A million mutinies now

Edition 27. The heartbreaking stories behind India’s falling GDP

India reported its quarterly GDP numbers this week. No one expected them to be pretty. What else could one expect if the total economic system comes to a standstill due to the harshest lockdown imposed anywhere globally?

The numbers bared the severity of the decision. The Indian economy's total value of goods and services produced (GDP) in April to June quarter in 2019 was ~$505 billion. This year, in the same period, it was ~$386 billion - a stunning 23% drop. The COVID-19 induced lockdowns have likely washed away 4 - 5 years of growth. A recession (negative GDP growth for 2 consecutive quarters) is likely – the first in 40 years.

Stark as the numbers are, my persistent grouse with the GDP numbers is that they make people gloss over the human implications in favor of focusing on an arcane numerical figure. The ebbs and flows of these quarterly numbers lead to pontifications in many quarters but rarely do I find human stories that demonstrate how intertwined these are with the destiny of millions.

Today, I want to peek behind this number to unpack the human cost that people have paid in India.

Structure of Indian employment

In my earlier post where I had looked at why migrants were walking back to their villages from cities, I had covered the structure of Indian employment. A recap.

In a population of ~1.3 billion, only ~460 million adults work. ~325 million of these are in rural India, while ~135 million are in urban India.

Large cities have grown rapidly as hubs of employment. Cities with a million-plus population (46 as of 2011) accounted for ~50 million of the total urban employment (~33%, up from 22% in 1993).

<10% of the workforce have a regular salaried job, of which the government employs ~25million+.

The most vulnerable are the self-employed 
(~245 million, e.g. running a stall or cart, or farmers) and casual workers (~112 million - those with intermittent jobs, e.g. construction).

It’s clear that employment in India is driven by informal structures. It also leads to large segments of the population earning a pittance.

At an exchange rate of USD 1 = INR 70, the various subsegments are earning between $2 - $6.5/day.

A few interesting things stand out in that chart above.

  • The gap in urban and rural wages. On average, rural employed earn ~18% - 33% lower than their urban counterparts. The casual laborers - ~25% of the labor force - earn perilously close to the line of poverty.

  • The gender gap in earnings. Women in India earn ~35% lesser than men (the global average is <20%). Women in casual employment have it the worst - earning ~40% below their male counterparts.

So what did the lockdown do?

April was an economic bloodbath with a loss of ~122 million jobs. Over 90 million of these lost jobs were for the self-employed and the casual laborers - the group already perilously close to the line of sustenance. Given the self-employed and casual nature of these jobs, a large number is estimated to have come back in the following months, however, at earnings have crashed, likely pushing millions into misery.

Surveys during the months of May and June indicated that over 80% of the households in the country reported a decline in income. Unsurprisingly, the households reporting the steepest declines were those in the lower rung of the income ladder.

Figure 2 Impact by India households

The lockdown has likely erased the gains that India made in the last decade in lifting people out of poverty. Estimates are suggesting that an additional 10 million people have fallen into poverty due to a loss in earnings. People under the poverty line spend anywhere between 50 - 60% of their income on food for survival. The corresponding number for the rich is <30%. The extra income buffer allows them to invest in health, education, and other luxuries allowing them to lead a more fulfilling life.

Worryingly, initial studies suggest that in response to the loss in income, households have reduced spend on essentials such as health and education along with a sharp reduction in discretionary spend.

The plummetting growth will also set back efforts to increase the participation of women in the labor force. Only 23% of women of working age in India are in the labor force (either employed or looking for work). That number is comparable to Afghanistan (21%) and is lower than Pakistan (24%), Bangladesh (36%), and Nepal (80%). Women are more likely to be employed in the informal sector than men and will bear a greater brunt of the damage arising from the economic crash. Why so few women work in India and what that tells us about the prevalent societal inequalities is a question that the country needs to grapple with on an urgent basis.

Will rural India be the savior?

While all sectors of the economy were bleeding, agriculture was the only bright spot in the GDP report, growing at 3.4% due to good harvests and government support through MGNREGA (rural employment guarantee scheme) and other price support measures.

It might still not be enough to save the economy or cap the distress.

Rural revival has been fading as per the latest trends with rising unemployment as the virus reaches the hinterlands of the country. Along with this, most of the sowing for the upcoming planting season has already been completed which has lowered the need for additional labor. The state coffers have run dry due to a collapse in tax receipts. While the budget for MGNREGA was increased, it has been nowhere enough to meet the demand. Given the dire financial state, the government is helpless.

Faced with a decline in both farming and non-farming related employment, people are left with limited options.

Imagine for the moment, the plight of the 30 million migrants who rushed back home after the national lockdown was imposed. Facing hunger and suspension of wages, they sought refuge in their homes, undertaking a perilous journey, often on foot for hundreds of kilometers. As the rural economy slows, they are now compelled to get back to cities in search of employment. They are returning to a recessionary economy with urban unemployment at over 20%. Their bargaining power in this scenario will be lower and the resultant wages, which were anyway low, will be lower still.

For me, this encapsulates why GDP growth is important. It is not so that we can win back accolades as the ‘world’s fastest-growing economy’ or any other such meaningless monikers. It matters because it allows millions who toil in destitution to live a life with a little more dignity.

In other news

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LIBOR was once considered the most important number in the financial world. It is being retired next year. What happened?

Silk Road was the crypto fuelled drug haven on the internet. What has replaced it?

The Indian government banned 118 Chines apps including the insanely popular - PubG. Folks online tried to find a compromise


That’s all for the week. If you enjoyed the post, do share it! The encouragement keeps me going. Write to me at romitnewsletter@gmail.com, Twitter, or leave a comment. Stay safe!

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