The COVID-19 pandemic has disrupted economies across the world and presented policymakers with the unenviable task of sustaining employment amidst lockdowns. However, the academic and political debates in India on unemployment, which is widely attributed to jobless growth amidst stagnation in the agricultural and manufacturing sectors, predate the pandemic. It will be useful to locate the disruption caused by the pandemic on a larger canvas so as to enable a comparative assessment vis-à-vis other recent economic shocks such as demonetisation and the introduction of the Goods and Services Tax (GST).
It would also be instructive to compare Tamil Nadu, one of India’s most industrialised States and also one of the worst pandemic-hit States, with other States that have a large manufacturing sector and are net recipients of migrants. In the absence of government data on employment for recent years, we rely on the Centre for Monitoring Indian Economy (CMIE) even though its employment data series is relatively new. Further, the reach of CMIE’s surveys was restricted by the lockdown, which affects comparison of the data for the recent months with the pre-COVID-19 period.
Also read | Are India’s labour laws too restrictive?
Trends in Tamil Nadu
Tamil Nadu’s unemployment rate, which is computed as the number of unemployed persons “who are willing to work and are actively looking for a job expressed as a percent of the labour force”, increased sharply during the strict lockdown in late March and April 2020 but registered a large turnaround in May when the lockdown was eased to some extent. However, the labour participation rate (LPR) continued to decline, even though at a slower rate in May. While the easing of lockdown restrictions has allowed workers to return to work, they are either still hesitant due to the fear of disease or are unable to return due to transport and communications bottlenecks and lack of information.
The CMIE data do not reveal any clear trend vis-à-vis caste and religion. However, the drop in unemployment rate in May was faster in urban areas and among males. Likewise, the decline in LPR was less in urban areas, among males and among those with higher education. Persons with intermediate levels of schooling were affected more than college graduates as their LPR continued to drop in May. If the level of education can be treated as a proxy for skill, the data seem to suggest that the lockdown has affected the semi-skilled workforce more than the skilled and unskilled workforce.
The CMIE data also suggest that at least since January 2016 there has been a steady decline in Tamil Nadu’s LPR, where the labour force used as the base to calculate employment indicators includes persons aged 15 years and above and falling into either of the two categories: (a) employed and (b) unemployed and willing to work and actively looking for a job. Demonetisation did not significantly impact either the rural or the urban LPR. On the other hand, GST had a significant negative effect on urban LPR. The immediate effect of COVID-19 and the lockdown is visible through a significant decline in LPR in both the rural and urban sector.
Editorial | Workforce habits: On tweaking of labour laws
Comparing industrialised States
Tamil Nadu differs from other south Indian and industrialised States with regard to the trend of LPR. Urban Tamil Nadu compares with urban Gujarat and Maharashtra insofar as its LPR continued to fall in May. Not coincidentally, like Gujarat and Maharashtra, Tamil Nadu boasts of a large manufacturing sector and these States are among the top four COVID-19-affected States. It is noteworthy, though, that while the urban unemployment rate dropped sharply in May in Tamil Nadu, it continued to rise in Gujarat and Maharashtra. It bears emphasising that the States with low unemployment rates are not necessarily better off if their LPR has dropped sharply. Software/new economy hubs such as Karnataka and Telangana have not seen a very sharp decline in LPR; in fact, Karnataka has seen an increase. In most States, rural labour participation picked up probably due to harvest-related activities, the lower incidence of COVID-19 and the return of urban migrants. However, rural Tamil Nadu saw a decline in labour participation in both April and May.
Also read | India’s unemployment rate saw a small dip in 2018-19, says survey
Challenges facing TN industries
The longer-term decline in LPR in Tamil Nadu could be attributed to general economic shocks such as demonetisation and the introduction of GST, on the one hand, and a combination of industry-specific issues such as changing tastes, a tightening regulatory environment, and growing international competition, on the other.
The firecracker industry in Sivakasi exemplifies the multidimensional character of challenges, which transcend sporadic shocks. The town that accounts for 90% of the fireworks production in the country faces at least three challenges. First, it has been hit by campaigns calling for the boycott of polluting industries and products. Second, it faces major challenges due to the change in the regulatory environment such as a ban on barium nitrate in the manufacture of firecrackers. Third, the fireworks industry also faces competition from illegal import of cheaper fireworks from China. Other industrial clusters in the Tiruppur, Erode and Karur belt as well as the Ranipet and Vellore belts face similar challenges.
The answer to environmental challenges is not a complete shutdown of MSMEs, which is counterproductive. The governments and courts ought to keep unpleasant but unavoidable trade-offs and inter-linkages in mind. The closure of tanneries in Dindigul is a case in point. The impact of the ban on the local economy and environment is illustrative of one-sided solutions: a double whammy of lost employment and unresolved environmental damage. The government could have explored possible mitigation strategies, much before the point of no return, to save both.
Data | An estimated 12.2 crore Indians lost their jobs during the coronavirus lockdown in April: CMIE
While the overall economic scenario is bleak, the present crisis perhaps has a silver lining. The pandemic has exposed India’s unsustainable dependence on other countries for a variety of goods and nudged the government to help build supply chains for critical products that are less dependent on foreign countries. Further, the unfortunate border clash in Ladakh has hardened the popular resolve to boycott Chinese goods. These developments may as well offer the much-needed breathing space to domestic industries battered by a series of economic shocks. States that can adapt quickly to shifting economic currents will recover faster.
P.G. Babu is Director, Madras Institute of Development Studies; Vikas Kumar is Assistant Professor, Azim Premji University; and Poonam Singh is Assistant Professor, National Institute of Industrial Engineering
