Saturday, August 1, 2020

Rebooting Economy IX: Why is private sector dependent on public money in times of crisis?

Contrary to popular belief, private sector efficiency vis-a-vis public sector is a neoliberal construct for which there is little evidence or lived experience but is pushed, nevertheless, for private gains

twitter-logoPrasanna Mohanty | July 24, 2020 | Updated 21:47 IST
Rebooting Economy IX: Why is private sector dependent on public money in times of crisis?
In India, private enterprises not only rely on public deposits in the public sector banks to fund their business activities, but a large number of them also don't pay back even when they can

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Every single industrial association representing private enterprises in India has sought government assistance to tide over the pandemic induced economic lockdown. The central government has promised to help and is working on the mechanisms. In the US, huge sums of public money (taxpayers') have already been given to private industries as grants (no repayments) and loans (interest rate of 1%).
The clamour for public assistance raises questions about the post-1970 neoliberal concepts that seek to discredit state and public institutions in running economies and champion as well as drive private sector growth instead. The argument is that the private sector is inherently more efficient.
There is, however, little historical evidence, lived experience, or global studies to support this argument. Like many other neoliberal (radical right) constructs, this one too hides more than it reveals. (For more read Deconstructing Neoliberalism IV: How neoliberals won the world but India can ill afford their economics)
The clamour for assistance is an encore of the Great Recession of 2007-08 when private financial companies were bailed out on pleas such as "too big to fail", ignoring the fact that those very big private companies had caused the crisis in the first place through reckless business practices. The 1929 Great Depression too had been sparked by similar reckless behaviour.
Private sector thriving on public bail-outs
To many the maxim "privatisation of rewards and socialisation of risks" or "privatisation of profit and socialisation of loss" may seem malicious, but there is more historical evidence and lived experiences to validate it.
In April 2020, economic historian and author Dirk Philipsen of Duke University drove home the point bluntly in the US context.
In an article on April 24, Philipsen wrote: "...without massive public assistance, late-stage extractive capitalism, turbocharged by private interest and greed, would long be dead...Boeing, Goldman Sachs, Bank of America, Exxon - all would be bust without public bailouts, tax breaks, and subsidies. Every time the private system works itself into a crisis, public funds bail it out - in the current crisis (following the pandemic), to the tune of trillions of dollars. As others have noted, for more than a century, it's a clever machine that privatises gains and socialises costs."
Philipsen also reminded how once these private companies were back up and running, "they don't hold themselves accountable to the public who rescued them" and since the 2008 bailouts at Wells Fargo, American Airlines and AIG, companies that have been rescued often go right back to milking the public".
By no means is this an individual's observation. It is a matter of common knowledge. Nobel laureate Joseph Stiglitz has been repeatedly writing and explaining that the root cause of a pro-private policy is due to the fact that their money power translates into political power in the money-driven politics of the US.
This comes at a cost of ordinary citizens whose welfare is the primary job of elected public authorities. (For more read Deconstructing Neoliberalism III: Why neoliberalism calls for a rethink)
Look at some of the COVID-19 relief packages the US has announced.
Under the CARES Act of 2020 passed to address economic disruptions caused by the pandemic shutdown, the US gave $32 billion "grant" (free-money) and another $29 million as loan (at 1% interest rate) of public money (taxpayers') to big aviation companies. Now the airlines are seeking another $32 billion of public assistance.
Some of the biggest airline companies of the US spent $90 billion in stock buybacks in the past decade. This made their executives and shareholders a lot richer but reduced cash surplus and financially enfeebled their business.
In 2017, the US government cut corporate tax to boost investment and create jobs. In 2019, a US Congress investigation found that the tax cut was used to buyback stocks worth $1 trillion in 2018, breaking all previous records, instead of investing in businesses and creating jobs. (For more read Reality check: Corporate tax cut unlikely to increase investment or employment)
Under the Pay-check Protection Programme, another relief measure to aid private enterprises to protect jobs, the US provided $349 billion of public money as emergency loans to small private businesses having "no access to capital". An investigative report of the Associated Press (AP) found out that 94 publicly traded large private companies, some with over $100 million in market value, benefitted from it. It wasn't meant for them at all. (For more read Coronavirus Lockdown X: Why it can't be business as usual for India)
In July, another investigative report, by The Guardian, found that at least $3 billion aid was given to "over 5,600 fossil fuel companies" of oil and gas drillers and coal mine operators whose operations impose a high cost by way of air, water, and soil pollution spreading disease and death. A Harvard study has shown that COVID-19 deaths are more common in high air pollution counties of the US. Besides, such operations entail destruction of forests and wildlife habitats leading to a spike in zoonotic diseases like COVID-19.
The Guardian report said its assessment of $3 billion aid could be far less because (i) the US government did not disclose the exact amount but instead listed its range and (ii) the high end of it for fossil fuel companies was $6.7 billion. (For more read Rebooting Economy V: Why healthy environment is critical to fight COVID-19 pandemic)
India's Rs 21 lakh crore COVID-19 relief package consists of just 7-9% of allocations (fiscal spending) for the millions who have lost jobs and incomes due to the lockdown (additional food grain supply, cash transfers, etc.) and the rest are liquidity infusion for private businesses.
India has also announced moratorium on debt servicing and suspended insolvency proceedings for private businesses. Several states have suspended labour laws for three years, like Uttar Pradesh, removing such protections as minimum working hours, payment of minimum wages, etc. to help private industries at the cost of workers.
If India hasn't done more it is because in September 2019 it cut corporate tax by Rs 1.45 lakh crore to promote investment and job creation, just like the US. But unlike the US, the Indian Parliament did not find out what happened to the money saved. Going by the bull-run in the stock markets, the possibility of a part of the money saved finding its way into stock trading can't be entirely ruled out.
Following this tax cut, corporate tax rates have fallen below individual tax rates. Now existing private corporates pay 22-25% tax (with or without tax concessions) and new ones just 15% while individuals pay 30% tax above Rs 15 lakh annual taxable income. This turns the foundational principles of taxation - capacity-to-pay or equity and fairness - upside down.
Corporate tax cuts are not US or India specific but a global phenomenon.
An internal study of the International Monetary Fund (IMF), the champion of corporate tax-cuts and private sector growth, mapped the sharp fall in corporate tax in its 2019 internal study - reproduced below - and warning developing countries that this not only undermines fairness of the taxation system and provides opportunity for tax avoidance and abuse but also deprives much-needed revenues for reducing poverty and boost growth. (For more read Coronavirus Lockdown XII: Why the wealthy should be taxed more)
Here is a historic lesson.
During the Golden Age of Capitalism between 1950s and 1970s when both developed and developing countries registered the highest ever GDP growth (3.8% and 3%, respectively) and inequality was lower, the average top corporate tax rate was 70-80% in the US and 99.25-80% in the UK. (For more read Deconstructing Neoliberalism III: Why neoliberalism calls for a rethink)
Private enterprises thriving on public hand-outs
In India, private enterprises not only rely on public deposits in the public sector banks to fund their business activities (this includes almost the entire top brass), but a large number of them also don't pay back even when they can. The RBI calls them "wilful defaulters" - those who don't pay (i) even when they have capacity to pay (ii) diverted loan money for other purposes and (iii) siphoned off the loans.
Their debts are also written off routinely, on an annual basis, as non-performing assets of banks (NPAs), along with those who genuinely fail in their business venture and go bankrupt.
What should come as equally shocking is that going by the global financial company Credit Suisse's 'India Corporate Health Tracker' of August 2019, debts of almost all the big and familiar private businesses (more than 50) are marked "chronically stressed" or with inadequate capacity to pay interest (interest cover of less than 1) for several quarters.
These companies span finance, infrastructure, and construction, telecom, power, metals, textile, energy, and others. Credit Suisse has been saying that the corporate stress remains "elevated" at last since 2017. The lockdown is bound to increase financial stress even more and NPAs are expected to rise further due to the lockdown.
It does say something about modern business operations that even after running successful businesses for decades, India's familiar big names are so precarious in their financial affairs. Or is something amiss? What happened to decades of accumulated profits and wealth? Where is prudence in financial dealings? It calls for a detailed and honest study.
Ironically, every year Indian banks write off loans of private businesses.
It is a deceptive and dishonest game for sure. For one, loan defaults by private enterprises are masked as non-performing assets (NPAs) of banks. By calling it so, the burden and blame shifts to banks, starting another deceptive and dishonest game: recapitalisation of banks with more public money. Between FY15 and FY19, the PSBs have been recapitalised with Rs 2.46 lakh crore of public money.
This is a double whammy. First, public deposit goes into private hands, reducing scope for public investment in growth, and then more public money is ploughed back to fill the gaps in bank balance sheets. The defaulting private companies don't come into the picture at all.
On July 18, CH Venkatachalam, general secretary of the All India Bank Employees Association (AIBEA), released some startling information about the PSBs. His documents listed 2,426 private companies classified as "wilful defaulters" - 33 of them owing more than Rs 500 crore each and 147 more than Rs 200 crore each.
These companies include those run by high-profile and fugitive businessmen Nirav Modi, Mehul Choksi, Jatin Mehta, Vijay Mallya and others owing Rs 1.47 lakh crore to the PSBs.
The documents further revealed that the PSBs wrote off Rs 6.94 lakh crore of loan defaults (NPAs) by private corporate entities between FY01 and FY19. If the write off by private and foreign banks are added (which are part of the Scheduled Commercial Banks or SCBs), the number would go further up.
The SBI accounted for most of the "wilful defaulters" - 685 of them have not paid back Rs 43,887 crore even when they could have. The SBI's 2019-20 annual report reveals that it has written off corporate loans of Rs 1.79 lakh crore during FY17-FY20.
Private corporate defaulters get RBI protection
The banking regulator, Reserve Bank of India (RBI), has been zealously guarding the identity of private corporate defaulters, even those who are wilful defaulters. It braved the Supreme Court's (SC) warnings and even contempt proceedings in 2019, but refused to budge.
The top court's last order directing it to reveal the names of defaulters to an RTI applicant came in April 2019 during the contempt of court proceedings. The court severely reprimanded the RBI for "continuing to violate the directions by this court" and issued a warning: "Any further violation shall be viewed seriously by this Court." 
After this, a fresh RTI application was filed in July 2019. Shailesh Gandhi, former Central Information Commissioner, who had issued a series of orders for such information that ended up in the apex court, confirms that the RBI is yet to comply with the order.
In the meanwhile, the RBI pulled out its data on NPAs being written off in 2019. Its latest banking trend report of 2018-19 gives adequate information on NPAs in the agriculture sector and how much is being written off, but not for private industries.
Come to think of it, the Gross NPAs of agriculture sector constituted just 8.6% and 12.4% of the total in FY18 and FY19, respectively, but those of private industries constituted 91.4% and 87.6% for those years. (For details read Reality Check: RBI acts penny-wise-pound-foolish in dealing with NPA crisis)
The following graph maps the two sectors' GNPAs of four years between FY16 and FY19.
Why does the RBI protects private corporate loan defaulters is not a mystery. Here is another aspect.
It is by now well-known that former RBI Governor Raghuram Rajan had given a list of big bank frauds to the central government in 2015 asking for "coordinated investigation", which included firms run by Modi, Choksi, among others. No action was taken for the next three years and both Modi and Choksi ran away in 2018.
The RBI's 2018-19 banking trend report does reveal the annual NPA write-offs in a graph (but no data) - as reproduced below. Taking the average write-offs at 20% of GNPAs for the SCBs during FY16-FY19 (for which data is given in 2018-19 and 2016-17 reports), the write-offs work out to Rs 6.7 lakh crore (total GNPAs being Rs 31.35 lakh crore).
Much else to consider for private sector efficiency
There are several other aspects to consider while examining the efficiency of private sector vis-a-vis public sector.
To its advantage, the cost of many benefits that private sector gets are not counted: tax holidays at the start, tax concessions through the ages, stimulus packages during crisis, virtually free use of public sector assets like infrastructure and human capital (even basic skilling is provided at public expense), allocation of public assets like land (through government acquisition), minerals (until recently given on a paltry royalty, not auctioned), forests, etc. at concessional rates.
Besides, the social and environmental costs of operations that cause pollution and deforestation leading to diseases and deaths are also not counted. The burden is passed on to people and government (healthcare).
To its disadvantage, there is much that the public sector does with taxpayers' money but not counted: building public goods and services (infrastructure, hospitals, schools, colleges and universities), funding all major technological and scientific breakthroughs on which the modern ITC revolution is built (Internet, GPS, touchscreen, Apple's Siri (virtual assistance) and Google's algorithm), taking care of poor and needy during normal times and everyone during calamities like droughts, floods, cyclones, earthquakes and even the current pandemic in all of which the private sector plays a very small role, if at all, without seeking profits (private healthcare for example).
(NB: Primacy of the US experience is warranted because the world has followed in its footsteps in social and economic governance, first after World War II when the reconstruction of war-ravaged Europe began with its money, followed by neoliberal push by the World Bank-International Monetary Fund (IMF) in 1980s when they provided loans to crisis-hit countries like India.)
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Rebooting Economy VIII: COVID-19 pandemic could push millions of Indians into poverty and hunger

Findings of several global studies reflect the fragile nature of existing policies and programmes aimed at eliminating poverty and hunger and call for rethinking economics to ensure sustainable and enduring outcomes

twitter-logoPrasanna Mohanty | July 20, 2020 | Updated 19:21 IST
Rebooting Economy VIII: COVID-19 pandemic could push millions of Indians into poverty and hunger
In April, the World Bank released a paper saying that the COVID-19 pandemic would reverse the five years' of gains on poverty reduction by pushing 150 to 390 million people back into poverty worldwide

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Several global studies published in recent weeks say that the COVID-19 lockdown is likely to send hundreds of millions of people back into extreme poverty and hunger worldwide, including in India, and impoverish an even greater number of people. A UN report says the impact "will be long-lasting".
The sheer magnitude of the impact is disturbing and needs urgent attention.
Here are some of the major findings.
COVID-19 pandemic to take global "extreme poverty" count over 1 billion
On June 12, King's College London published an article saying: "COVID-19 could drive global poverty back over one billion people as the world's poorest face up to US$500 million per day in lost income".
This article was based on a study, 'Precarity and the pandemic COVID-19 and poverty incidence, intensity, and severity in developing countries', carried out by the London institution in collaboration with the Australian National University.
The study observed: "We conclude there could be increases in poverty of a substantial magnitude - up to 400 million new poor living under the $1.90 poverty line ("extreme poverty"), over 500 million new poor living under the poverty lines of $3.20 and $5.50. Further, the global income shortfall below each poverty line could expand by up to 60 per cent; the daily income losses could amount to $350 million among those living under $1.90 per day and almost $200 million among the group of people newly pushed into extreme poverty."
The three poverty lines of $1.9, $3.2 and $5.5 mentioned here are set by the World Bank for low-income, low-middle income (like India) and upper-middle-income countries, respectively. The monetary value represents per capita per day living expense. The last World Bank estimate had said that "extreme poverty" (below $1.9 per capita per day living expenses) had fallen from 1.9 billion in 1990 to 736 millionin 2015 (from 36% to 10% of world population).
Other key findings are: (i) it would be the first absolute increase in people living in "extreme poverty" since 1999 and a reversal of 7-10 years of progress in reducing poverty (ii) intensity and severity of poverty likely to increase rapidly in middle-income developing countries, shifting back towards "developing countries in South Asia and East Asia", including India and (iii) the resources needed to lift the incomes of poor to the poverty line could increase by 60%, from $446 million a day to above $700 million a day.
These estimates are based on the "potential magnitude of the contraction" in household per capita incomes or consumptions at 5%, 10%, and 20% hit levels that could result from the lockdown. Though the lockdown is necessary, the study said it "could exert pernicious effects on the livelihoods of parts of the population whose income-generating capacities are restricted". These effects could furthermore interact with "pre-existing conditions of fragmented or insufficient social protection systems" and that the repercussions would last for "years to come".
How could COVID-19 impact poverty and hunger in India?
The study looked at 166 countries, including India, but singled out India for a special mention.
It said while the reference period for all other countries was 2018, for India alone it was 2015.
It explained why: "...how exactly the poverty rate changed between 2015 and 2018 is highly contentious. Felman et al. (2019) discuss the leaked report of India's National Sample Survey (NSS) that had been withheld by the government (the long-standing survey has now been abandoned). The survey showed real consumption per capita had fallen by 3.7 per cent between 2011/12 and 2017/18. This figure sits uneasily with the official GDP growth data reported for the same period."
Why does all this matter?
It added: "In short, by using the 2015 data our estimates could overestimate poverty in 2018 in India, if the GDP growth data is correct. On the other hand, if the NSS consumption per capita data is accurate, our estimates will thus underestimate it."
What it means is that its estimate for India would be off the mark because of lack of data.
Nevertheless, in all these scenarios - a contraction of 5%, 10% and 20% in per capita income or consumption expenditure - India leads the table in contributing maximum to global poverty. India is likely to add 114.9 million, 237.9 million and 525.8 million at 5%, 10% and 20% hit, respectively, to the list of impoverished.
In 2015, India's 13.3% of population (174.9 million) lived below $1.9 level; 50% (685.2 million) below $3.2 level and 20% (236.8 million) below $5.5 level, as per the World Bank estimate.
The following graph presents India's 2015 poverty headcounts at three poverty levels and how they would change at 5%, 10% and 20% hit scenarios.
The study takes into account only the loss in income due to the pandemic, but not the of "catastrophic healthcare expenditure" which pushes 60-63 million people into poverty every year, as the 2018 Ayushman Bharat or PM-JAY programme and the 2015 draft National Health Policy say.
150-390 million likely to be pushed back to poverty: World Bank
In April, the World Bank released a paper saying that the COVID-19 pandemic would reverse the five years' of gains on poverty reduction by pushing 150 to 390 million people back into poverty worldwide.
Its other findings were: (i) "40 million to 60 million people will fall into extreme poverty (under $1.90/day) in 2020, compared to 2019" (ii) global extreme poverty rate could rise by 0.3-0.7 percentage points to 9% (iii) percentage of people living on less than $3.20 a day could rise by 0.3 to 1.7 percentage points, to 23% or higher, an increase of 40-150 million people and (iv) percentage of people living on less than $5.50 a day could rise by 0.4 to 1.9 percentage points to 42% or higher, an increase of around 70-180 million people.
Impact on poverty "will be long-lasting": UN
Former UN Special Rapporteur on extreme poverty Philip Alston submitted his last report, 'The parlous state of poverty eradication', on July 2, 2020, stating that "COVID-19 is projected to push more than 70 million additional people into extreme poverty and hundreds of millions more into unemployment and poverty. More than 250 million people are at risk of acute hunger."
Stating that the impact "will be long-lasting", the report criticised governments across the globe, saying that "rather than acknowledging how badly the efforts to "end poverty" have been faring, and how relentlessly the pandemic has exposed that fact, most actors are doubling down on existing approaches that are clearly failing."
His anger stems from his findings that global poverty was rising before the pandemic, not contracting as was claimed.
The New York University of Law, where Alston teaches law, quoted him saying: "Over the past decade, the UN, world leaders and pundits have promoted a self-congratulatory message of impending victory over poverty, but almost all of these accounts rely on the World Bank's international poverty line, which is utterly unfit for the purpose of tracking such progress."
He said the decline in poverty shown in the past decade is "largely due to rising incomes in a single country, China".
Poverty and hunger were rising in India even before pandemic
Alston's assertion rings true for India.
In December 2019, the government's top think tank Niti Aayog disclosed in its report, 'SDG Index and Dashboard 2019-20', that compared to its own base-level estimates of 2018, poverty and hunger went up in 2019 in 22 and 24 states and union territories, respectively, out of 28 states and union territories it mapped.
Its findings are presented in the graphics below. (For more, read 'Budget 2020: Niti Aayog shocker; Poverty, hunger and income inequality up in 22 to 25 States and UTs')
All findings and data mentioned so far show that Alston is right, the existing approaches to poverty and hunger have failed both in India and elsewhere. The poverty alleviation is very fragile and likely to send millions back into poverty and hunger when a crisis hits.
India's response to the job and income losses caused by the pandemic has been a series of short term relief measures like meagre cash transfers (starting at Rs 500 per month), additional PDS supply, additional allocation for rural job guarantee scheme MGNREGS (Rs 40,000 crore) and clubbing together 25 existing schemes (Garib Kalyan Rozgar Yojna) to provide jobs to migrant workers in their home states (at the cost of local jobless) etc.
None of these are designed for long term solutions or address structural deficiencies that had led to job-loss growth even before the untimely and unplanned lockdown hit millions, leaving them without jobs and incomes. (For more read 'Rebooting Economy VI: Is Modi govt ignoring job crisis in India or unable to tackle it? ')
There is another reason for India to rethink its economics. The Economist predicts that COVID-19 would leave behind a smaller economy for the next 12 months, what it calls a "the 90% economy". This "new normal" would be more fragile, less innovative and more unfair (inequalities will deepen). (For more read 'Coronavirus Lockdown XIII: Five steps to rebuild a post-COVID economy' )
For India to ignore all these danger signals would mean ruining millions of lives and the economy.
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Rebooting Economy VII: Where are the green shoots in Indian economy?

Contrary to government claims, not a single indicator is encouraging; rather the numbers are so bad that government has stopped releasing industrial output data after April and those that are available for May and June are rather depressing

twitter-logoPrasanna Mohanty | July 20, 2020 | Updated 19:25 IST
Rebooting Economy VII: Where are the green shoots in Indian economy?
The official data (Index of Industrial Production or IIP in short) on manufacturing, electricity and industrial output (general index) is available until April 2020

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There is no official data on job and income losses due to the lockdown because no government agency is tracking it. A few private initiatives have tried but their assessment varies so widely that one would have to be very careful in reaching any conclusions.
Their assessments are important nevertheless because they provide some indication about the gravity of the problems.
Here are a few such findings.
Private assessments on job and income losses
The Azim Premji University's first round of survey during April 13-May 20, 2020, says the job loss caused by the lockdown was 66% and the income loss 64%.
The percentage of job loss works out to be 276.2 million in number, assuming the total workforce at 465.1 million in 2017-18. (For more read 'Coronavirus Lockdown XX: 276 million unemployed, economy in doldrums; time to recalibrate India's response')
It further said 47% of households didn't have enough money to even buy a week's worth of essentials. The sample size of this survey was 5,000 households. When its survey resumes in August, it will provide some assessment about how the unlocking is impacting people and economy.
Business information company Centre for Monitoring Indian Economy (CMIE) survey carries out regular household surveys over the past few years, tracking, among others, the state of employment. Its surveys show the job loss ranged from 122 million (30% job loss) in April (lockdown started on March 25) to 101 million (25% job loss) in May and 57 million (14% job loss) in June 2020 - compared to the average employment of 404 million in 2019-20.
It did not talk about income loss; its sample size is not known but more of it later.
Why do the two private surveys vary so much?
Here is a word of caution from PC Mohanan, former chairman of the National Statistical Commission.
He says: "This lockdown is an unusual situation which the conventional metrics may not really explain. For example, if an enterprise is shut for April the employees continue on the roll, the system will not treat them as unemployed even if they did not work or get paid for the month. So, one has to be careful in interpreting current data coming out from some agencies."
His observations are limited to regular wage/salaried workers (almost entirely in organised sector) since the state of job loss is very different for unorganised workers - self-employed and casual workers who view employment differently.
Self-employed workers are temporarily out of work but as soon as the economy opens up they will be back in business. Casual workers virtually live on a day-to-day basis and their employment and income are directly linked to the opening up of economic activities.
Mohanan's word of caution would also explain why income loss may be disproportionate to job loss, as another private study found with the help of CMIE.
Using the CMIE's services, a few scholars from the Chicago University and University of Pennsylvania assessed income loss during April 18-30. Their findings show 84% of Indian households reported loss of income since the lockdown. About 66% households reported having enough resources to survive for more than a week before facing distress.
Their paper, 'How are Indian households coping under the COVID-19 lockdown? 8 Key findings', also pointed out that while the income decline was reported by more than 90% of households in the middle-income groups; this was 85% in the lowest income group and 66% in the top income group.
It explained the differences in income decline: "The disproportionate impact on households in the middle of the income distribution may partly be due to the fact that these households are most likely to be dependent on sources of income which are hit due to the lockdown. The households in the highest quintile are more likely to have stable salaried jobs, with the ability to work from home and continue to earn a living."
As for the lowest income group, it said: "Households in the lowest quintile may be more heavily concentrated in occupations that have continued despite the lockdown (e.g. agriculture, food vendors) or have benefited from the targeted transfer programmes. In contrast, the remaining households appear to be exposed to substantial job losses that have not been buffered by additional transfers."
The study disclosed that they put two questions for their study (i) fall in household incomes and (ii) how long a household can continue without outside help in the CMIE's consumer pyramids household survey (CPHS) that covered 5,779 households.
They also disclosed that while the CMIE's CPHS usually surveyed about 175,000 households every four months the sample size had shrunk to 45% "through the lockdown".
The International Labour Organisation (ILO) used a different approach to assess the job and income losses (not surveys like the previous two studies).
It relied on the PLFS of 2017-18 for data and looked at those employed in non-essential industries, assuming that they were the ones unable to work and at risk of job loss.
Its paper, 'Impact of COVID-19 Pandemic on Labour Supply and Gross Value Added in India', first pushed in June and then revised in July 2020, estimated that 25% (116.8 million) and 17% (78.93 million) workers from non-essential industries were at risk of job loss during lockdown 1.0 (March 25-April 14) and lockdown 2.0 (April 15-May 3), respectively.
It estimated income loss for casual and regular wage/salaried workers at Rs 33,800 crore (at 2017-18 prices).
Misleading data to claim green shoots
On June 16, Prime Minister Narendra Modi said, "green shoots are now visible in the economy". He cited the case of power and fertiliser consumptions and Kharif sowing to buttress his point.
Green shoots in the economy are relevant for recovery from losses in jobs and incomes.
On June 23, the finance ministry released a statement saying 14 separate economic indicators showed clear signs of green shoots.
These indicators spanned manufacturing (purchasing managers' index (PMI), consumption of electricity and petroleum), services (railway freight, digital transactions and toll collection), finance (private placement of corporate bonds, mutual fund assets and forex reserve) and agriculture (procurement and fertiliser sales).
Some of these are quite misleading and irrelevant. Here is how.
Firstly, the procurement of food grains and sowing (fertiliser sale) happens every year in May and June, after the Rabi harvesting is over and preparations begin for the Kharif crop with the monsoon hitting some parts on June 1 (Kerala). Comparing such data with those of April, as the finance ministry did, is meaningless and misleading because such activities never happen in April. These data should have been compared with the previous years' corresponding data.
Secondly, the Railways resumed its freight and passenger services (special trains to take migrants home) during May and June after the lockdown on March 25. So, comparing it with April, when both services were suspended, is misleading. It should have compared these data with the corresponding data of previous years.
Thirdly, the pick-up in three finance-related indicators - corporate bonds, mutual fund assets and forex reserves - in May and June merely indicates resumption of some activities stopped on March 25 and the COVID-19 scare spread. This comparison too is misleading.
Besides, pick up in forex reserves is mainly due to the fall in crude prices and lower import of petroleum products due to demand and consumption crash.
Fourthly, here is a reality check on "lower contraction" in manufacturing output, electricity consumption that the finance ministry claimed and much more.
Reality check on green shoots in the economy
The official data (Index of Industrial Production or IIP in short) on manufacturing, electricity and industrial output (general index) is available until April 2020. The following graph maps their growth numbers since January 2020.
Contrary to the claims, the RBI database shows a sharp decline and no data is available for May and June. That is because on July 11 it was disclosed that the government has decided not to do so "due to inadequate data collection". (Read 'India suspends release of industrial output data for lockdown period')
Notice how growth rates were touching the zero line in all of these cases in January 2020.
If the finance ministry saw green shoots in the May and June numbers, why did it stop the data? Obviously, there is plenty to hide.
Two more economic indicators are relevant here: consumption of petroleum and petroleum products that the finance ministry talked about and credit outflow to non-food sector (agriculture, manufacturing, services, and personal loans).
The RBI's database provides credit outflow data up to May 2020. The following graph captures growth in credit to non-food sector as well as its various components like the industry as a whole, MSMEs (part of industry), services and personal loans.
There is no evidence of green shoots but indication of a very slow resumption of economic activities.
As for growth in consumption of petroleum products, it has been on a long-term decline and hence, it would be prudent to look at data for a longer duration. The following graphs map growth from FY17.
Notice how for most months, the growth is negative and close to zero.
The flourish of May is very deceptive because total consumption in May 2020 (14.67 million tons) was just 79% of that in January 2020 (18.53 million tons).
Unmet demands for MGNREGS works
For addressing rural job loss (there is no programme to address urban job loss), the government is relying on the rural job guarantee scheme, MGNREGS, long condemned as a "living monument of UPA's failures". An additional allocation of Rs 40,000 crore was made to take the total allocation for FY21 to about Rs 1 lakh crore to ensure more people got jobs. Millions of migrants went back to villages due to the loss of jobs and shelter during the lockdown.
But if that was supposed to provide additional work, it is not happening on the ground.
The unmet demand for work is huge. It is far greater in states like Uttar Pradesh, Bihar, Madhya Pradesh and Rajasthan, that saw higher influx of migrants. The graph below uses data for the period April 1- July 13, 2020.
The total unmet demand, as on July 14, 2020, was 6.4 million households and 13.8 million individuals.
The huge unmet demand (both households and individuals) is primarily because the long neglect of MGNREGS makes it difficult for the administration to suddenly ramp up the works.
That the above graph presents only a part of the picture is evident from the fact that the number of households and individuals getting work is far below their numbers in previous years - as the following graph shows.
Given the additional influx due to job loss, the demand from households and individuals should have been closer to the previous years than the case in FY21 so far.
The average days of work for households remains below 50 days (the previous five fiscals' average works out to be 48), even though the entitlement is for 100 days. During droughts and such exigencies, the law already provides to raise the number of days of work to 150 days.
Long road to recovery
In all, the ground realities don't present a very encouraging picture.
But that is to be expected given the fits and starts with which the social and economic activities are picking up. Several states continue to be completely shut till July 31 (Maharashtra, Tamil Nadu, and West Bengal), many are shutting down for short durations (UP shuts down for every weekend) or imposing complete lockdowns in specific cities and localities (Pune, Bangalore, Chennai, Guwahati, Hyderabad, etc. are shut).
The COVID-19 cases are growing dramatically, crossing 25,000 a day last week and touching over 30,000 (a day) this week. The total cases have crossed 10 lakh in a matter of weeks.
These are not signs of a quick economic recovery.
Given the grim predictions by many that the daily number of cases could cross the 1 lakh mark in a few months' time, it would be a long and painful haul for the people and the economy.
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Rebooting Economy VI: Is Modi govt ignoring job crisis in India or unable to tackle it?

For years, job crisis has remained unacknowledged and un-remedied; the COVID-19 pandemic worsened it, but the government has no information on job loss or policy response to it, except for a few relief measures

twitter-logoPrasanna Mohanty | Print Edition: July 26, 2020
Rebooting Economy VI: Is Modi govt ignoring job crisis in India or unable to tackle it?
By its very definition, the unorganised sector and workers have little legal protection, jobs or social security in India

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The Centre's nodal ministry for labour and employment has been missing in action during the biggest job and income crises of our time.
How many workers lost jobs and incomes due to the lockdown? How many have been rehired since the unlocking began on June 1? How many migrants went home and how many have returned? How many of those who lost their jobs received government assistance?
These are basic questions to which no answers are available because the government is not tracking these developments.
There is official confirmation on this.
Working in a complete information and policy vacuum
On June 1, the day the unlocking began, Minister for MSMEs and Road Transport Nitin Gadkari said there had "not been any official analysis" of job loss, grudgingly admitting that the lockdown "definitely impacted it (jobs)" when the evidence was all around, staring at the face.
For the labour ministry, this is an encore. It was missing in action during the job crisis of pre-pandemic years too. One can be forgiven for not knowing the name of the union labour minister.
This is contrary to the mandate though.
The ministry, on its website, claims that its "main responsibility" is "to protect and safeguard the interests of workers" and that it is "focused on promotion of welfare and providing social security to the labour force both in organised and unorganised sectors".
These claims sound hollow.
A simple tracking of its activities through the statements it has issued would show why.
The ministry's website lists 20 press statements in all, issued between April 18 and July 8, 2020.
Of these, 12 relate to provident fund (PF) related matters.
Not one mentions the state of employment or job loss or income loss of workers. There is no information about mass reverse migration except for a passing mention that it is collecting and passing on information to states for assistance. A statement says Rs 4,957 crore has been paid to construction workers (Rs 1,000-Rs 6,000 to each) from their welfare fund. This is just 9.5% of Rs 52,000 crore lying unutilised in the welfare fund.
Why is there so much focus on EPF?
It is because that constitutes a pivot of the government's response.
There are three moves relating to PF.
First, on March 29 the Employees' Provident Fund (EPF) Scheme of 1952 was amended "to allow withdrawal of non-refundable advance by EPF members/subscribers...up to the amount of basic wages and dearness allowance for three months or up to 75% of the amount standing to member's credit in the EPF account..."
Second, PF contribution for employers and employees reduced from 12% to 10% until August.
How allowing organised sector workers (6% of total workforce) to withdraw from their own contingency post-retirement fund constitutes a state assistance defies logic. Or, for that matter, a temporary reduction of 2% in contribution to PF fund?
Third, the PF support to establishments having up to 100 workers and 90% of them claiming less than Rs 15,000 a month is extended (announced in March) to August. This is to protect jobs during the COVID-19 pandemic. Is it working? There is no evidence either way or how much money the government has paid to save jobs.
These measures are for the organised sector. What about the unorganised workers constituting 94% of the total workforce and the hardest hit by the COVID-19 pandemic?
A few measures have been announced for those, including the migrants who went back home.
One is an additional credit facility for the MSMEs providing second-most jobs at 111 million after agriculture. But there are no takers.
There wouldn't be any takers for such credit until economic uncertainty continues as the world has repeatedly learnt since the 1929 Great Depression. Businesses don't need to take credit or invest in capacity building when demand is weak and industrial production has crashed. Liquidity measures are a waste and the RBI knows it. (For more read, 'Coronavirus Lockdown XIX: Where is excess liquidity generated by RBI going ?')
The uncertainties would continue for some more time with several states (Maharashtra, Tamil Nadu, West Bengal) and cities (Bangalore, Chennai, Guwahati, Hyderabad) continuing complete shutdown a month-and-half after the "unlocking" began on June 1.
Then there is the Garib Kalyan Rozgar Yojna, announced in late June, which is an amalgamation of 25 existing schemes with no additional allocation. It would provide jobs to migrants who went back home in 116 districts in six states. But that means the existing local jobless and job seekers in these areas would be short-changed and hence, it is a zero-sum game.
Then there is the additional allocation of Rs 40,000 crore for the rural job guarantee scheme Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS), long condemned as a "living monument of UPA's failures", inadequate to meet existing work demand for several years and the average days of work for households remains less than 50 days (average of five previous fiscals is 48 days).
All three measures are designed as distress relief measures ab initio.
These are not part of a job creation policy or strategy to address structural deficiencies that caused a job crisis in the pre-pandemic era in the first place.
What about the job crisis in urban areas? Nothing has been heard.
To cut to the chase, the government is working on a complete information and policy vacuum.
Job crisis unacknowledged and unattended for years
India's job crisis is not new but the NDA-II regime has refused to acknowledge it or take remedial measures even though it promised one crore jobs every year.
In January 2019, the government stopped the release of the Periodic Labour Force Survey (PLFS) of 2017-18 report for showing the unemployment rate (UR) at a 45-year-high of 6.1%. It was released post-2019 election win but the three subsequent budgets (one interim) and two Economic Surveys were silent.
Amidst the current job crisis, the government released the PLFS of 2018-19 in June stating that the Unemployment Ratio (UR) had fallen to 5.8%, even though it is statistically insignificant (The error margins (RSE) in UR for both reports is 1.8-2%) and irrelevant to the current crisis.
The pandemic has worsened the job crisis.
Riding on precarious 94% of workers in unorganised sector
Indian economy is riding on one of the most enfeebled and vulnerable workforces in the world.
The labour ministry's website says, 43.7 crore of a total workforce of 46.5 crore is in the "unorganised sector". This works out to be 94% of the total workforce.
By its very definition, the unorganised sector and workers have little legal protection, jobs or social security in India. The unorganised sector is defined as enterprises with less than 10 workers, owned by individuals or self-employed; unorganised workers are home-based, self-employed or a wage worker in the unorganised sector and includes those in the organised sector not covered under the Industrial Disputes Act, 1947. (For more, read "Labour reforms: No one knows the size of India's informal workforce, not even the govt ")
Besides, there are a large number of "informal" employments in the organised sector (no legal and social security protections), such as short-term contracts (quarterly contracts, for example), causal and retainers. That should take the number of precarious workers (called 'precariat') to a higher level.
In January 2020, the government declared it would hold a survey to count their numbers for providing them social security. But, the COVID-19 pandemic has postponed it indefinitely.
Internationally, similar enterprises and workers are called "informal". Informal enterprises are not covered by law or insufficiently covered by formal arrangements. Informal employments are de facto or de jure not subject to labour laws or entitled to social protection and benefits like advance notice of dismissal, severance pay, paid annual or sick leave, etc.
Though not the same, India uses both "informal" and "unorganised" alternately for some decades now. For example, without an official definition for "informal", the Economic Survey of 2018-19 said "almost 93%" of the total workforce is "informal", without even disclosing its source of information.
Globally, India stands at the top when it comes to "informal" workers.
An OECD-ILO study of May 2019 says India's informal workers constitute 88.2% of the total workforce. India is clubbed with some of the least developed economies like Sub-Saharan Africa, Bangladesh, Nepal, Cambodia etc.
Broadly speaking, the report says, informality represents 70% in developing and emerging economies and about 18% in developed countries.
Why informality is a concern?
The OECD-ILO report, 'Tackling Vulnerability in the Informal Economy', lists some: (i) higher presence of unskilled workers and low productivity (50% of formal sector workers) (ii) in-work poverty risk is 200% higher - 42% informal workers live in poverty worldwide (iii) greater risks and vulnerability due to unprotected status, inferior working conditions and (iv) higher presence of low-paid wages and a high wage gap from formal employment.
In India, the Economic Survey of 2015-16 found that wages in the organised/formal sector are over 20 times higher, on average.
The Indian economy is riding on 88.2-94% of such low-skilled, lowly paid with little job or social security cover. Are they capable of building a robust economy? Or quickly rebuild an economy battered by the lockdown?
No social security for 88.5% of workers; their numbers are growing
How many Indian workers have social security?
No official data exists but an estimate can be made.
The PLFS of 2018-19 says 51.9% of regular wage/salaried in the non-agriculture sector are "not eligible for any social security benefit". Since regular wage/salaried constitute 23.8% of the total workforce - the rest being self-employed (52.1%) and casual workers (24.1%) - those without social security work out to be 88.5% of the total workforce.
Social security benefits mean provident fund (PF), pension, gratuity, healthcare, and maternity benefits singly or in any combination (as per the PLFS report).
Those not eligible for any social security benefit in 2017-18 were 49.6%, as per the PLFS of 2017-18. In 2018-19, their number went up to 51.9%.
If the well-off among the self-employed, like doctors, lawyers, chartered accountants, and others, who would have their own private social security arrangements, are added, the total number would go up but by what is not known in absence of data. Assuming an addition of 2%, those without social security will still be 86.5%.
Toothless social security laws
Such a poor social security cover is because of official negligence.
The only law that provides social security to unorganised workers is the Unorganised Workers' Social Security (UWSS) Act of 2008. It is proposed to be subsumed in the Social Security Code of 2019, now pending before a parliamentary committee.
Neither the UWSS Act of 2008 nor the Social Security Code of 2019 is designed to ensure what they claim to do.
Here is how Prof. Ravi Srivastava, an eminent labour economist with long experience in formulating social security measures as a former member of the National Commission for Enterprises in the Unorganised Sector (NCEUS), currently a faculty at the Institute for Human Development, explains their failings.
Regarding the UWSS Act of 2008, Prof. Srivastava says, "It did not provide an adequate legislative framework for universal social security to unorganised workers. It didn't provide a financial framework as social security was to be provided through separate schemes. It provided for registration of unorganised workers, but even that has not been implemented by successive governments."
About the 2019 Social Security Code, he says, "Almost the same provisions have been incorporated in this code. Further, it has taken out informal workers in organised sector, like contract and casual workers, from the purview of organised sector schemes of EPF and ESI. They are now part of unorganised workers without any mandatory social security coverage."
That is because Prof. Srivastava says these laws are so designed to provide for framing various social security schemes, but there is no timeline, nor is it mandatory for those to be universal.
Strong protests from trade unions and labour economists forced the government to send the 2019 Code to a Parliamentary Standing Committee for re-examination.
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Rebooting Economy 70: The Bombay Plan and the concept of AatmaNirbhar Bharat

  The Bombay Plan, authored by the doyens of industry in 1944 first envisioned state planning, state ownership and control of industries to ...