key: cord-0908270-y1at8fbb
authors: Thakur, Narender; Kumar, Manik; Vaishali,
title: Stimulating economy via fiscal package: The only way out to save vulnerable Workers' lives and livelihood in Covid‐19 pandemic
date: 2021-02-01
journal: J Public Aff
DOI: 10.1002/pa.2632
sha: 05db123f7f5e0a87855b98a73375f74f78ac8907
doc_id: 908270
cord_uid: y1at8fbb

This paper examines critically the economic package announced by the Indian central government to counter the challenges of lives and livelihood in the Covid‐19 pandemic. This paper estimates the shares of the fiscal economic packages in two phases as per the shares of the vulnerable workers and number of Covid‐19 cases in the Indian states. The recent data on labour market are used from National Sample Survey Organization and data on Covid‐19 cases from Ministry of Health and Family Welfare. This paper recommends alternatively a fiscal stimulus package of Rs. 10 lakh crores (5% of GDP) with an immediate effect to counter the present problems of health, food and unemployment in the pandemic and should be extended to Rs. 24 lakh crores (12% of Indian GDP) to the Indian states for at least 1 year to protect the lives and livelihood of the most vulnerable, informal and migrant workers. The populous and poor states like Uttar Pradesh and Bihar have higher share of vulnerable workers and highly industrialized states like Maharashtra, Gujarat, Delhi and Tamil Nadu have higher number of Covid‐19 cases. Due to the unplanned lockdown in India, there has been a surge in Covid‐19 cases across the country that in turn led to an increase in vulnerable workers in poor states due to reverse migration from industrialized states to populous and poor states during the pandemic. Furthermore, the paper explains the five significant factors that justify the adoption of an expansionary fiscal policy rather than monetary policy.

On May 12, 2020, the Indian Prime Minister announced a "big" economic package, under "Self Reliant India Campaign," which was in response to addressing serious crisis in pertaining to "Land, Labour, Liquidity and Law," of Rs.20 lakh crores (10% of GDP) (MoHFW, 2020). The package lacks government's social responsibility to protect lives and livelihood of the masses with higher public funding and this package had more liquidity, money, credit and loan instruments rather than fiscal policy instruments to provide health, education, food and decent work. This package has not adequately addressed the challenges and problems, emerged during pandemic, faced by the vulnerable workers, especially informal and migrant workers in the Indian states and Union Territories. The problems and challenges are both from supply and demand side in the economy. On the one hand, GDP growth rate got hit by the pandemic and the unplanned lockdown resulted in −10.3% in Indian economy (IMF, 2020) while on the other hand, the job loss touched another level of rise with 20%-25% unemployment rate reported in the months of complete lockdown during April and May, 2020 (CMIE, 2020) . However, the unemployment rate in India has now declined to 8.35% in August 2020, but it is still high.

The negative economic growth rates and higher unemployment rate reflect the extent of vulnerability of lives and livelihood. The rising number of Covid-19 cases have pushed India to top second in the world and it has third global rank of the resulting deaths in the world (WHO, 2020) . Khan (2020) and Narender and Vaishali (2020) state that countries with greater government's expenditure on health and health-related infrastructure have successfully managed to flatten the curve of infected cases of Covid-19. The situation in India thus demands more sincere and greater expenditure in public health care, which would in turn address the issues of lower GDP growth and higher unemployment rate. The International Labour Organization (ILO) report, 2020 estimated that an increase in fiscal package by 1% GDP would lead to 1% decline in the unemployment rate in the countries during Covid-19 pandemic period. The economists like Prabhat Patnaik, Jayati Ghosh, Amartya Sen, Abhijit Banerjee and Raghuram Rajan argue for the fiscal stimulus package in the Keynesian economics context rather than monetarist economics context (Ghosh, 2020; Patnaik, 2020; The Hindu, 2020b) . This is in view of considering the existence of larger share of people engaged in unorganized sector, more than 90% (ILO, 2018), many of whom have lost their jobs during the pandemic. India has higher shares of vulnerable workers who lost their jobs and livelihood in this critical time due to the nation-wide lockdown. A survey reports that 92% of the workers in Gujarat and 59% workers in Maharashtra are not paid their wages by their employers in the lockdown period (Tirodkar, 2020) . Another study showed that there are around 4,000 stranded, informal and migrant workers in 12 states in India, 8 of 10 workers lost their jobs in urban areas and 6 of 10 in rural areas in the lockdown period (The Hindu, 2020a). Thus, this paper highlights the urgent need to increase the fiscal stimulus as a fiscal expansionary policy of the central government from only 2% of GDP to 5% of GDP immediately for saving lives due to hunger and poverty. This can be further raised to 12% (Rs.24 lakh crores) in order to maintain minimum wages and generate aggregate demand in the economy. The raised fiscal stimulus will protect the lives and livelihood of 89% of the vulnerable workers including low-paid regular, self-employed and daily-wage workers for at least 1 year in India. This paper is divided into six sections: (1) Background; (2) data and methodology; (3) need of expansionary Fiscal policy; (4) saving lives and livelihood in Indian states and union territories; (5) higher shares of vulnerable workers: benchmark for Fiscal stimulus and; (6) concluding remarks.

The present paper has critically examined the components of the economic package of Government of India to counter the problems of lives and livelihood due to the Covid-19 pandemic. This paper has also examined the review of the literature to identify the nature and amount of relief package announced by government of India. The paper also examined the reports, papers and newspaper reports (CMIE, 2020; Rawal et al., 2020) on unemployment, deaths, distress and despair faced the workers and migrants during the unplanned full lockdown advocated by the central government in the months of March-June, 2020. For the recommendation of a fiscal stimulus to resolve more effectively the problems, this paper advocated the shares of Indian states in this fiscal stimulus package as per the shares of the vulnerable workers in these states and shares of cases. For the estimation of the shares of the Indian states, we have used the recent data of (1) the Periodic Labour Force Survey (PLFS) 2017-18 at unit level of National Sample Survey Organization, Government of India, (2) Indian population census data are also used to estimate the percentage and actual number of vulnerable workers and (3) the number of Covid-19 cases in Indian States from the Ministry of Health and Family Welfare (MoHFW, 2020). In order to estimate the extent of livelihood crisis and understand the urgent need of fiscal package, we have estimated the vulnerable workers by numbers and their shares in total workers state-wise and union-territory (UTs)-wise by using periodic labour force survey (PLFS, 2019). The vulnerable workers include three categories of workers: (1) casual-wage workers,

(2) self-employed workers excluding employers, and (3) regular salaried workers who earn less than Rs. 12000 per month as the average wage per day at Rs. 400, which is an estimate of the rural and urban stipulated wages, respectively, at Rs. 350 and Rs. 450 as per the VV Giri National Labour Institute of the central government of Indiaminimum wage committee report (Magazine, 2019) . We are assuming that casual worker and regular worker without having any kinds of job contract have relatively high probability of job loss during COVID-19.

To estimate the number of the vulnerable workers, these three cate- With the above-mentioned data sources and literature, the paper reflects on three main aspects, which in turn become three objectives of this paper. The first objective is to emphasize on the need of expansionary fiscal policy in the health emergency of Covid-19. The second objective aims to elaborate the challenges of saving lives and livelihood, especially the vulnerable workers. The third objective is to estimate and sustain the shares of fiscal stimulus with an immediate effect and for a year to stimulate the demand and supply in the Indian economy.

There are five prominent reasons to support the expansionary fiscal policy: (1) several economists argue Indian economy is suffering from demand crisis as well as supply shock and for raising the demand and reviving the supply, fiscal stimulus policy is more effective than monetary policy, (2) drawing lessons from capitalist economies like the US, which are spending more than 10% of GDP as the fiscal stim- the lockdown period (CMIE, 2020), stresses on the need of the higher fiscal stimulus. The government can also learn lessons from the economic history of the Great Depression during 1930s, which experienced 25% of unemployment rate, and Keynesian economics was used in that period to expand aggregate demand by more government spending to work in the multiplier process for higher GDP. The CMIE (2020) data estimated the job loss of 12.2 crores in the month of April, 2020 and unemployment rate by May 12, 2020 in India reached 25%.

In the light of the above-stated factors, the paper advocates 5% of GDP fiscal stimulus with an immediate effect rather than mere 2% as allocated by the Indian government to save the most vulnerable workers (57%) from hunger and starvation. The fiscal stimulus package should be extended to 12% of GDP to protect minimum wages of the vulnerable workers (89%) for at least 6 months, to fight the health and economic crises in a more decentralized manner with the leadership of the union government. This suggestion of fiscal stimulus corresponds to the recent ILO estimate on a positive impact of 1% increase in the government spending as a fiscal stimulus leads to a reduction in 1% in unemployment rate during the Covid-19 pandemic (ILO, 2020). Furthermore, the informal and migrant workers in India are 400 million, who are severely hit by Covid-19 as most of them are marginal on the basis of economic class, caste, gender, and region (Shah & Lerche, 2020) . This implies they are super-exploited on the basis of status of underpaid and over-worked, reflecting their poor working and living conditions (Patnaik, 2020) . In India, as per the Census 2011 data, 100 million workers are seasonally informal workers, they migrate for their seasonal employed work, mostly from rural areas to the urban areas of the poor economic states of India like Uttar Pradesh, Bihar, Jharkhand, Chhattisgarh, Madhya Pradesh and Orissa.

According to Bose and Azad (2020) , this "big" economic package of 10% contains only 2% share of fiscal stimulus instruments and 8%

share of liquidity and monetary instruments, which will not address the main challenge of deficiency of demand and the aggregate supply and a crash of supply-chains and production in the economy. India's announced fiscal stimulus is much lower than the highest capitalist country, US ($2.7 trillion, 13% of its GDP, without bothering the increase in fiscal deficit in the US budget from $ 1trillion to $ 3.7 trillion in 2020), to counter the deficiency of aggregate demand and to improve the declined aggregate supply as well as the disturbed supply chains in the Covid-19 pandemic.

Another contributing factor behind the urgency of introducing expansionary fiscal policy is the delayed response towards the deterio- Das (2020) estimated empirically that 5% of fiscal stimulus in India can achieve 9% nominal GDP growth with 4% inflation rate (or 6% real GDP growth rate with 3% inflation rate), which can easily lead to 5% real GDP economic growth in 2020-2021. These estimates of real GDP with fiscal expansionary policy are possible through borrowing from RBI in the emergency of the Covid-19 pandemics.

The expansionary fiscal policy can be used by the central government to provide funds to the states to address the issues of lives and livelihood. This fiscal stimulus will lead to higher aggregate demand, which is very crucial to revive Indian economy.

The fiscal stimulus should be used for higher public health and education expenditure, support for micro, small and medium enterprises and universalization of MNREGA, universalization of public distribution system and universal public health care, revival of demand to facilitate supply or production in the Indian economy in post-lockdown period, as the unemployment rate has touched the benchmark of the Great Depression of unemployment rate, that is, 25%. The status of migrant or informal workers should be the benchmark for the devolution of this proposed fiscal package by the union government. However, Modi government seems reluctant to use expansionary fiscal policy and so has more focus on expansionary monetary policy in the announced package, under "Self-Reliant

Indian Campaign". It may be due to the issues of the fiscal deficit and thereafter the worry for the downgrading of credit-rating for business environment by the international credit agencies and fear of outflows of foreign capital. But the government should not be worried if it adopts following four measures, the first measure is if RBI monetize the union government's fiscal stimulus followed by the second measure, by rationalizing public-private consumption expenditure, as the share of private consumption expenditure is significantly higher at 60% of GDP in 2019-2020 while the government expenditure is 12% (Das, 2020) . It is suggested to increase government expenditure to 17%-24% by spending extra 5%-12% as fiscal stimulus to facilitate the crowding-in effects as well as the multiplier effects for revival of the aggregate demand in the economy. The third measure is to optimally utilizing the huge foreign exchange reserve with India, that is $ 475 billion, and the fourth effective measure is to bring back our sinking economy by levying of wealth taxes on super-rich Indians or an imposition of property tax on the wealthy economic class in India to revive supply as well as demand due to the shocks in covid-19 pandemic and post-covid-19 pandemic periods (Neog & Gaur, 2020) . Figure 1 shows the descending order of shares of the vulnerable workers out of total vulnerable workers in India. Out of 33.1 crores vulnerable workers in India, the two states have double-digit higher shares, namely Uttar Pradesh (13.61%) and Maharashtra (10.13%). Eight states have more than 5% and less than 10% shares of the vulnerable workers, which are as follow: West Bengal (8.21%), Madhya Pradesh (6.90%), Tamil Nadu (6.79%), Bihar (6.01%), Karnataka (5.73%), Rajasthan (5.72%), Andhra Pradesh (5.66%) and Gujarat (5.03%).

It can be observed that among the states, UP and Maharashtra have the highest share of vulnerable workers due to the highest population in UP and Covid-19 cases are highest in Maharashtra, which necessitates the urgent need of the proposed fiscal stimulus to save lives and livelihood. In India, the number of Covid-19 cases on May 11, 2020 was 67,152 (20,917 recovered and 2,206 deaths reported), the descending rank order of the states by number of cases as shown in Figure 2. Figures 3 and 4 show the recent shares of Covid-19 cases and deaths in the Indian states, in descending order out of the total respective Indian cases (2.6 million) and deaths (50.8 thousand) due to Covid-19 virus by August 16, 2020. Figure 5 shows that if the government of India allocates a fiscal package to the states and union territories 5% of GDP, viz., Rs. 10,00,000 crores, as per the shares of vulnerable workers then it can help these states and UTs to fight for the Covid-19 health crisis as well as food and livelihood crisis in their respective economies, mainly for below poverty line and most vulnerable workers.

As the CMIE (2020) data estimated 12.2 crores job loss in the month of April, 2020 during the lockdown period and the unemployment rate has touched the peak even on May 11, 2020 at 25% (rural unemployment rate is 24% and urban unemployment rate is 26%), the probability of higher job-loss and higher unemployment rate is greater for the daily wage-workers who are the most vulnerable sections in the Indian labour market. So, they should get priority in the protection of the workers, we have also estimated the share of the casual or daily-wage workers in Indian labour market, which is 25% along with the respective shares of self-employed and regular waged workers are 52% and 23%as given by region and gender in Table 1 .

The remaining share (amount) of the fiscal package is 43% (Rs.4.3 lakh crores), which should be given to the states for the public health expenditure related to Covid-19 pandemic. The share for the minimum wage rate amount to the fiscal stimulus amount is 238% (Figure 6 Figure A1 in Appendix A); it would maintain the minimum wage of Rs. 400 per day, while allocating the fiscal package with the multiplier effects in coming months (see Figure A2 in Appendix A); (2) the ranking in terms of incidences of Covid-19 cases is also considered for the suggested amount of fiscal stimulus (see Figures 2, 3 and 4) ; (3) the share of informal workers as estimated by many economists in the range of 90%-95% corroborates with our estimate from PLFS data, that is 89%, which will resolve the livelihood problems for the next 1 year; (4) the "Great DATA AVAILABILITY STATEMENT

1. The data that support the findings of this study are available in PLFS (2019). These data were derived from the following resources available in the public domain (http://mospi.nic.in/sites/default/files/ publication_reports/Quaterly_Bulletin_October_December_2019.pdf).

2. The data that support the findings of this study are available in MOHFW (2020) at (https://www.mohfw.gov.in). F I G U R E A 3 Percentage share of vulnerable workers out of total workers in India, states and union territories. Source:

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He did his Master of Science in Econometrics from University of Nottingham, United Kingdom. His teaching and research areas of specializations are Political Economy, Macro Economics

Prior to joining CBGA, he has worked as a Research Associate at Center for Entrepreneurship Development, National Institute of Rural Development, Ministry of Rural Development, Government of India, Hyderabad. He has been a consultant in

Stimulating economy via fiscal package: The only way out to save vulnerable Workers' lives and livelihood in Covid-19 pandemic