- Lockdowns, a preventive move to slow down the spread of Covid-19, will severely hurt India’s informal sector, especially daily wagers.
- It encompasses all jobs which are not recognized as normal income sources, and on which taxes are not paid.
INDIA’S INFORMAL SECTOR
- Nearly 87% of India’s workforce is informal.
- No written contract, paid leave, minimum wagesor terms of work as per regulations.
- Over half of India’s gross value added comes from the informal sector, which mostly engages informal workers.
- Lockdowns will disrupt these tiny businesses, due to which the sector could suffer- Cash crunch& Income and consumption shocks
- It may force them to borrow at steep rates from informal lenders.
- Many may slip below the poverty line.
GOVERNMENT SUPPORT NEEDED
- It will huge challenge for policymakers to design channels for delivering relief and support.
- Parts of existing Mudra loans may be written off,
- Repayments deferred,
- New loans extended.
WHAT ABOUT GST?
- GST cuts are ruled out,
- The turnovers of unorganized sector firms are typically smaller than the threshold required for GST registration or payment of income tax.
- GST rate cuts will have limited impact, with lockdowns reducing supplies and consumption.
WHAT ABOUT CASH TRANSFERS?
- Yes, it must start immediately.
- Government can clear pending payments related to NREGA.
- It must provide food stamps &transfer top-up relief paymentsto NREGAand PM-KISAN direct benefit transfer accounts.
- However, it will not be able reach those informal workers who don’t have such accounts.
WHAT SHOULD BE DONE IN THAT CASE?
- The government may have to step in as a buyer of last resort.
- Nearly half of the informal sector firms operate from homes with family members as the only workers.
- So, they can be productive during the lockdowns.
- Government agencies can tap the procurement channels of- Rural cooperatives and Self-help groups To source emergency goods such as masks from the sector.
WHAT ABOUT FISCAL SPACE?
- The government can consider pay and pension cuts for its employees.
- The Seventh Pay Commission reward was based on forecast of healthy revenue growth and 7% plus GDP growth—that’s no longer the case.
- In extreme situations, the Centre can allow the fiscal deficit to expand and let RBI print money.
- Higher government spending on relief for the sector will not push up inflation, as lockdowns reduce demand.