80% of India's informal workers lost jobs during COVID lockdown, 63% survived on two meals a day, shows data

The nationwide lockdown announced on 24 March, 2020, mandated the suspension of all services and establishments with relaxations to only essential service providers. It was only a month later that small retail shops could reopen, but with only 50 percent of their staff. As a result, economic activity suffered, and unsurprisingly, India’s GDP growth reduced by 23.9 percent in the first quarter of FY 2020-21. However, when viewed in isolation, this conceals the plight of the informal economy.

Informal work under lockdown

Estimates suggest that up to 80 percent of workers from the informal sector lost their jobs as the lockdown progressed. Among these, daily wage workers, street vendors, small enterprises, and retailers were completely choked for various reasons.

Much of their revenue relies on face-to-face interaction with customers, which was not possible under the initial preventative restrictions, and remained difficult even after the lockdown was lifted. As most informal workers in developing economies have low incomes, they also did not have the means to adopt alternative modes of work quickly.

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For most consumers, the lockdown also led to a shift in expenditure. While the expenditure on non-essentials was reduced to afford necessary goods, the overall demand for goods and services slipped considerably, pushing the economy into a demand crisis.

All enterprises engaged in the production of non-essential commodities had to cut back on their output levels and production costs in the initial months of the lockdown, leading to laying off workers to save costs, as seen below.

Table 1: The status of employment of informal workers across sectors before and after lockdown (in percentage)

The loss of income due to sudden unemployment might have been bearable if informal workers had been earning enough before the pandemic kicked in. However, more than 50 percent of all types of workers were living on wages lower than the national minimum wage recommendation of Rs 375 per day in 2017-18, as shown below.

Table 2: Share of workers earning

Estimates show that in low-income countries like India, depleted labour incomes caused by the lockdown could translate into more than 56 percent of informal workers and their families living in relative poverty. Uncertainties around employment, income, and livelihoods, led to large scale migration of daily wage workers and other informal sector workers.

The large influx of labour force migrating from cities to villages might have led to an increase in labour supply, which could cause a fall in agricultural wages at least in the near-term.

Spending, savings and debt

Food inflation

Informal sector workers, who had not been earning adequately before the pandemic, further lost their primary income sources due to loss of jobs. At the same time, the prices for essential commodities increased due to their unavailability in the markets driven by massive disruption of the supply chains.

The Households’ Inflation Expectations Survey, conducted by the Reserve Bank of India (RBI) between August and September 2020, showed that the survey respondents — most of whom belong to the informal economy — expected the level of inflation to rise significantly in three months from September.

Table 3: Inflation Expectations of Various Groups (September 2020)

As anticipated in the RBI survey, food prices inflated significantly in the last months of 2020 with essential consumption commodities like onions, potatoes, and eggs becoming more expensive. Additionally, since the lockdown, everything from healthcare services to transportation and communication has become more costly.

Figure 1: Consumer Price Inflation in India in 2020 | Source: Ministry of Statistics and Programme Implementation

As a result of increasing prices, essential goods and services became even more unaffordable for informal workers who were already surviving on inadequate income levels. Table 4 shows the reduction in food consumption as recorded in a survey of informal workers during the lockdown.

Table 4: Decline in food consumption by employment category (in percentage)

This could lead to two possible scenarios. One where prices soar and households in the informal sector are forced to borrow since they have limited or no income to purchase goods and services at levels essential for survival. In the second scenario, households dig into and bleed out their limited savings to make survival possible. This process of dissaving or borrowing could severely impact the consumption of certain requisite services. This may include removing children from schools, increasing child labour, selling fixed assets at non-corroborating prices, etc.

Low savings and higher indebtedness

An International Labour Organization (ILO) report suggests that informal workers “have low productivity, low rates of savings and investment, and negligible capital accumulation”. The report also highlights the possibility in which owners of informal enterprises have used their negligible business capital to fund consumption, as they have no savings or financial cushions.

Thus, it can be concluded that a dearth of savings and rising prices leave informal workers no civil option besides borrowing. A survey conducted by Action Aid Association of India on informal workers found that 58 percent of the respondents had to borrow money to meet their expenses during the lockdown.

The accrued indebtedness of informal workers puts them at risk of being pushed into bonded labour also known as debt slavery. As millions of informal workers remain desperate without cash or food, they would have found it hard to possess adequate paperwork for credit from traditional sources. Subsequently, this may have led them towards informal moneylenders who provide loans at higher interest rates, leading to higher debt, the risk of violence, and being trapped in bonded labour.

With soaring debt, diminishing savings, spiking food inflation, and mostly absent income, people make purchases for the most basic items in small quantities meant only for daily consumption. In fact, only 63 percent of the respondents in a survey reported being able to consume two meals a day after the lockdown.

This process has probably pushed India’s informal workers into a trap as shown below:

Figure 2: The Vicious Trap

Policy responses and constraints

The informal economy is in urgent need of reform. In particular, COVID-19 pandemic-induced hardships require additional support. However, with no job contracts, social security, or any other benefits, it isn't easy to gather sufficient data on informal workers. Consequently, strategies to support or reform the sector face challenges during implementation.

Tackling food insecurity among informal workers has so far been inefficient. Households in a poverty-stricken informal sector are unable to reap the benefits of government schemes. An estimated eight crore households in India do not have ration cards, unable to utilise the relief provided by the Public Distribution System; this holds true for informal workers also.

In a recent survey, only 7 percent of informal workers were found to be enrolled in the Integrated Child Development Services (ICDS) Programme, while only 5 percent were enrolled in PM-KISAN. Many informal workers were unable to receive any form of cash assistance. The following table shows the different sources of cash assistance provided to a group of informal workers who were surveyed during the lockdown.

Table 5: Cash assistance across various sources (in percentage)

The efforts taken by the government to keep an account of this sector — its contribution to the economy and its nature — have been minimal. In 2004, the National Commission for Enterprises in the Unorganised Sector (NCEUS) was created, which provided an online platform for research and policy material on the informal economy. However, this organisation was later dissolved in 2013, restoring a greater degree of uncertainty and anonymity to the sector and its constituents.

A crucial feature of informal establishments is that they are not registered. Hence, the formalisation of the informal sector may assist in achieving certain goals. Such a transformation will qualify informal enterprises in reaping the benefits put forth in the government’s relief packages. Formalisation could also help in data collection, having a ripple effect in tracking and monitoring efforts when it comes to migrant labourers.

With soaring levels of unemployment, concerns to re-employ workers of the informal economy become essential. The Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) may prove useful at this point. However, most of the employment guaranteed by MGNREGA is in agriculture, which is already overstaffed. In April 2020, only 12 percent of the projected level of employment was created by MGNREGA. Not only this, MGNREGA aims to provide a solution only to the rural unemployed. A similar scheme for informal workers who are out of work in urban areas might prove useful.

The simulation of demand in the economy is one of the main ways to carry it out of the current recession. Since micro, small, and medium enterprises (MSMEs), along with other allied enterprises, generate more than 80 percent of earnings in India, the relief introduced by the government might prove useful.

The Centre had recently agreed in the Supreme Court, to waive compound interest charged on loans taken by individuals and MSMEs worth up to 2 crores. Also, as part of its first tranche of relief measures, the government had proposed to offer collateral-free loans to MSMEs which would be fully guaranteed by the Centre. This may encourage borrowings by individuals and informal enterprises, thus reviving demand in the economy, and therefore, pushing the informal workforce out of the trap.

In conclusion, the ongoing pandemic has created an urgent need for building resilience in the informal economy. The government needs to take action regarding providing job security to workers engaged in the informal sector. Additionally, the government needs to provide social security benefits, food security, health benefits, and safety of migrant workers and all other members of the informal sector. This needs to be done in a way that not only manages the current crisis but also immunises the informal economy from the adversities of future shocks.

This article was first published on Social and Political Research Foundation (SPRF) a New Delhi-based young policy think-tank seeking to make public policy research holistic and accessible