely out of control, it is important for us to find ways when it is appropriate to bring the economy to an even keel again. It is not going to be an easy thing. It will certainly require actions and thinking at various fronts.

So, what do we have? We have infrastructural problems in the supply chain being broken down. We have goods stuck at the ports, warehouses and godowns, which could be rotting, which could be in some kind trouble in some other ways. The lack of labour there will cause a logjam. There is an infrastructural problem in the supply chain in rotting vegetables, and harvested grain that is exposed to possible weather changes that could cause damage. How do you retrieve the situation from those conditions? Fixing the supply chain and infrastructural issues with that is a whole complete chapter in its own self.

On the other hand, you will have problems with finance. And I think that is completely different. What will RBI [Reserve Bank of India] and the banks collectively do for companies that are strained financially? There is going to be a serious liquidity problem that all these people will have. People would have spent something to survive this lockdown, but they will not have as much income. So there will be a mismatch between their outflows and inflows, and there will be a liquidity crisis for them. It is important to ensure that this liquidity does not convert into a solvency problem. It is important to not let companies get into trouble just because of the liquidity problem.

This liquidity is so completely different from the problems of supply chain, which will be very different from the problems that companies will face from a collapse in demand. If households do not have incomes for a sustained period, obviously, they are not going to spend enthusiastically. If they know there are difficult times ahead, then they are going to save the little cash that they have. So, demand is suppressed. How do you fix demand? It is a completely different problem.

Maybe an easier problem is how you fix the supply side--which means, you have power generation but how do you convert that into steel, going down to plastics, going to consumer goods—the whole chain of supply being fixed from the supply side?

But electricity, steel, fertilisers, food and petroleum have been exempted from the lockdown.

But you see that they do not do very well. Despite this exemption. Just take the example of March 2020, when the lockdown was only in one week. In that month, petroleum products’ consumption was down nearly 18%. That is huge. It has never happened in the past. Electricity generation is also down 8.8%. These are exempted industries, and even then, they face these big declines because there is no transportation. What is the point of saying petroleum products are exempt? Because you cannot move aircraft, buses, trains and so on. So, there is a very substantial meltdown in even the exempted industries. So, I think there are many issues to take care of.

Then there is labour. The labour problem is a completely different chapter. I am reasonably sure that labour is scared. Not only migrant labour, but even normal labour is extremely scared of moving out to work. Because they fear, if they go and somehow get infected, then they will be in lockdown. After being told to stay at home for six weeks, if you say “now you can go out but be careful”--careful means, if I get infected, I will be quarantined and the whole family and the neighborhood can get quarantined. The fear factor of being quarantined or being put into some similar situation will not go away very easily.

And I can tell you, anecdotally. We are trying to get ready for post-May lockdown for our survey, and many of our interviewers are saying, “We would like to wait for a little more, we do not want to be in trouble if there is any around the corner”. So, it is anecdotal as well that labour is really scared.

Helicopter money is one phrase that is being used. There are funds being transferred to people’s accounts directly. But ‘helicopter money’ means, I am assuming, at more scale, or more funds. Is that a solution to ease some of the problems?

I think, of the many things that I said earlier, it addresses one problem--the problem of demand. Since, demand has fallen very sharply. According to the survey we do, we found that all this time, around 8-9% of households told us that their income, at any given point in time, is lower than a year ago. After the lockdown, that number is 45%. So, that is a huge increase in people’s incomes falling and there is a need for us to fill in the gap.

Now, helicopter money implies that you go and sprinkle money, which means that we do not have good means of delivering this money to households, but whichever way we do it, I think we have improved our direct benefit transfer (DBT). We have Aadhaar-account linkages, we have a lot of progress that we have made in the recent past, so far as being able to deliver money to people. We should do that.

We should do that without distinguishing between rich people and poor people. Just do it for everyone. It is important not to miss out anyone. It is okay if you give it to someone who does not deserve it, but nobody should be missed out because the shrinkage of demand is huge.

Do you have a number in mind, which you think will help people tide over? Canada and the United States are in the $1,500-$2,000 range.

I would link it to income levels in India. I will make a guess that people will be losing in the order of two months’ income in India. So, we have had a lockdown of six weeks and it is possible in some states there is a little more or little less. But it is good to compensate for not only what is lost, but also potentially lost as well. I would say that Indian households have lost, most likely, two months of income. At least so far, or till May 4.

If that is the case, we should compensate for 2 months’ equivalent of income. Now you obviously cannot go and ask [people] what their income is and pay that. So what I would suggest--as a starting point in thinking--is what is the median income of households in India. And the median annual income in India is in the order of Rs 1.2 lakh. If that is the case--and we can work a little more to get that right--I think we are talking about delivering Rs 20,000 per household, [as a] one-time grant, straight off, no questions asked. That is what I would start to think.

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