Lockdown measures have impacted 81% of the world’s 3.3 billion workforce, and India is likely to be among the worst affected countries given its large informal sector base (ILO, April 2020). The ILO report suggests that labour-intensive sectors such as manufacturing, trade, food services, real estate, transport, etc. are particularly hard hit, resulting in an unprecedented decline in the incomes of low skilled workers employed in these sectors pushing them deeper into poverty.
These sectors account for a significant number of self-employed people and informal enterprises. There 633.87 lakh micro, small and medium enterprises (MSMEs) in India of which microenterprises constitute 99% and contribute to 87% of the employment in this sector (NSS 73rd round). Mo
The challenges faced by the micro-entrepreneurs are manifold--extended shutdown of their enterprises wipes out their income, but they have to continue to pay for business and household expenses-- rent, utilities, interest on loans, wages for workers have to be met even during lockdown. However, as many of them operate on thin margins with very little surplus generated.
Microenterprises also face a massive credit gap. With the formal financial institutions accounting only for 16% of the total MSME debt, 84% of the financial needs of MSME are met by informal sources such as money lenders and friends (IFC, 2018). The current crisis may have also shrunk the sources of finance available to them. Further, the demand for the goods and services produced by micro-entrepreneurs is likely to be reduced even when the lockdown eases.
So far, informal micro-entrepreneurs such as petty shop owners, barbers, repair shops, tailors, street vendors, auto-rickshaw drivers, etc. have remained conspicuously absent in the discussions on the effects of lockdown and the relief measures.
Most of the government reliefs programs following the lockdown are being provided through existing schemes for targeted groups. For example, free LPG under Ujjwala yojana, wage transfers under MGNREGA, loan waiver and cash transfer to beneficiaries of PM Kisan, EPF advances for organised sector workers. There are certain cash benefits as well, such as Rs 500 per month cash transfer to women Jan-Dhan account holders.
Financial stimulus to microenterprises (larger loans to SHGs, emergency credit such as personal loans by public sector banks for SHG members, interest subvention, moratorium on loan repayments, allocating funds to SIDBI for refinancing SME lending etc) benefits only those who have borrowed or are eligible to borrow from the formal sector, thus excluding most microenterprises from the relief package. Many microentrepreneurs, both in rural and urban areas, are out of the purview of many of these schemes.
While the current relief measures are a welcome move, they are far from being sufficient. In several cities, humanitarian aid, mostly from the private and non-governmental organisations, have been active to address the immediate ‘essential needs’ of these vulnerable households, often by giving them food packets or cooked meals. However, while food is essential, there are other expenses, especially to sustain their business which need cash.
Another gap in the relief programs is that they mostly provide supply-side support to the MSMEs for them to sustain their businesses in the short term. However, the longer-term impact will also be dependent on the demand-side factors of the market, which has not been the mandate of any relief program so far. If the demand side of the market is not stabilised then the sustenance of these enterprises will be difficult in the long run.
With no savings to dip into, no income, no cash assistance and bleak future market demand, the only way out for the households involved in informal microenterprises will be to borrow cash, pushing them into severe indebtedness and a poverty trap. This further compromises their ability to restart their livelihood whenever normalcy returns and may have long-term repercussions on the households’ ability to spend on nutrition, healthcare and education. The ILO report predicts that in India, 400 million people working in the informal economy are at risk of being pushed deeper into poverty due to the shutdown and the resulting loss of livelihoods. There is uncertainty about the endpoint, but not the impact!
(The writers are faculty members at Azim Premji University, Bengaluru)