However, in the absence of any relief package for such employers and taxpayers, it is becoming increasingly difficult to do so.
In the time of the COVID crisis, the Indian government has boldly prioritised the lives of Indian citizens by maximising social-distancing and shelter-in-place via a complete lockdown.
PM Modi's strategy seems to be working - India's pandemic curve is flattening barring some hotspots, and the lockdown is extended to 3 May.
However, the government and administration must understand that this is not a situation where you choose between national health security and national economic security. The country cannot compromise or delay on securing either – this must be approached as a war-time theatre.
The Indian economy has ground to a complete halt due to the lockdown, threatening the livelihood of crores of people. SBI's Economic Research division predicts a total income loss of Rs. 4.05 lakh crores through the lockdown for the 37.3 crore workers estimated by PLFS as self-employed, regular and casual workers. Of this total, maybe Rs. 2 lakh crores expenditure can be borne for savings.
While the Rs. 1.7 lakh crore package offers much-needed relief to the bottom-of-the-pyramid, Middle India and taxpayers have not been addressed and have nothing to cling onto. PM Modi has infused hope in the hearts of these citizens by asking employers to hold on to jobs and make payroll in these difficult times, and people are doing their best despite lack of liquidity and resources.
With help from the administration on the liquidity front, Middle India stands ready to deliver on this request from PM Modi.
Several high-ranking government officials have asked these citizens to be patient as they design relief measures. With three weeks of lockdown already past and a 19-day extension announced, the administration has to give hope to citizens and not delay further.
This is not the time to maintain a 3.5 per cent fiscal deficit or cobble together a relief package for Middle India from the refuse of other priorities. In these extraordinary times of need, it is important to utilize all resources at hand to offer relief to save lives and livelihood, and give hope to job creators.
In fact, with the global world order in flux and India in a relatively better position vis-à-vis the pandemic, the administration can actually afford to be aggressive and secure long-term global funding to drive India's growth and employment for the next decade. This winning dynamic is ours to lose in the absence of strong action from the Indian government.
The stakes for India have never been higher. We are at a GDP of Rs. 205 lakh crores and a top-five world economy now. We have performed better than most expected and much to the surprise of the Anglo-Saxon first world. The IMF projects that India is the only top-5 economy that may register positive growth in FY'21. The Indian administration must focus on protecting jobs and job creators to keep the economy intact.
Jobs have been in jeopardy from COVID-impact for more than a month now. In fact, the south went into lockdown much earlier than the rest of the country and many jobs have been in flux for 45+ days in Bengaluru and other southern urban centres.
On an all-India basis, the lockdown is officially running from 25 March to 3 May, a very long time for economic suspension, affecting wages and jobs.
The whole of India has shut down barring some aspects of agriculture. Our supply chains and factories are all shut, and slowly some people are getting exceptions to start back up. The biggest challenge for India post-lockdown is protecting current jobs and generating new employment in the future.
-Agriculture: 43 per cent of the workforce is in agriculture which is being opened soon to harvest the rabi crop cycle.
Hopefully, this will build up to full steam soon. This sector is the least affected by COVID and with the right policies and workforce deployment, could register no shortfall at all.
This sector already receives Rs. 70,000 crore through the PM-KSNY minimum support scheme for marginal farmers. In addition, the MGNREGA scheme has committed Rs. 61,500 crores for rural workers when the economy opens up. GoI is fully committed to provide for rural jobs, as can be seen in the Rs. 1.7 lakh crore relief package that is focused largely on this sector.
-Industry: 24 per cent of the workforce is in industry and manufacturing. These sectors are devastated and may register negative growth in FY'21. Unemployment could be the highest in this sector, if the government doesn’t provide relief to job creators and MSMEs in industry.
-Services: 33 per cent of the workforce depends on services where growth may plummet to 2.5-3 per cent from 7.5 per cent. Many high-employment COVID-impact sectors like airlines, airports, entertainment, hospitality, restaurants, tourism, and others form a part of services. This sector has been impacted the most.
The Rs. 1.7 lakh crore relief package does not address either the industry or services sectors. RBI has come out with various measures to address liquidity issues in the money markets, but this liquidity is not translating to increase in credit or working capital to job creators in these sectors; with the exception of some measures taken by SBI and other PSUs like postponement of EMIs and extending credit lines to certain sectors.
Jobs at risk in industry/services
In the absence of economic relief, adequate increase in working capital, and firm measures to protect jobs in industry and services, many formal and informal jobs are at risk. This sector is fast losing hope, despite wanting to uphold the PM’s request to keep jobs going.
-Formal employment: About 8 crore people are formally employed, as detailed in the EPFO and ESI databases. Of this, about 4-4.5 crores are contract labour and their jobs are in jeopardy. Data indicates a majority have been paid in March but the April payroll is a matter of worry because people are unsure of when the economy will open, how staggered is the opening, and whether they will receive any relief to retain payroll.
-EPFO beneficiaries: The FM has already announced that the government will contribute both to the employee and employer contribution over the next three months for EPFO beneficiaries, but this comes with restrictions on wages (Rs. 15,000 ceiling) and the number of employees in the company (up to 100) – leaving many other companies in a crunch.
This must be extended to cover all MSMEs – a salary level of Rs. 30,000 and up to 500 people as this will ease the stress on larger job creators and employees who have been working for 10-15 years and earning more; otherwise, they might be laid off in these distressing times.
In this crucial juncture, the administration must do away with arbitrary restrictions on who receives relief and who does not.
-ESI/Other: The administration must also consider finding a way to directly help ESI beneficiaries.
Further, the EPFO only includes companies with 20+ employees in 190 industry classifications while the ESI includes companies with 10+ employees in 90 industry classifications.
There are many smaller companies that do not fit this bill but aggregately employ crores of contract labour and cannot make payroll. With the amount of data available with GoI in the EPFO/ESI/GST and other databases, some measures to identify and provide smaller companies with relief can be considered.
India's foremost national goal, on the economic front currently, is protecting jobs. Many issues concern employers, which require urgent redressal from the government:
1. Lack of liquidity and working capital– Most people in industry and services sectors want to stand by the PM's request not to lay off and cut off salaries. To do this, they need liquidity and money.
The administration must increase working capital for which a large Credit Guarantee Fund of at least R. 50,000 crores needs to be set up to buttress bank lending.
Some bank chairmen have publicly announced that banks are hesitant to lend because of the high uncertainty and in the absence of a credit guarantee from the only entity large enough in the country to bear it – the government.
Increasing working capital through bank lending will help maintain payroll and give hope to these sectors that when the lockdown if lifted, they will be able to start operations again.
2. Why is liquidity the issue, and not solvency? – With the economic lockdown, companies in these sectors are unable to receive receivables and to pay payables. The system is jammed, preventing inflow of working capital required to maintain payroll.
The government must understand that most of these companies have adequate assets and are not in danger of insolvency, but in these times of frozen capital flow, they need help with liquidity to make payroll. If it comes down to the survival of the company to make it to the end of lockdown, they will be forced to lay off labour and preserve whatever cash they have to open up after lockdown.
By not providing relief, the government will force these companies to lay off labour, affecting the economy deeply and going against the sincere wishes of PM Modi.
3. Direct support – We have already discussed increased measures for EPFO/ESI beneficiaries above. The government can also consider transferring a direct credit of Rs. 3,000 per month for three months to the accounts of 4-4.5 crore people which they can withdraw instead of wiping out their savings. It is important to give these people and their employers hope and support in these trying times.
4. Direct-impact sector relief – Special relief for direct-impact sectors is necessary since they are laying off employees because revenues have come to zero.
A one-year deferment of EMI instalments and term-loan and interest payments and other measures to improve their working capital is important to maintaining whatever jobs are left in these sectors.
Otherwise, not only will post-COVID unemployment be high, these sectors will find it hard to start up again after the pandemic subsides if they are not ready with payroll and people at that time.
5. Blue-collar labour – India’s biggest startup for blue-collar workforce management that processes 70+ lakh worker profiles, gives some indication about job loss in this area.
Its records indicate that out of 5 lakh people in the facilities and security sectors, 80 per cent+ are not marking attendance.
It is not known if they are being paid regularly or asked to leave.
A majority may be kept on the roster, but for how long is the question, given the uncertainty. Blue-collar labour is a very large sector, mainly on contract so they can be easily laid off without any noise.
6. Cab drivers - Additionally, many companies that employ drivers for cabs are reporting zero utilisation and are unsure about making April payroll. Reports say that banks are looking at Rs. 30,000 crore+ in defaults of loans given to cab drivers who have returned to their villages in the absence of employment.
7. Real estate, road transport and construction sectors – After agriculture, the highest number of unskilled or low-skilled workers are employed in these sectors. With suspended operations here, unemployment is very high.
Even after the lockdown ends, workers in the sectors listed above may not be immediately employed as before because their employers have to slowly ramp up operations in a highly-uncertain, post-COVID economy. These workers and employers need support from the government as they ramp up to 50-60 per cent of the operation over, say 3-6 months.
It is important that when the lockdown lifts, people can go back to work with some degree of certainty and income. Hope can only stay alive when there are signs that the government is taking essential and painstaking steps to prevent the reduction of employment through this crisis.
Once the lockdown is lifted or staggered, it is this hope that will enable job creators and employers to provide jobs to their employees and prevent job loss.
Job creators and taxpayers need relief
For the purposes of understanding the economic effects of the extended lockdown and absence of strong relief measures, the Indian society can be broken down into four sections:
1. Bottom-of-the-pyramid: The first relief package of Rs. 1.7 lakh crore announced by FM Sitharaman on 27 March 2020 provides relief to India’s most vulnerable citizens, those without staying power to sustain themselves through the lockdown.
These include construction workers, rural labourers, agricultural workers and farmers, BPL families, senior citizens, and women Jan Dhan (JD) account holders. It includes Direct Benefit Transfer (DBT) of which the first set were transferred in record time thanks to the DBT-JD account infrastructure set up during his last tenure by PM Modi.
The government has considered many facets of the lives of the Indian citizen by including free gas connections for Ujjwala Yojana beneficiaries and food for 80 crore people under the PM Gareeb Kalyan Anna Yojana. This is a very good step and helps 80 crore people – 58.4 per cent of India’s population.
2. Top 20 per cent: The top 20 per cent of the country has the wherewithal to survive the lockdown with strong government employment links or their savings. These include:
a. Government employees and pensioners: The Central and State governments, parastatals, and bureaucracy together employ approximately 2.5 crore people. At a typical family of 4, this amounts to 10 crore citizens.
Further, 2 crore people receive government pensions – supporting on average one more person, this amounts to 4 crore citizens.
A total of 14 crore citizens are part of this services sub-sector. Most economists state that only this sub-sector will remain unhurt by the economic lockdown since they are guaranteed salaries and pensions via tax collection.
b. Others: The balance 10 per cent in the Top 20 per cent constitute founders of companies, successful entrepreneurs, senior management of industry, banks, media and so on. They either have adequate cash reserves or secure jobs or both.
They don’t need relief from the government for personal benefit, but general relief measures infusing liquidity into the economy will enable them to keep more employees on the payroll. They need hope that the government will stand by industry and services over the long recovery period, and support their efforts to preserve jobs.
3. Middle India: Middle India as explained below – roughly 21.4 per cent of the population, has not been addressed. This section includes the salaried class and job creators via MSMEs and businesses. They haven’t received any substantial help from the government and most only have 1-2 months spending power to sustain their business.
With the lockdown extension and absence of any relief so far, they will burn into their savings and be hurt deeply. The lockdown is being felt most acutely by this section as they shoulder the total shutdown of India’s economy.
The feedforward effects of not providing relief for Middle India will be felt for a long time if no relief is forthcoming.
India has a minuscule taxpayer base which also needs support and hope
1. Indian income taxpayers: The CBDT targets to collect Rs. 5.6 lakh crore in income taxes in FY’20, amounting to 2.73 per cent of GDP. India bears one of the highest tax burdens in the world paid by a narrow section of people. In India, out of a population of 137 crore people in FY’19:
-5.5 crore file tax returns – 4 per cent of population
-3.3 crore pay taxes – 2.4 per cent of population, which means 24 in every 1000 people pay income tax at all
-13.2 lakh people pay 60 per cent of taxes – less than 0.1 per cent of the population
These 3.3 crore honest taxpayers also need hope and encouragement from the government. They shoulder a very high burden of taxes, and constitute decision-makers who will make investment decisions in the future that can help realign the Indian economy quickly to a high-growth trajectory. Their morale should not be brought down by not being acknowledged by the government in times of crisis.
Contrast this with other major economies where the number of taxpayers per 1000 population is 400-600, whereas in India it is only 24. And many of these people are hit by the lockdown with no relief measures, which means their capacity to pay income tax is diminishing by the day in the lockdown.
2. IT/GST Refunds: A welcome move by FinMin has been to issue pending income tax/GST refunds.
The CBDT announced a first wave of refunds to 14 lakh small taxpayers estimated at Rs. 18,000 crores, of which Rs. 10.2 lakh refunds totalling Rs. 4,250 crores have reportedly been processed.
However, the ceiling of Rs. 5 lakhs for refund must be removed since this is the citizens’ own money and must not be held back by the government, especially in times of crisis.
3. GST Filers: While indirect GST is paid by anyone who consumes goods, direct GST is paid by the many small businesses around India.
Of the registered 1.2 crore filers, around 80 lakhs file regular returns.
Further, of the 5.5 crore IT returns filed, 2.14 crore are under the heading “business”. This is a very large and productive sector of the economy. These people have built their own businesses and generate employment. If the government does not address this sector, they will be forced to let go of employees. Unemployment goes up.
Many direct GST filers have GST refunds due. It is incumbent upon the administration to process those refunds immediately and give people their own money back urgently so they have liquidity. This will enable them to keep employees of payroll for longer while the lockdown is done.
4. Small and Medium Enterprises (SMEs) – There are approximately 42.5 million registered and unregistered enterprises that are the biggest job creators in India. NITI Aayog data shows 90 per cent of manufacturing jobs in India are in SMEs. A relief package that provides them with working capital is necessary to maintain payroll.
There has been inadequate response on relief for job creators, MSMEs and taxpayers from GoI and FinMin. While RBI has increased liquidity with banks, money is not flowing to the MSME sector.
This needs policy interventions. This lack of need addressal may decimate job creators and taxpayers by depriving them of any relief during a complete economic lockdown. Further, this lack of action is steadily diminishing the capability of job creators and taxpayers to earn, pay taxes and generate jobs. GoI’s continued appeal to keep people on payroll must be buttressed with strong policy measures to increase liquidity and working capital.
The bureaucrats and decision-makers have to be sensitive to the needs of employers and job creators.
Economists predict that the only sector that will not be affected this year by low or zero or negative growth is the government services sub-sector. 10.2 per cent of the population consist of government employees, bureaucrats and their dependents.
While many bureaucrats are sensitive to the needs of all sections of the population, there is a fair number of bureaucrats at the centre of economic decision-making that is not focused on relief for job creators or Middle India. There is a need for these bureaucrats to step into the shoes of Middle India, understand how stressed their finances are and how important it is to give them relief.
People are willing to take the pain and respond to PM Modi's appeal to hold on to payroll, provided they are assured by strong policy actions that the administration has their back.
No other major world economy has neglected to provide economic relief to the citizens shouldering the burden of the economy – the salaried class, job creators, MSMEs and others.
In India, these groups constitute the lifeblood of the economy. This very narrow section of society pays taxes through their hard-earned income and are the only citizens building substantial savings. In these extraordinary times, the Indian government has to take extraordinary measures to help them so India can recover fast post-pandemic.
Perhaps more crucial than anything else, Middle India is losing hope that the government will secure their national economic interests. The announcement of an aggressive economic relief plan will infuse not only India with hope but her allies too, and that is the opportunity we are missing out on.
World economies like the US and Japan are looking for viable alternatives to China for manufacturing and industry, and a strong economic signal that India is ready to provide it will yield once-in-a-lifetime tangible and intangible benefits for years to come.
Much will be lost – in today's scenario and from potential future growth – if the government fails to act now.
Further, as the economy comes out of lockdown, the government must immediately look at generating jobs for millions of workers. With job creators hurt, this burden will fall solely on the shoulders of the government.
If immediate focus is not applied here, the bottom-of-the-pyramid 80 crore people will not be able to access employment post-lockdown and will be forced to continue to rely on government benefits and subsidies for at least two-three years. The Modi government has done a lot for the poor since 2014, and focused attention now to shift workers from agriculture to manufacturing and construction will spur mass employment.
In the event the government finds it doesn’t have the resources, it can dip into RBI’s reserves: Rs. 6.5-7 lakh crores.
Part of the reserve can be transferred to the government in these extraordinary times of need and monetised by cash being released for the reserves of RBI. This is a way for government to get a credit of 3-4 lakh crores without raising the fiscal deficit or borrowing from the market and thereby raising interest rates. In times of need, it is important to look at resources at hand.
Every other country in the world is scrambling to secure its national economic interests in this new pandemic-struck reality. The Indian administration must not leave its honest taxpaying, job-creating citizen minority stuck in a sinking quagmire.
The release of a strong economic relief package that helps Middle India tide over will generate hope in the hearts of crores of citizens and send a strong signal that the administration recognises their tremendous contribution to India’s economy.
PM Modi has already generated hope in his appeals through his direct addresses that he is with the populace. His multiple requests for the country to come together to applaud people on the frontline have led to the largest coming-together of Indians in the times of Independent India.
With the lockdown extension, hope can be kept alive by the announcement of an aggressive economic relief package that buttresses Middle India’s frantic effort to hold onto jobs; the absence of which will adversely affect the bottom-of-the-pyramid’s ability to find employment post-lockdown.
This piece first appeared in The Sunday Guardian and has been republished here with permission.
TV Mohandas Pai is Chairman, Aarin Capital Partners and Nisha Holla is Technology Fellow, C-CAMP.
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