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20% households particularly vulnerable, can't cope with India's 'intimidating' lockdown

By Debraj Ray, S. Subramanian, Lore Vandewalle*
On March 24, 2020, the Government of India ordered a nationwide lockdown. The lockdown – in full force – restricts 1.3 billion people from leaving their homes. Transport services are suspended, educational institutions are closed, and factories are shut down. This is in line with the measures imposed in most European countries and in the United States, but the sheer scale of the measure – as in the case of most policies in India – is intimidating.
Add to this the grim truth of Indian occupational structure and poverty, and you would likely predict what we now see: unending streams of migrants trying to find their way home, the fear of loss of all income, deep privations, and even (in the space of days) hunger, starvation and death.
The vulnerability of the population – especially the poor – to a generalised lockdown is accentuated in India by three specific structural features of the population. The first has to do with occupational configurations. The latest report based on the “Periodic Labour Force Survey” is instructive in this regard. Over 2017-18, about 52% of rural households received their main income from self-employment.
The share of rural households with a major source of income from casual labour was 25%. Regular wage/salary earners accounted for 12.7% of rural households. For observers in developed countries, the corresponding figures for urban India's households are less surreal – 32.4%, 11.8% and 41.4% respectively – though it is worth bearing in mind that close to 2/3 of India's population is rural.
Many of these self-employed rural households are marginal cultivators or small artisans. In the urban areas, many are engaged in running local shops, small businesses or in minor intermediation activities. It would therefore be very conservative to treat only the casual labour category of households as especially vulnerable. Even if we did, then a simple combination of the numbers above would reveal that casual households alone account for over 20% of all Indian households.
We are thus speaking of at least a fifth of the household population that is particularly fragile in its ability to cope with an indefinitely imposed economic lockdown, and most likely many more than that. This heightened vulnerability is, of course, common in all poor countries, but it is particularly worrisome in a society of 1.3 billion people.
A corollary of this sort of occupational structure is that it is highly “informal”; that is, it belongs to that penumbra of the economy in which transactions are largely outside the fiscal reach of the government, both in terms of taxes (a concern, perhaps, in normal times) and transfers (the overwhelming concern now). Well over half of India's GDP is produced in this informal sector. In contrast, countries in Western Europe have 10-20% of their national output produced in the informal sector.
The Indian informal sector isn't a sector that can transit to online existence with ease – it can't start holding business dealings on Zoom or provide internet-based services to replace their ongoing activity. It is possible that some fraction of them has long-term relationships with other better-placed Indian households, and can rely on them for assistance or a continuation of their economic relationships.
Another correlate of vulnerability is low savings. From a study by one of us in rural Chhattisgharh, we observe that the median household spends INR 345 per week on food items alone (this does not include other essentials such as soap or kerosene). That median household has liquid savings of just INR 881 only, though. If we divide these savings by the weekly expenditure on food, we see that half the households do not have enough liquid savings to get through a lockdown.
MNREGA, implemented in rural areas, can be suitably complemented in cities in order not to prolong human tragedy of the lockdown
If we add the value of grain stocks, livestock and jewellery, the median climbs to INR 1818, but it is still the case that 38% of households do not have the wherewithal to get through a 21-day lockdown. Moreover, such forms of savings are very hard to liquidate under a correlated shock, because the prices of the assets plunge at the same time that they need to be sold.

Reaching the Vulnerable

How might we leverage the existing arms of the State to reach these households? Even for the best-motivated Indian government, this is a tricky proposition. Cash transfers come first and foremost to mind, but transfers to whom? We would need to credibly separate the vulnerable from the protected, the low-income earners from the high. We don't have the income data to implement this separation. For instance, no more than 3% of Indian citizens pay income taxes.
In response, one might throw one's hands up and ask for universal transfers. The Rangarajan committee's 2014 thresholds ask for INR 972 (rural) and INR 1407 (urban) per person per month, a number that appears to be pitiably outdated. Nevertheless, with these low estimates, a universal transfer would call for a budget a bit north of INR 1.43t.
Annual GDP for India is around INR 200t, so that comes to over 0.7% of annual GDP per month, a not infeasible but still hefty price tag with bad leverage properties – everybody would need to be paid to avert a crisis for those truly in need. To place the number in context, the Indian government has budgeted 1% of annual GDP under all expenditure headings for the coronavirus crisis – more on this below.
Finally, note that the lockdown will come with significantly lower output – the United States has been staring down the barrel of a 25% drop in GDP quarter over quarter. While a universal transfer would still have a progressive component, the associated real transfer would be significantly diminished by the prospects of widespread hoarding, speculation and inflation.
Better, then, to exploit channels that are already self-selected by the poorer public. Options such as India's massive rural employment guarantee scheme (MNREGA), and the public distribution system operating through India's ration shops, come to mind. MNREGA could expand its work guarantees well beyond 100 days per annum, and she has called for 20 days per month during the crisis. India has a buffer stock surplus: now is the time to run that surplus down by increasing rations through the public distribution system.
As MNREGA is implemented in rural areas only, it has to be suitably complemented in cities in order not to prolong the human tragedy of the lockdown. Thousands of poor migrant workers have been frustrated by the shut-down of transport facilities and closed state borders in their effort to return to their village homes.
Many have been forced to undertake foot journeys of several hundreds of kilometers, with limited cash to hand, and little access to food, water, or shelter. Trekking labourers have been rounded up and locked up in crowded enclosures. In one shocking incident, a contingent of migrants was showered with corrosive disinfectant. Significant reports of deaths are beginning to come in, including the deaths of children. There is little doubt that these will multiply as the coming difficult days go by.
The relief measures proposed by the Government of India to help its citizens over the initial three-week period of the lockdown have been both delayed and relatively scanty. In a recently announced “relief package” the Government has allocated just a little under 1% of GDP for corona-related assistance.
In addition, some components of the Indian relief package refer to provisions already made in the Union Budget, while others are scarce in relation to their intended purpose. Consider, for instance, the proposed allowance of Rs 500/ month/family: the average monthly per person consumption expenditure is itself about two-and-a-half times this amount; and, indeed, even the average per person expenditure of the poorest 20% of the population exceeds the allowance.
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*(Respectively) Debraj Ray is Silver Professor in the Faculty of Arts and Science and Professor of Economics, New York University; Sreenivasan Subramanian is Independent researcher; Lore Vandewalle is Associate Professor of Economics, Graduate Institute of International and Development Studies, Geneva. 
This is an excerpt from the paper “India's Lockdown”, published by the Centre for Economic Policy Research, April 2020. Click here to read 

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