lockdown

21 days Lockdown Impact On Informal Sector – Free PDF Download

 

  1. 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.

 

 

 

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