What the continued distress in informal labour market says
Economic data released over the past few weeks suggests that the Indian economy has emerged from the second wave of the pandemic better than most expected. Two broad points emerge. First, although the second wave was far more virulent, the impact of the localised restrictions imposed during this period on economic activity was less damaging than observed last year. And second, in the weeks and months thereafter, large parts of the economy are almost back to pre-Covid levels. However, these data points mask the distress lingering in large parts of the informal economy.
The informal/unorganised sector in India accounts for roughly half of the total value added in the economy (52.4 per cent in 2017-18), and employs around 90 per cent of the labour force. The extent of distress that continues to persist in this part of the economy — at least in rural areas — can be gauged from the state of the informal labour force. This can be gleaned from the MGNREGA data.
In the first quarter (April-June) of the ongoing financial year, the number of households demanding work under MGNREGA, while higher than pre-Covid levels, was lower than last year. There could be two possible explanations for this. One, that the extent of distress in the labour market last year was of a much higher magnitude. Or two, that the spread of the pandemic in rural areas this year curtailed the registration of households demanding work under MGNREGA.
In the second quarter (July-September), however, the number of households demanding work this year was not only around the same level as last year, but was also significantly higher than the pre-Covid level (2019-20). This signals two possibilities.
First, that sections of the informal labour force in rural areas and the migrant households who have not returned to urban areas, were unable to find non-farm employment, and had to rely on MGNREGA. This implies that large parts of the informal economy — sectors like manufacturing, construction, trade and transport, where those currently demanding work under MGNREGA would have normally found jobs — were operating well below their pre-Covid levels in the second quarter as well.
Second, it is also plausible that to the extent that employment opportunities were available, a section of the informal labour force simply opted for whatever work was available at depressed wage rates, supplementing its income by seeking work under MGNREGA. After all, in the absence of safety nets, at current per capita income levels, few can afford to stay unemployed for long and look for remunerative employment. (MGNREGA also provides an avenue for these households to rebuild their buffers, which would have been depleted while dealing with the fallout of the second wave.)
The situation is unlikely to be materially different for the urban informal labour force considering that even formal employment in some of these sectors (trade, accommodation and restaurants) has been badly hit, as revealed by the…
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