Rural employment and the pandemic challenge
THE Covid-19 pandemic has proved to be a massive disruption of the ‘business-as-usual’ scenario for the global economy. Since we are still in the midst of this disruption, its long-term consequences are nearly impossible to foresee. Much will depend on how we react, publicly and privately, in the months and years to come. But two lessons are clear, the crisis has exposed the multiple vulnerabilities of our development model very starkly, and it also affords an immense opportunity to reorient our priorities. In this essay I take stock of what we know about the economic impact of the pandemic on the rural economy and offer some reflections on the way forward.
The health impact of the first wave was not really felt in small town and rural India as it was in the larger towns and cities. But the same was not true of the economic impact. The nationwide lockdown of 2020 disrupted agricultural supply chains and caused labour surpluses or shortages (depending on whether the area was migrant-sending or migrant-receiving in the pre-pandemic period). And as if a global pandemic was not enough, new farm laws were also passed triggering a historic agitation by farmers.
That said, it is also true that agriculture posted higher rates of growth than the non-agricultural sector during the last fiscal year (3.4% as opposed to negative rates for most other sectors), a rare occurrence in recent economic history. The share of agriculture in GDP actually increased as a result. This was mainly because the sector was relatively less susceptible to disruptions as compared to manufacturing and services. As a result, the sector also emerged as an important fallback option for workers losing work elsewhere in the economy.
The second wave of the pandemic directly affected rural India much more severely than the first. Hence the economic impact is also likely to be more severe. Detailed employment and income data for the second wave are just becoming available but the picture is not as yet clear. One thing to bear in mind is that even if the direct economic impact of the second wave was not very severe, it came close on the heels of the economic devastation of the first wave, before households had a chance to recover. Thus the cumulative effects are likely to be severe.
This essay describes the problem of rural employment leading into the pandemic as well as the impact of the pandemic on rural employment and incomes. It also surveys the reach of social protection measures in rural India. Finally, it suggests a policy path focusing on reviving employment. There are three ways in which we can imagine the urgency of rural employment for the broader Indian economy in the aftermath of the Covid crisis. First, a vibrant rural economy is good in and of itself. Second, lack of employment opportunities in the rural areas (and surrounding urban locations) has been a strong driver of rural-urban migration. The migrant crisis is thus a result of not only precarious working conditions and lack of an urban social safety net for migrants, but also of the lack of rural employment opportunities in the first place. Third, a more resilient and vibrant rural economy will not only improve the quality of life in the villages but will also improve working conditions in the entire economy, because rural earnings set the floor for the entire economy.
The employment crisis in India, prior to the pandemic, has been widely discussed in media and policy circles.1 As per data from the National Sample Survey Organization, between 2011-12 and 2017-18, the working age population (15+ years) in rural India grew by 2.5% per annum for both men and women. But the workforce grew only by 1.5% per annum for men and practically did not grow for women (0.34% per annum).2 This mismatch shows up in two ways. First, the workforce participation rate fell for both men (from 80% to 72%) and women (from 35 to 24%). And second, there was a sharp rise in the rate of open unemployment from 2.2% to 6.1% (1.7% to 5.7% for men and 1.6 to 3.8% for women). The situation improved somewhat after 2017-18 and there was a small increase in the workforce participation rate, particularly for rural women and a small decline in the unemployment rate (from 6.1 to 5.8).3
But, despite small improvements in the immediate pre-pandemic period, it should be kept in mind that unemployment reaches well into the double digits for younger men and women with more than 12 years of education. For those with graduate degrees, the rural unemployment rate far exceeds the urban (18% versus 12% for men, and 38% versus 21% for women). The pace of job creation in the rural areas, particularly in formal wage employment, continues to be very slow. As of 2018-19, only 13% of the rural workforce was in regular wage employment (of which only 4.7% were formal workers).
Smaller surveys also clearly reveal the crisis of rural employment. A survey of 730 youth conducted by Transform Rural India Foundation (TRIF) in Ramgarh district of Jharkhand showed that only 17% of all youth currently involved in agriculture expressed interest in continuing in farming. And 90% of those who said they would prefer to work in a regular wage job, preferred a government job. The hunger for government jobs can be easily understood when we recall that, as per the most recent Situation Assessment of Farmers survey (2019) of the NSSO, an agricultural household would have to possess more than four hectares (~10 acres) of land or more to earn incomes approximating what an office peon in government service earns (i.e. around INR 20,000 per month).
The rural non-farm economy has long been recognized to be an equal partner in rural rejuvenation, alongside improving farm productivity and earnings. A worrying trend in this respect is that manufacturing, which accounted for 32% of rural non-farm employment in 1994, has declined steadily in importance, down to 22% in 20104 and as per the 2018-19 Periodic Labour Force Survey (PLFS) now stands at 16%. While manufacturing has lost its share, the gainers have been construction and trade. The former increased its share from 11% in 1994 to 32% in 2018-19. Since manufacturing has special properties that are not shown by construction or service industries such as increasing returns to scale and spillover effects on productivity in other sectors (so-called Kaldor laws), there is an urgent need to refocus attention on rural industrialization.
As per multiple purposive surveys of the informal sector, the nationwide lockdown of 2020 resulted in employment losses of 80% in the urban areas and around 60% in rural areas.5 The Azim Premji University Covid Livelihoods Phone Survey (CLIPS) found that 46% of interviewed farmers could not work in their fields during the lockdown and 46% reported receiving less than half of what they expected from the sale of produce. Fifty-four per cent could not sell because they were unable to go to the market.
Even as per data from the Consumer Pyramids Household Survey (CPHS), which possibly leaves out the most vulnerable households6 40% of the rural workforce lost work during the lockdown. Ten per cent of workers were out of work even when surveyed many months later, in December 2020. In addition to loss of work, there was also increased informalization: only 41% of rural formal salaried workers were able to retain their employment arrangement.
One salient macroeconomic consequence of the pandemic has been a (hopefully temporary) reversal in India’s structural transformation. Due to continued disruptions in manufacturing, construction and services, the share of total employment in agri-culture has gone up for the first time since statistics have been kept. This share increased by two percentage points between 2019 and 2020. On a large base (of over 450 million workers) this represents millions of more workers returning to agriculture as a source of livelihood.
The India Working Survey (IWS), which is a
random household survey in Karnataka and Rajasthan, conducted by researchers
from Azim Premji University and Indian Institute of Management, Bangalore, showed
a sharp decline in rural self-employment earnings between February and August
2020. Conditional on earning an income, monthly earnings fell from an average
of Rs. 8,050 per month to
Rs. 5,140. Casual workers too experienced a decline from Rs. 5,240 to Rs. 4,760 per month, while for salaried workers the fall was less, from
Rs. 10,170 to Rs. 9,985. However, the survey also reports a sharp rise in the percentage of rural workers who reported zero earnings in the post-lockdown period. This proportion increased from 18% to 44% for self-employed workers, from 1 to 42 for salaried workers, and from 2 to 29% for casual workers.
The picture of continued distress going beyond the lockdown, is also supported by CPHS. Overall, rural household incomes were still 13% lower in October 2020 as compared to February 2020, in seasonally adjusted terms. And if we look at cumulative incomes earned over an eight-month period during the pandemic (March to October 2020) these were 21% lower (in seasonally adjusted terms) as compared to the previous eight months (July 2019 to February 2020). For an average household in rural areas this amounted to losing 1.7 months of income (about Rs 34,000 for a family of four). Even as late as April 2021 (on the eve of the second wave), rural household incomes had not yet recovered and remained 10% below pre-pandemic levels.
While we cannot go into details here, it is important to note that behind these numbers lie various causes such as a large disruption of agricultural supply chains resulting from closure of wholesale markets, lack of transportation, delayed arrival of inputs, crowding into agriculture in the migrant sending regions coupled with shortages of labour in migrant receiving regions, and so on.7
The sudden drop
in incomes resulted in a large increase in poverty. Taking the proposed
National Floor Minimum Wage of Rs
375 per day
(Rs 104 per capita per day) for rural areas as an income poverty line, we find that the rural poverty rate shot up by 15 percentage points from 25% to 40%, which amounts to an estimated 140 million additional individuals below the line. Had the pandemic not occurred, poverty would have declined by five percentage points in rural areas between 2019 and 2020, and 50 million would have been lifted above this line.
While evidence on the second wave is still scarce, some insights into the nature of the impact on rural women comes from a dipstick survey and consultations with 50 women’s community organizations conducted by Nikore Associates.8 These show that the health crisis added significantly to an already disproportionate burden of care work for rural women. For example women working in SHGs, factories and shops reported having to withdraw from work owing to household responsibilities. The lockdown also added to safety concerns, further reducing women’s mobility. As a result women reported being unable to travel to nearby markets or towns for work as street vendors, domestic workers, and daily wage laborer’s. Lastly, women also reported being displaced in both public workers such as MGNREGA and in the pirate sector due to an influx of returning male migrants.
As is now well understood, the immense shock to vulnerable households has forced them to cope by reducing food intake, cutting down on expenditures, borrowing, and selling assets. The Azim Premji University CLIPS reported that only 13% of rural households remained unaffected in terms of food intake as a result of the lockdown. And 15% of households reported that food consumption had not recovered to pre-pandemic levels even by November 2020. Even farm households, who were likely to have access to some non-market sources of food, reported reduction in food intake (7 out of 10 farmer households). Twenty-three per cent of respondents in rural areas had sold or pawned an asset. In the IWS in Karnataka and Rajasthan, about 42.6% of respondents reported having borrowed from friends or relatives, 31.7% from self-help groups, and 14.7% from moneylenders. Overall, nearly 90% of rural households had to borrow money to finance consumption after the lockdown.
One aspect of the crisis, that should be underscored, is that the shock was collective in nature, due to which the usual community or caste-based networks are expected to be less effective in insuring households against it. IWS shows that almost 60% of the respondents have their social networks consisting entirely of people of their own sub-caste (jati). And 44% of respondents reported social networks in which all members (22%) or the majority (another 22%) were engaged in a similar occupation as themselves. In such conditions, while community-based safety nets may be available, they will not be able to protect significantly since everyone in the network is likely to be struggling at the same time.
Before discussing long-term and structural aspects of the post-Covid recovery, it is important to briefly take stock of the performance of India’s social protection system during the crisis. Broadly, the rural safety net is wider and stronger than the urban. For example, PDS has a wider coverage in rural areas and there is no comparable scheme to MGNREGS in urban India. In CLIPS, 94% of rural respondents had a ration card as opposed to 82% of urban households. This is comparable to recent evidence from the large-scale CPHS survey.9 In CLIPS, 91% of rural and 67% of urban households with cards reported receiving at least some food via PDS in the month prior to the interview (Oct-Nov 2020). Of these, 41% percent of priority households got more than 5 kg of grains per person, i.e. they had received some free ration under the PMGKY and 27% reported receiving the full PMGKY free quota.
While not strictly comparable to CLIPS, it is worth noting, as another point of fact that in IWS, 40% of all households in Karnataka reported receiving the full quota of grains made available under the relief scheme, compared to 30% in Rajasthan. Sixty-one per cent in Rajasthan and 71% in Karnataka received at least some free rations, over and above the usual quota. Thus, it seems clear that even if the full free entitlement under the PM Garib Kalyan Anna Yojana did not reach all priority cardholders, it did reach enough households to prevent a large-scale crisis.
Surveys also reveal that cash transfers were much less effective due to lower coverage. In IWS, conditional on having a woman-owned Jan Dhan account in the household, 71% per cent of respondents in Karnataka and 76% in Rajasthan reported receiving transfers. But the share of households having women-owned accounts was low to begin with – 44% in Karnataka and 68% in Rajasthan. Similarly, in CLIPS, 52% of rural respondent households had a Jan Dhan account. Amongst these 70 received cash payments. However, only 32% of account holding households had received all three transfers as of October-November 2020 (the transfers were scheduled for April, May, and June). In the Dalberg survey, again, 73% of eligible low-income households had received cash under Jan Dhan but only 56 of low-income households reported having Jan Dhan accounts in the first place. Rural coverage was 59%.
The Rural Community Response to Covid-19 (RCRC) conducted a survey of 10,992 women Jan Dhan account holders in 51 districts spread over 10 states. 66% of active Jan Dhan account holders had received Rs 1500 while another 20% did not know. But this survey also revealed that nearly 50% of households either did not try to withdraw cash (43%) or were not successful when they tried (6%). The principal reasons for not withdrawing were prohibitions due to lockdown rules (41%), health concerns (21%) and crowding in banks/ATMs (21%).
In addition to food relief and cash
transfers, the third principal arm of the 2020 relief package was MGNREGA. As
part of the Atmanirbhar Bharat package of May 2020, an additional
Rs 40,000 crore were allocated to the programme, bringing the total budget to one lakh crore, for the financial year 2020-21 (revised expenditure is around 1,11,000 crore). In June 2020, 32.2 million households were provided employment, a 50% increase over June 2019. Thirty five lakh new job cards were made between April-June 2020 and Narayanan, Oldiges, and Saha report that the top one-third of the high out-migrant districts accounted for 55% of new job cards issued.10
In 2020-21 a total of 3.89 billion person-days of work were generated, an increase of 47% over 2019-2020 (2.65 billion person-days). 111.9 million individuals worked under the programme in the pandemic year, up 42% from the previous year (78.8 million individuals).11 25.7 million households worked under MGNREGA in April 2021, the highest for that month since 2013.
The ‘rationing rate’ (percentage of households who demanded work but did not get it) in the May to August period was 22.7% (compared to 15% for the same months of 2019). Sub-sequently, the rationing rate came down to 13% as demand also subsided.12 However, rationing remains much higher than average in major migrant-sending states such as Uttar Pradesh (23%) and Jharkhand (25%). But these rationing rates are derived from the official programme database (Management Information System or MIS) and are likely to be underestimates of the actual unmet demand.13
Azim Premji University CLIPS showed (as of October-November 2020) that since April, only 55% of those rural respondents who demanded work had been able to get it. Further, almost everyone (98%) who got work said they would like to work for more days.14 The Gaon Connection-Lokniti survey reported even more severe rationing in the months of June and July 2020. Only 20% of households who wanted work actually reported getting it. In the RCRC survey (in Bihar) conducted in June-July 2020, 11% of poor rural households with incomes less than Rs 2,500, had availed of the programme.
In the most recent budget, the allocation
for MGNREGA stands at
Rs 73,000 crore for the current financial year – 34% less than the revised estimates (actual spending) of
Rs 1,11,500 crore for 2020-21. Further, it is only 2% more than what was actually spent in 2019-20, a normal year (Rs 71,600 crore).
Even though the pandemic is still with us, it is worth thinking about the medium and long-term path out of the crisis. The immediate support and relief required has been discussed extensively elsewhere. I do not focus on this issue here.
The longer-term national recovery plan needs to address not only the Covid crisis but also the legacy problems of rural employment. In addition to raising agricultural productivity and ensuring remunerative prices, robust growth in rural non-farm employment opportunities, and in particular, livelihood generation in manufacturing and public services (health and education) are important to raising rural incomes and breathing life into the rural economy. This requires a comprehensive National Employment Policy. Such a policy can bring together supply and demand-side dimensions of the labour market and speak coherently to existing trade and industrial policy regimes. Drawing on State of Working India 2021,15 I offer a conceptual framework within which such a policy could be imagined. Another recent policy paper offers excellent suggestions for the rural economy.16 I have drawn on this work as necessary.
The pandemic has revealed the stark consequences of under-investment in public goods, most significantly healthcare and social protection systems. But, it is equally clear that India’s physical, social and digital infrastructure is in need of large-scale investment. Some steps have been taken in the last few years, but much more can be done. Such investment can address the problem of rural employment from both, the demand as well as the supply, sides.
Focusing first on labour demand (i.e. employment opportunities), it must be understood that increased investment in delivery of public goods directly creates jobs in health, education and local infrastructure. A ‘Universal Basic Services’ approach to healthcare, education, food security, and social protection can create good jobs in the rural areas.17 This of course requires investment in better pay and working conditions for those engaged in the provisioning of such services (Anganwadi and ASHA workers, Rozgar Sahayaks and so on).
For physical infrastructure, India has a great asset in the form of MGNREGA. Increasing the number of days to 150 at least during the pandemic and immediately after, as well as making the entitlement individual rather than household-level, will strengthen the programme. A broader shelf of works and focus on asset quality can be a major way to increase the quality of public investment in rural areas. In addition to direct job creation, such investment indirectly creates jobs by lifting constraints on entry and expansion of private businesses. Another aspect of the programme that is worth thinking about is how it can be expanded to utilize the skills widely available in rural India and enable workers to build on those skills.
Moving from the quantity of employment to its quality (productivity and earnings), it is well known that public investment in agriculture has suffered in recent decades. While farmers continue to invest in irrigation, land levelling, and other fixed assets privately, such investment needs to be complemented with public investment to realize the full potential of productivity gains. As always, local storage and value addition remain key to improving bargaining power and incomes among small farmers. Investment in local roads and other infrastructure also improves farm productivity and boosts earnings. Infrastructure such as electricity and the Internet also helps rural non-farm businesses grow.
On the supply side of the labour market (i.e. on availability and quality of workers), increased public investment can improve the quantity as well as quality of rural labour via better health and education, greater skilling and better transportation.
Special attention should be paid to the question of women’s participation in the rural economy, which, as noted earlier, had been precipitously declining in the years prior to the pandemic. There are two main problems here, the demand for female labour is weak and women’s labour supply is constrained by mobility and care work. Once again, large investments in rural transportation, public safety, and care services can improve mobility, allowing women to access employment opportunities further away from home.
To conclude, I emphasize that we need a bold vision for rural industrialization. Manufacturing job growth has been comparatively weak nationally (not just in rural areas). In its absence, willy-nilly we have seen diversification of livelihoods from agriculture to construction and other low-paying service jobs. In part, this is explained by a national and global trend of ‘premature deindustrialization’.18 But there are examples of countries such as Vietnam and Bangladesh that are trying to buck this trend. It is important to learn from such examples to chart the way forward. In particular, labour-intensive industries, and labour-intensive processes within otherwise capital-intensive industries, need to be systematically encouraged.
A key advantage
that India has is a large and decentralized stock of skills in light
and beverages, textiles, garments, footwear, furniture) and related services. Thousands of rural and semi-urban clusters all over the country can produce goods of cultural as well as export value. A rural industrialization policy that builds on this infrastructure, improves links between towns and surrounding rural areas, as well as invests in local value-adding industries in the countryside, can revitalize the rural economy and create much needed non-farm employment. Such a policy thrust can also reorient us towards a more distributed and sustainable industrial path, which the pandemic has shown to be the need of our times.
1. K.P. Kannan and G. Raveendran,
‘Growth Sans Employment: A Quarter Century of Jobless Growth in India’s
Organized Manufacturing’, Economic and Political Weekly 44(10), 2009,
pp. 80-91; Radhicka Kapoor and
P.P. Krishnapriya, Explaining the Cont-ractualisation of India’s Workforce, ICRIER Working Paper 369, 2019. https://icrier.org/pdf/Working_Paper_369.pdf; State of Working India, 2018. Centre for Sustainable Employment, Azim Premji University, 2018; Santosh Mehrotra and Jajati Parida, India’s Employment Crisis: Rising Education Levels and Falling Non-Agricultural Job Growth. Centre for Sustainable Employment Working Paper #23, Azim Premji University, 2019.
2. As per the NSSO’s Usual Principal Status definition; see Nath Paaritosh and Amit Basole, ‘Did Employment Rise or Fall in India Between 2011 and 2017? Estimating Absolute Changes in the Workforce’, Economic and Political Weekly 56(34), August 2021.
3. Amit Basole, Reviving Employment and Livelihoods in India: Covid-19 and After. Confederation of India Industries and Azim Premji University Report, 2020.
4. T.S. Papola and P.P. Sahu, Growth and Structure of Employment in India. Institute for Studies in Industrial Development, New Delhi, 2012.
5. See https://cse.azimpremjiuniversity.edu.in/covid19-analysis-of-impact-and-relief-measures/#other_surveys
6. Conducted by the private firm,
Centre for Monitoring Indian Economy, this is an ongoing large-scale survey of
around 1,70,000 households. But its nationally representative nature is
currently under debate. See https://economictimes.indiatimes.com/opinion/et-commentary/bias-it-is-cmie-chiefs-defence-
7. R. Ramakumar, ‘Agriculture and the Covid-19 Pandemic: An Analysis with Special Reference to India’, Review of Agrarian Studies 10, 2020 (2369-2020-1856).
9. Shrayana Bhattacharya and Sutirtha Sinha Roy, Intent to Implementation: Tracking India’s Social Protection Response to Covid-19. Social Protection and Jobs Discussion Paper No. 2107. World Bank, Washington, DC., 2021.
10. S. Narayanan, C. Oldiges and S. Saha, Employment Guarantee During Times of COVID-19: Pro-Poor and Pro-Return-Migrant? No. 2020-034. Indira Gandhi Institute of Development Research, Mumbai,2020.
12. NREGA National Tracker December 2020, People’s Action for Employment Guarantee, https://www.indiaspend.com/uploads/2020/12/23/file_upload-364421.pdf
13. This is because demand for work
is often not recorded at the panchayat level if officials know that work cannot
be provided due to lack of funds or for other reasons. See https://www.business-standard.com/article/economy-policy/govt-uses-off-record-whatsapp-
14. State of Working India: One Year of Covid-19. Centre for Sustainable Employment, Azim Premji University, 2021.
15. State of Working India, 2021, Chapter Eight.
16. W.R. Reddy and Rajendra P. Mamgain, Revival and Reconstruction of Rural Livelihoods Amidst Covid-19: Policy Responses, Opportunities and Way Ahead. SRSC Policy Apaper Series 1/2020, 2020. http://nirdpr.org.in/nird_docs/srsc/srsc070820n.pdf
17. Reddy and Mamgain, State of Working India, 2019. Centre for Sustainable Employment, Azim Premji University, 2020.
18. D. Rodrik, ‘Premature Deindustriali-zation’, Journal of Economic Growth 21(1), 2016, pp. 1-33; Amrit Amirapu and Arvind Subramanian, ‘Manufacturing or Services? An Indian Illu-stration of a Development Dilemma’. Centre for Global Development Working Paper, 2015.