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As India Reopens Economy, Businesses Grapple With Widespread Labour Shortages

Jun 8, 2020 8:59 AM 4 min read

As India reopens its economy, businesses are slowly reopening after more than two months of near-total shutdown on account of the coronavirus pandemic. But it won’t be business as usual, and it may take a painfully long time before operations can regain some semblance of pre-COVID normalcy.

This is because the spectre of infections still looms large – the number of positive cases is growing by larger numbers each day, so the crisis is far from over. Businesses are opening shop knowing that even if a single infection is detected in their establishment, they’ll be forced to shut down again. 

But there’s another widespread problem all businesses, big and small and in virtually every industry, are facing: that of labour shortages.

 What it Takes for a Business to Succeed

Broadly speaking, for any business undertaking to succeed it needs a healthy supply of three major things – capital, land and labour. All three of these are in crisis mode in India right now.

Capital is scarce: banks are unwilling to lend for fear of bad loans and investors are reluctant to invest for fear of an uncertain future. Land in India was always mired in problems, from a flawed acquisition process to an overburdened judicial system. Labour is something we’ll talk about today. (BTW there’s also the demand side of things, but we all know the status of consumer demand right now.)

India’s Migrant Labour Exodus: A Humanitarian Crisis 

India has 139m internal migrants – over a fifth of the nation’s workforce. Although considered unskilled labour and informally employed, they are the cogs that hold the economic machinery together. Migrant labour is quintessential for virtually every industry, be it the auto industry, manufacturing, logistics, services or an SME.

Following the announcement of the nationwide lockdown on March 24th, many migrants lost their jobs. Most stopped receiving wages; many weren’t even paid for the month of March. Rather than stay in the cities – where they had bleak job prospects – many preferred to return to their hometowns (mainly in UP and Bihar). 

The lack of transportation facilities to ferry migrants back home led to millions taking to the streets and walking thousands of kilometres to return home. Exact numbers are yet to be calculated but many died, most starved: it was a humanitarian crisis of an immense scale.

India’s Migrant Labour Exodus: An Economic Crisis 

The negative ramifications of the migrant exodus on the economy was feared even in April, at the height of the lockdown, when political leaders voiced concerns over possible post-lockdown labour shortages. State governments set up 21,000 camps to house over 660,000 migrants and stop the exodus. The Central Government also announced a $465m free food grain distribution programme for migrant workers as part of its Atma Nirbhar stimulus package.

But these efforts may have been insufficient. Many migrant workers who have reached their hometowns refuse to return to cities, aghast at their ill-treatment and unsure about their job security. 

Industries are already reeling under labour shortages. Wholesale fruit and vegetable sellers are struck by the lack of labourers to help them load and unload fresh farm produce every day. Retail vending on hand-pulled carts has taken a hit. Construction projects are finding it difficult to reboot because of want of workers. Farmers are refraining from planting labour-intensive crops like rice. Factories are able to resume only 10-30% of normal operations due to lack of manpower.

The Indian economy may have largely reopened for business, but businesses can’t reopen without labour.

“Combined with the challenges posed by raw material supply being disrupted as lockdown lifts in a disjointed way across the country, labor shortages will further delay the economic recovery with resulting implications for social stability,” said Akhil Bery, a Washington-based analyst with Eurasia Group.

The Road Ahead: How to Fix the Labour Shortage?

The labour shortage the economy is confronting was unavoidable. Unlike the urban minority that could afford to continue operations while working from home, remote working is not possible for migrant workers and businesses that relied on their labour. For them, the lockdown meant total shutdown.

This is also not an India-specific problem. China faced labour shortages of its own as it began easing its lockdowns. But India’s position is unique because (a) its lockdown was the most stringent in the world, and (b) its economy was already suffering a prolonged slowdown before the pandemic hit, so it is less-equipped and ill-prepared.

Larger companies can afford large-scale solutions. Construction major Larden & Toubro, for example, is providing workers with housing, food and transportation, and training new pools of workers in its own institutional establishments. Such a route, however, cannot be afforded by smaller businesses (so, most businesses).

So, what can be done? A group of ministers led by Union Minister of Social Justice and Empowerment Thawar Chand Gehlot had suggested measures to encourage migrant workers to return to cities. Let's look at these suggestions to get an idea of possible solutions. These include:

  • Enrolling every migrant worker in Ayushman Bharat so that they can access cashless medical facilities.
  • Setting up a Migrant Workers Welfare Fund to address their accommodation, health insurance and unemployment allowance.
  • Framing a National Employment Policy for “an inter-sectoral strategy for employment and economic growth to enhance the skills and human resource development, including overall labour welfare and labour market governance in the country”.
  • Confidence-building measures like sanitation measures at place of stay, ration card portability and access to anganwadis, textbooks, school uniforms and scholarships for the workers’ children.

The Central Government is yet to announce incentives to encourage a reverse migration of workers. But one thing is for sure - if the labour gaps are not filled, reopening the economy will have muted economic benefit. On the contrary, the increased risk of infections at reopened (and hardly operational) factories and offices could further exacerbate the health crisis. And the return of millions of unemployed workers to villages and towns, where job prospects are dim already, could have tectonic implications, both economic and societal.


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