By Sumit Mazumdar
As the famous opening lines of Dickens’ A Tale of Two Cities go, most challenging times often mask opportunities for transformational changes moving hurdles in few weeks that might have taken generations otherwise. But only if nations are successful in leveraging from any unprecedented popular support for epochal public action.
As the global pandemic of COVID-19 spreads its uncertain tentacles across continents, an increasing number of countries — including India, most recently — is entering into various degrees of lockdown of all social and economic activities as the core strategy to contain the infection’s spread. But, the ripple-effects and aftershocks following the slack in economic activities is all set for a disproportionate impact across the workforce. This largely follows from the typical structural pattern of the forms and nature of employment which varies significantly across countries — more than 75% of the employed population in Europe works in the formal economy, but only about 30% in Asia-Pacific region are in jobs with long-term contracts and associated social security covers. In this lockdown-induced radical shift of work from establishments and offices to home-based work only a minority workforce worldwide can afford and adjust to alternative working arrangements being indoors without any significant dent to either their earning flows, surety of employment or other privileges, most livelihoods do not have such luxurious flexibilities. These include the motely mix of virtually every conceivable form of occupations with diverse range of skills — from daily-wage labour in the construction sector to the neighbourhood plumber — and the vast numbers in short-term, usually daily-rate contract informal jobs in the formal service sector such as hospitality, retail and transport, referred by some as the new gig-economy workers. As in most other developing countries, in India the share of these forms of ‘insecure’ livelihoods in the overall workforce for countries remains very high; as per the latest available statistics more than 80% of our workforce are engaged in different forms of informal livelihoods. As new reports indicate every day, it is for these vulnerable, economically insecure millions for whom the unforeseen restrictions imposed due to the epidemic’s spread is likely to be most hard-hitting and economically disastrous.
What could then be the content and the mechanics of suitable safety-nets that can cushion such drastic impacts on the livelihood of these vulnerable workforce? Several countries across the world have started experimenting with and implementing a slew of different measures aimed to cushion the likely catastrophic effects of the reduced economic activity cross-cutting diverse livelihoods. As we could see in recent decisions in countries such as Canada, the US or the United Kingdom — including some at an unprecedented scale like the decision to foot almost the entire national wage bill in the UK — these have mostly involved wage subsidies to firms and sectors to support individuals either on medical leave or forced to restrict outdoor activity, relaxing or simplifying tax contributions from businesses, or some sort of refinancing or smoothing outstanding loans to firms. Some of these are equally relevant in the Indian context too. For example, some form of these wage or income subsidy to payroll workers can be considered particularly for industries such as airlines or organised retail which are among the ‘new’ service sector with a sizeable employee base, but with them mostly on casual, piecemeal rate contracts with modest wages and little or no forms of social security. Looming risks of wage-cuts, cancelled contracts and lay-offs remain as the sector itself grapples with contractionary trends in business. Nevertheless, even if these forms of indirect social security or livelihood insurance — mediated via the employers — are implemented, these will still leave out large sections of self-employed workforce like auto-drivers or rickshaw-pullers and unorganised retail, who have even a greater risk of declining or zero incomes as a gradual shutdown of the economy looms.
Which is a powerful reason to consider a Targeted Emergency Livelihood Insurance (TELI) implemented as a direct benefit transfer (DBT) that could cushion the informal economy in the country against the massive economic shock due to COVID-19. As I clarify below, the nomenclature intended is rather generic — targeted doesn’t imply a cumbersome, means-testing type exercise for identifying beneficiaries, but instead excluding those who have easily identifiable alternative forms of social security; insurance doesn’t imply any prepayment-based, indexed coverage but rather in it’s use as shock-proofing at-risk families. As the bedrock need-of-the-hour social safety net system for this vulnerable workforce, TELI would be the instrumental shock-absorber for the dramatic risks of dropping earnings and uncertain living. Traditional and existing safety net programmes such as the MGNREGA and other public workfare programmes are out of question in the days of mandatory isolation and distancing; using PDS-type channels to ensure delivery of food and essentials involves enormous logistic arrangements across the food supply-chain, tremendously challenging even in usual times. So, a modest, monthly direct benefit transfer to the families nationwide relying on different forms of informal employment or informality in the nature of job contracts, to cover their necessary living expenses and other incidental needs has a natural appeal. There are also strong positive spillovers — an assured financial flow is undoubtedly the strongest deterrent to commutes and leaving home — and only increase wilful compliance to all calls of thinning out masses on streets. As a generic concept, this isn’t alien to the policy circles; discussions and debates on Universal Basic Income (UBI) in both academic and political circles have been vibrant in the recent years, including during the last Lok Sabha election campaign. Models and variants ranging from the past Chief Economic Advisor Arvind Subramanian-led Economic Survey 2016–17’s suggestion of Rs 7260 annually to 75% of the population, to Rahul Gandhi’s 2019 election manifesto declaration of Nyuntam Ayay Yojana (NYAY) for Rs 6000 per month to all families in the bottom 20% of households, and some more academic economists’ estimates e.g. Maitreesh Ghatak and Karthik Muralitharan’s suggestion of Inclusive Growth Dividend pegged at 1% of GDP per capita (working approx. Rs 110 per person per month) and a more recent upward revision of his own statements earlier by Subramanian and co-authors to a per-household annual transfer of Rs 18000. Except, a periodic quasi-income transfer in the form of the Pradhan Mantri Kisan Samman Nidhi and the Rythu Bandhu Agricultural Support Scheme in Telengana, nothing yet has taken off at scale.
The prime concerns countering the intuitive appeal of such a form of direct social support to tide over the uncertainties and vulnerabilities during the current epidemic crisis, are undoubtedly complex. It requires deciding on the most appropriate, efficient and fiscally accommodative forms of targeting the would-be beneficiaries and the size, frequency and longevity of these transfers. On targeting, the decision rule can simply follow the principle of automatic exclusions — anybody with a salaried job which besides guaranteeing an unaffected income stream will also come with some form of leave benefits and requirement to abide by government directives in the case of a lockdown or restricted activity, is left outside the coverage of the TELI transfer. In principle, this would also mean to keep out households with agriculture as sole or predominant means of livelihood, as strictly speaking these doesn’t rely on a steady, monthly income flow, but is unlikely to be socially or politically tenable. Considering these, one can start with this target as 75% of all households similar to the original Subramanian estimates. Somewhat more tenuous is the suitable scale of this payment — we do not have recent estimates of monthly average consumption expenditure from the 75th Round of National Sample Survey, but can use either the per-capita final consumption expenditure estimate from the National Accounts Statistics 2019 (at Rs 76619 per annum for 2017–18 current prices). Considering the target 75% (or about 195 million) households to have half the national average of expenditure levels, and with some conservative assumptions on number of family members and the economic dependency composition, anything less than Rs 6000 per month per family is unlikely to be adequate to meet most of the needs. Assuming this pay-out to continue for at least three months to start with, this amounts to Rs 3.5 lakh crores (Rs 3510 billion, or US$ 47 billion) amounting to about 1.7% of the GDP, and thereafter adding a bill of about 0.6% of the GDP every additional month. In the worst scenario, considering the crisis to last for a year, this is likely to cost the exchequer about Rs 14000 billion or nearly 7% of the GDP. These estimations can be calibrated both on coverage and its quantum and is within the range of the different cost ranges estimated for alternative UBI regimes. Thinking of the mode of the DBT, the dramatic expansion of savings bank accounts under the Jan Dhan Yojana — which at 225 million accounts provide a reasonable basis of assuming most of the target households to be having an account to receive the TELI transfers. Residual families without a functional account or other limitations could be enrolled through local government like the GP or municipal authorities. Finally, even for a measure at this scale, this has to move fast — itself a challenge with the already stretched administrative apparatus. But with strong, nonpartisan political support also visible these days, it is not impossible.
A direct cash transfer programme such as TELI, as outlined above, can thus have three major, economy-wide benefits. The most direct impact would be its insurance impact — ensuring households with threatened or vulnerable means of livelihoods doesn’t fall through the cracks and can maintain consumption above a minimum threshold; the deterrent impact works through using a steady, guaranteed income flow to discourage people from going outdoors in search of work so that mass contacts are avoided; the stimulant impact as noted by few observers recently — cash at the hands of a majority of households ensure that aggregate demand continues to be at a level — both during and post-shutdown phases — to avoid that a negative supply-shock doesn’t send the economy into a whirlwind spiral down into recessionary trends. I hope to talk more about this in a later post.
Definitely, this is a high watermark in publicly-funded social safety net programming in India — the three-month estimate is higher than the entire annual public spending on health in India — but the pandemic crisis is also an unprecedented event the world is passing through. In times of such a global challenge, no welfare state can abandon the fundamental responsibility of ensuring that vulnerable population doesn’t fall through the cracks. Of course, it requires economic will, but more of social solidarity which should be espoused, even at a higher pitch than social distancing.
This blog was first published on the Medium site and is reproduced with permission.