The Great Pandemic-Lockdown Recession: One Year After

Govind was thinking of coming back to Delhi after the end of the harvest season in early April but by then the second wave had started. For the previous 12 months, NREGA was the sole source of sustenance for Govind. Almost one in every four workers in India (11.3 crore out of a total labour force of 47.2 crore) depended on this UPA-era poverty alleviation programme to tide over what was probably the most difficult year of their working life.

Some of you have read Govind’s story (and others will get to read it soon). He was an Ola driver in Delhi, who walked back hundreds of kilometres with his wife and son to return to his village near the UP-Bihar border. I was reminded of Govind as I read about (-)7.3% GDP contraction in 2020-21 – a data point, which hides more misery than what it reveals.

Conversation with Govind

When we called up Govind in late March, the first thing he wanted to know whether we have any job for him in Delhi/NCR. He repeated his question, with an emphasis on kuchbhi, anything will do.

We first met Govind on the Delhi-Agra highway as he was walking back in April 2020. By the time he could finally reach his village, first estimates of negative growth started coming in. Once back in village, Govind met friends and acquaintances he had not seen for years.

Immediately after the lockdown was announced, some 12 crore jobs/livelihoods were lost. As the economy gradually re-opened, small businesses and daily wage earners slowly got back to work. But the stringent 68-day long lockdown had decimated the economy and it contracted by 24.4% in the first quarter. Between September and December 2020, there was a sharp recovery but it started sliding again in February.

Most of those who trooped back to Govind’s village, worked as micro business owners (street vendors) or small service providers or as unskilled labourers in construction or manufacturing. Not all of them could go back as trade, hotels & transport; construction; and manufacturing (three sectors, which employed most non-farm workers) – registered a massive decline (8% to 18%). This led to an addition of more than 90 lakhs in the number of people engaged in agriculture. This was more like disguised unemployment. India Ratings noted that since March-April 2020, rural wage growth has plummetted.

Govind sounded relieved that at least the harvest was good. So, despite their small land holding, they are safe in terms of food grains for another year. Agriculture, least affected by the lockdown, and NREGA protected millions of families from starvation.

Rebuilding Dreams

At minus 7.3% GDP (de)growth, this was the worst year for the Indian economy on record. Even though the official statistics failed to capture most of the losses in the informal economy, it admits that the per capita income in 2020-21 has fallen to Rs 99,694. That means, average Indians today are poorer than what they were three years ago (in 2017-18, it was Rs 100268).

But the loss for people like Govind was far more. Without any job and little income, they ran out of their meagre savings in no time and then they had to borrow. This crisis – in the absence of any government aid – has hit the poor the hardest.

Govind’s life is least affected by how much money India’s top billionaires made in the pandemic year or how many start-ups are blossoming into unicorns. He missed the crucial fact that the Nifty gained a record 71% during the year.

He, however, had to travel to Varanasi and nearby towns a few times and every time he noticed sharp spikes in petro prices. Surge in food and fuel prices (contributed by the government itself, as their coffers are empty) are exhausting the already depleted household finances.

Govind knows, there is no future for him in his village but now it would take much longer for him to come back to Delhi and settle down all over again.

Govind is deeply worried about his son too. Sitting at his remote village, it is impossible for Govind’s son to access live or even recorded online classes, as it has been the case with 70 to 80% of Indian school kids (ASER 2020). For people like Govind, their next generation is their only viable retirement planning. Without two years of schooling, will he be able to catch up?

Global Lessons

Despite two severe COVID waves, people in the USA and Europe have suffered less than their economies as their governments absorbed the losses. In at least 35 countries including Britain, Germany, France, Italy, Canada, Malaysia, Hong Kong, companies received subsidies from their governments to save jobs.

Instead of jobs, the USA tried to protect incomes. Under the US CARES Act, apart from more than $500 billion in a pay cheque protection programme for small businesses, the government made one-off $1,200 payments to at least 2.6 crore people earning less than $75,000 annually. In March 2021, under President Biden’s relief package, most Americans were provided $1400. Unemployed individuals received an additional $600 per week from the federal government (in addition to local unemployment allowances).

In some two dozen countries like the USA, Sweden, Denmark, Canada and France, self-employed persons were given tax breaks and direct subsidies and compensation for 60–70% of their losses. In many countries, consumers have been protected through subsidy for rent/suspension in rent increase (rent is typically the most expensive item on monthly household budget). Since they managed to protect household income, these economies are witnessing a swift recovery.

Back to Zero

Even as millions of people lost their jobs or businesses, India refused to provide any direct income support. India’s relief package of 21 lakh crore had mostly promises of loans and loan guarantees.

CMIE calculates that in one year since March 2020, India lost nearly one crore salaried job. Protecting those jobs would have saved not only one crore families but also another 4 crore people who work as driver, maids and small service providers and depended on salaried workers for livelihood.

A report by the Azim Premji University calculated that the pandemic had pushed 23 crore Indians into poverty in just one year. Similarly, a Pew Research report published in March 2021 estimated some 7.5 crore people in India might have slipped back to poverty in 2020, probably doubling the number of people living in extreme poverty. They also calculated that the Indian middle class may have shrunk by as much as 3.2 crore (that is 1/3 to 1/4 of the total) in 2020 as a result of the pandemic-recession.

Thus, in just one year, millions of Indians, like Govind, ended up losing the gains of a slow but determined progress they made over the last two decades. And this was before a devastating second wave ravaged the country.