The Effect of COVID 19 on the Employment of India

Job loss is the most severe immediate impact of the COVID-19 crisis while lower economic growth and rise in inequality would be the long-term effects, according to a survey by the Indian Society of Labour Economics (ISLE). In the last week of May, the online survey was carried out on 520 ISLE residents.

The preliminary findings revealed that job loss was perceived to be the crisis’s most significant immediate impact while reduced economic growth and increasing inequality were likely long-term impacts.

According to the poll, the immediate policy objectives proposed were the security of employees and families, the development of short-term jobs, and the redistribution of profits to impacted employees.

A damaging impact on an economy as large as India’s caused due to a total lockdown was imminent. On May 17, 2020, unemployment increased to 24 percent. This was possibly a result of a decrease in demand as well as the disruption of the workforce faced by companies. Moreover, this led the Indian economy that month to lose more than nine percent of GVA.

The Covid-19 crisis has come unannounced and disrupted many of our financial plans like nothing we’ve experienced before. The economic fallout of the pandemic has led to widespread job losses and pay cuts, and countless might be finding it challenging to get a new job with better or even similar perks during this lockdown. However, a crisis like the one we currently find ourselves in requires calm nerves and not panic-stricken decisions. If your income has deteriorated during the current process, you need to take stock of your finances with relaxed nerves and make some crucial changes if possible. I’ve covered a couple of tips that you’ll hopefully find helpful if you’ve missed your work in the last few months.

1. Increase the size of your emergency fund

If you had in place an emergency fund worth at least 3 months of your income before the pandemic, use your severance package or the full and final settlement to increase its size to 6 months or even 12 months if possible. Your emergency fund will be your central cash reserve until you get another job. You can also choose to park a portion of your emergency fund in an FD for some capital appreciation and liquidate it midway if required after losing just 1% interest income.

2. Go on a strict financial diet

With clogged income channels, you need to track every rupee that leaves your account and look for ways to cut corners wherever possible. Your spending patterns need to undergo a drastic change during such a situation. You need to exercise strict cost-cutting measures and minimize non-essential expenditures to be able to free up more money for critical financial commitments like rent, food, utilities, etc. The lockdown phase should be of some help in this as you no longer will have to spend on things like daily commutes.

3. Ensure your critical insurance plans do not lapse due to non-payment of premiums

Another critical financial commitment, especially during this pandemic, is your insurance plan. Timely payment of your insurance premiums also needs to be a top priority. Your life insurance plan will help secure your dependent family members’ financial interests if something untoward were to happen to you, and your medical insurance plan will safeguard your precious savings if any of the insureds require hospitalization. If you were solely dependent on your employer-provided group health insurance plan when you were employed with them, see if you could continue the same plan after paying the premiums even after losing your job. That might be a cheaper alternative to buying a new plan and you won’t have to go through fresh waiting period deadlines for pre-existing conditions.

4. Borrow cautiously

Now if you are going through a severe cash crunch and your cost-cutting measures are proving to be of limited help, you might be eager to take a loan at this stage. However, you must be very cautious while taking a loan as your finances will deteriorate further if you can’t make timely repayments. If you were planning to make a partial withdrawal from your Provident Fund account, you might feel a bit disheartened to know the deadline to avail of this facility has now ended unless there’s an extension. But there are still a few other ways to raise cash without having to take a new loan. These could be liquidating a non-essential investment (i.e. an investment which is not linked to your most important financial goals), pausing your SIPs, or selling a few unnecessary items gathering dust at your home.

If none of these options seem to address your requirement, you can look for collateralized loans which are usually cheaper than their unsecured counterparts. These could be a gold loan, a loan against your endowment plan or ULIP investment, a loan against securities like eligible mutual fund investments or shares, etc. If not, you can go for unsecured financing facilities like a personal loan or a credit card-linked pre-approved loan. But whichever option you choose, do ensure you have a plan in place to repay the loan on time in full and compare your options within the same loan category for the best repayment terms like lower interest rates, processing fees, and foreclosure charges before finalizing your decision.

5. Take moratorium support only if you have a clear ‘bounce-back’ plan

If you’ve been servicing a home loan, you might be tempted to opt for the moratorium facility for some temporary relief. However, since interest charges will continue to accrue during the moratorium period, opting for it could lead to tens of EMIs being added to your loan, especially if you’ve recently started repaying your loan. So, ensure you have a plan in place to be able to repay this accrued interest alongside your regular EMIs soon after the moratorium ends by making adequate prepayments. You could pre-pay 120% of the deferred payments within a year of the end of the moratorium, and this should put you back on the original repayment plan without the burden of the additional interest. If you have one, taking the moratorium will heighten your loan burden considerably. Often, try not to take advantage of this service on your credit card payments as they come with interest rates of 3-4 percent per month.

6. Look for ways to open additional income channels unless you get another job

Losing a job is an unpleasant feeling; however, you need to move on as well. To begin with, ensure you’ve updated your resume and uploaded it on relevant job portals and have started reaching out to your contacts who can help you land another job. You can also use the time in between to upskill yourself, preferably using an affordable if not free online course or certification program, for better job prospects. Meanwhile, also try to look for ways to monetize your skills and hobbies. These could be taking up freelancing projects or online tutoring among many other things. Any additional income at this stage could be of great help. More importantly, it would boost your confidence and help you get over the shock of an unanticipated job loss.

Difficult times demand tough decisions. It is how pragmatically we deal with them that decides how quickly we can emerge out of it. A little planning would help us greatly to come out of this crisis with minimum damage. I wish you all the very best!

CMIE ‘s weekly data series showed a gradual rise in unemployment in India since the onset of the COVID-19 pandemic, with the week to March 29 seeing the sharpest spike to 23.81 percent.

According to CMIE numbers, April’s monthly unemployment rate stood at 23.52%, up from March’s 8.74%.

As of the end of April, Puducherry in South India had the highest number of unemployment at 75.8%, followed by neighboring Tamil Nadu 49.8%, Jharkhand 47.1%, and Bihar 46.6%.

 Maharashtra’s unemployment rate was pegged at 20.9% by the CMIE, while the same for Haryana stood at 43.2%, Uttar Pradesh at 21.5% and Karnataka at 29.8%.

Hilly States had the lowest incidence of unemployment as of April, the think tank said, pointing out that the rate in Himachal Pradesh stood at 2.2%, Sikkim at 2.3% and Uttarakhand at 6.5%.

The trickle-down effect

Around February and April 2020, households’ share of income declining shot up to nearly 46 percent. Inflation rates were projected to increase later this year on goods and services like food products and gasoline. Social distancing resulted in job losses, especially the lower economic strata of Indian society. Several households terminated domestic help services – essentially an unorganized monthly-paying job. Most Indians spend a great deal of time involving themselves in household chores making it the most commonly practiced lockout activity.

Aid from the Pradhan Mantri Garib Kalyan Yojana

The most devastating impact of the virus and the lockdown had been on the economically backward classes, with limited access to proper healthcare and other resources. This resulted in the government has launched various programs and campaigns to help sustain these households. Under the Pradhan Mantri Garib Kalyan Yojana, 312 billion Indian rupees were accrued and provided to around 331 million beneficiaries that included women, construction workers, farmers, and senior citizens. More aid was announced in mid-May, to mainly support small businesses through the crisis.

AFTER EASING OF LOCKDOWN

Some people had hoped that once the lockdown is lifted in phases, the economy would bounce back and so would employment. Indeed, some jobs have come back but if you look at the details a very worrying picture emerges. As shown in the first chart above, the unemployment rate in June was 11%, and it’s likely to be around 9-10% in July. These levels are higher than the pre-pandemic levels. That means more people are going to remain unemployed than earlier. Remember that the falling work participation rate also shows that there are many who have simply given up the hope of joining the workforce and are thus being counted as “out of the workforce” and not as unemployed.

Jobs in agriculture have come back driven by early rains and consequent early and extensive Kharif sowing. Employment in agriculture is estimated to be at record levels because, as always, a vast number of jobless people are working in the fields at very poor wages, or just helping their family in the work. Technically they are counted as “employed” but it is just disguised unemployment. Many have found work in MGNREGA, which was restarted only after 20 April. In May 2020, about 3.3 crore households got some work in the scheme while in June the number went up to 3.9 crores. But these huge numbers only reflect the shocking level of joblessness that exists, forcing people to do a few days of manual work just to survive.

Another section of people which has started “working” is the vast number of self-employed people like petty shopkeepers, vendors and hawkers, rickshaw pullers, providers of personal services (maids, cooks, washermen/women, etc.), and other such sellers of labor. For them, it’s a matter of survival – they just can’t afford to not work, even if earnings are much lower than before. Businesspersons also are back in work, in most places.

But among the salaried or wage-earning sections, the situation continues to be grim. Estimates indicate that about 1.8 crore salaried or wage-earning jobs were lost, including factory workers, and service sector workers like office employees, IT sector employees, etc. As of June, only a fraction of these – some 30-40 lakh have returned to work.