Reports of migrants returning to cities such as Mumbai suggest that economic activity may return to normal in India sooner than we might have initially feared.
Among the reasons for labourers returning to work is the fact that most poor households have low savings. Upon returning to their villages, these savings got exhausted in a few days.
The skilled work or businesses that these workers have been engaged in for many years in cities give them much higher incomes that what is available in villages. In addition, fear of loss of jobs, especially for those who have worked in a particular establishment for many years, will prompt many to return.
While not all migrants may return, those returning can be a significant number. The upside of this is that the economy can return to normal much sooner than feared. Employers may be able to get workers back and resume businesses. With the opening up of the economy, employers have not only faced cash constraints and lack of demand, they have also been reported facing labour shortages. This issue will be addressed as migrants return.
Uneven economic development
Both economic and emotional factors had prompted labourers to return home to villages where their families live. But in the immediate future, the factors that originally pushed people to move from their villages to cities still remain.
While the government’s economic revival package had a pro-rural tilt and an attempt to decongest cities, the difference between incomes earned in urban and rural India remains high. The average rural income, according to government estimates, is about Rs 41,000 per annum, compared to Rs 98,500 per annum in urban India.
This is a long-standing problem, sometimes called the ‘Bharat-India divide’. One of the striking facts about India’s development model has been uneven development of rural and urban India.
While the industrial sector was liberalised in 1991, agriculture was not. Successive governments seemed to have treated the green revolution as an adequate “reform” in agriculture. However, agriculture was shackled by a pro-cereal policy inspired by India’s need for self-reliance in agriculture. Today, at Rs 3.5 lakh crore, cereals contribute about a fourth of the value of crops produced in India.
Yet, government policies continued to focus on cereal agriculture. The need for markets, storage and infrastructure for non-cereals was thus critical to unlocking India’s growth potential in agriculture.
The new ordinances announced as part of the economic package will pave the way for reforming Indian agriculture.
A 2018 study with my co-authors at NIPFP made the case for a national market and for food and removal of trade barriers enabled by a national legislation.
While the government’s reforms are critical and very welcome, they will take time to impact farmer incomes. In the immediate future, support has been given to rural areas in the form of more spending on MGNREGA, Kisan Samman direct benefit transfers, higher MSPs etc. But income differentials remain.
The return of the migrants, while good for economic activity in coming weeks and months, will pose new challenges for cities. As India opens up economic activity without a Covid vaccine, the implicit hope seems to be to achieve herd immunity. Governments are asking the elderly to stay at home, while the young are encouraged to go out, travel and work.
A study by CDDEP and Princeton University suggested that India, with its large young population, could acquire herd immunity in seven months.
So far, the herd immunity strategy that seems to be implicit in the unlocking of the economy is based on global data which suggests that people above the age of 60 are most vulnerable to the virus. But does this age cut-off work for India?
In Delhi, for example, 82 per cent of Covid-related deaths have been of those above the age of 50.
It is possible that local data suggests a lower age cut-off is needed in India, which has a lower life-expectancy. There is a need to analyse datasets of Covid testing and related data, so that policy can be made on this basis on the characteristics of the Indian population. The government should make this data available to researchers.
Health strategy for early revival
The resumption of economic activity will lead to a much larger number of people falling ill than during the lockdown. Even as we try to protect the elderly, we need to prepare and expand health facilities much more for treating those falling ill.
Greater cooperation with the private sector is required. In addition to more beds and hospital wards, we need to modify our testing strategy through greater cooperation with the private sector on production of testing kits and labs.
For example, the present strategy does not allow testing of all those who have exposure to Covid-positive patients, unless they are symptomatic. Since 75 to 80 per cent of those who test positive are asymptomatic, it is difficult for most households and work spaces to know whom to isolate.
Guidelines require more people to be isolated than those who are ill. If people want to pay for a test and go back to work, more testing will allow them to resume work. It will also help to slow down the numbers of those falling critically ill.
The purpose of the lockdown was to prepare the Indian health system to be able to do this. It is reported that today the private sector has the capacity to increase India’s testing capacity multiple-fold.
More testing and better policy-making based on Indian data can help revive the economy faster.