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COVID-19: Impact on Employment and Small Businesses

The spread of novel coronavirus has spelt disaster for the world which has caught the entire world ill-prepared to deal with such high magnitude pandemic. It has compelled the governments to put lockdown and confined people to their homes. While the impact has been felt in segments of the economy, the wage loss & unemployment crisis seems to be the most effected in India. In India, according to the 2018-19 Economic Survey 93% of the workforce operates in the informal economy. Given the fact that there is inadequate social security, and irregular and uncertain income, it is highly unlikely that these people have any buffer resources to stock up and provide for themselves for unpredictable and drastic adversities such as COVID-19.

Pre-COVID:

Given the track record of India in solving its unemployment conundrum, the pandemic is even more worrisome. In recent times, since the introduction of GST and demonization, the jobless growth has been a local phenomenon in India. In 2017-2018, India registered an unemployment rate of 6.1% at a then 45 year high (5.3% in rural while 7.8% in urban areas). Following the trend by the end of 2019, the unemployment rate stood 7.6% whereas in February 2020 it reached 7.8%. So what caused such unemployment rates? On the demand side, high unemployment can be associated with a declining labour force in the agricultural sector, and higher skills and education while on the supply side, restrictive labour market and rigidities which made doing business difficult have hampered employment generation.

Post COVID effect:

India started the Covid19 at a position of disadvantage & with all economic activities ceased after the pandemic induced nationwide lockdown, more than 120 million workers in India, most of them small traders and daily wage earners have lost their jobs in the month of April. Nobody can even imagine the plight of daily wage workers, casual laborers and own account workers. Lack of food and shelter has already forced large numbers of migrants stuck at various locations to go back to their hometowns. Even those working for the organized private sector have lost or are on the verge of losing their jobs. The Centre for Monitoring Indian Economy (CMIE) informs that the unemployment rate in India might have just shot up to 27.1% for the week ended 3 May 2020 (highest ever). It looks like that this time poverty is not going to discriminate between the vulnerable and the well-off, pulling several of latter into its fold as well.

This cycle of unemployment is just the beginning as now the nationwide lockdown had been further extended up to 31st May 2020. Despite some relaxations, this extension will further deteriorate the employment scenario in India. For now, the lockdown does not hold for those operating in the essential services such as healthcare, banking, agriculture, FMCG and others. It is unlikely that unemployment will hit this sector as badly as it affected its non-essentials counterparts like Tourism & Hospitality, Aviation, Financials, Real Estate, Automobile, and Retail. Since everyone is anxious about the future and in consequence stocking up for same, the essential service sector will see heavy spike in demand. But lockdown will restrict these sectors to increase in production which will result in higher prices that will further crowd out consumption pushing many into starvation. On flip side, if things don’t de-escalate, then aggregate demand for essentials will begin to fall and then the essentials sector can also be hit by unemployment which will further worsen the situation.

MSME holds the key to Unemployment Crisis & its solution:

No doubt that the Covid-19 pandemic has left its impact on all sectors of the economy but the hurt nowhere as much as the Medium, Small and Micro Enterprises (MSMEs) of India. All anecdotal evidence available, such as thousands of stranded migrant workers across the country, suggests that MSMEs have been the worst casualty of the lockdown forced due to Covid-19. Contributing almost 30% to India’s GDP and about half of exports and second largest employer in the country after agriculture providing employment to over 114 million people, MSMEs forms the backbone of the Indian economy. According to a study commissioned by AIMO, India is currently home to over 75 million MSMEs and close to 43% of these firms will face closure, if panic extends beyond eight weeks resulting in a significant rise in unemployment in coming period.

Relief and Reforms from Indian Government:

Indian government recently announced a relief package called the PM Garib Kalyan Yojana. Under this scheme there is focus on the MSMEs to boost the sector and control rapidly growing unemployment. The announcements include collateral-free loan worth US$ 42 billion which will benefit 4.5 million units, subordinated debt provision of US$ 2.8 billion and US$ 7 billion equity infusions through fund of funds for MSMEs to help these units expand capacity. The government also redefined the MSME industry’s parameters to allow more investment and introduced a turnover criterion to make it easier for firms to avail cheap credit meant for the sector. Businesses need support to ramp up production over the next quarter and it is necessary to provide more take home salary to employees as well as give a relief to employers in payment of PF dues. Therefore, statutory PF contribution of both employer and employee were reduced to 10% each for all establishments covered by EPFO for next 3 months.

Leading this efforts have been the states of Uttar Pradesh, Madhya Pradesh, Rajasthan and Gujarat who have pushed through changes to their labour laws by way of amendments. Labour reform has been a demand of Industries for a long time and States have begun easing labour laws to attract investment and encourage industrial activity. The initial reforms have been set up for 1000 days & if the reforms are a success, a long term law & policy would be formulated.

Although the government is doing its best in the given scenario but still after the COVID-19 crisis, India will have lot to contemplate. The government will have to provide support to small businesses and also to re-inculcate confidence through various effective measures among the migrants who might be scared to move back to the urban areas after COVID-19 crisis for the sake of employment after what transpired with them post the national lockdown.

Our Initiative for support in India:

Amid the Covid19 crisis that the entire world is encountering, the micro & single person businesses can be helped in surviving business crisis through following options.

  • Help a Business: Business & generous investors can help their less fortunate colleagues through CMP Help option where such businesses can receive help by means of friendly & patient capital. Such help comes from affluent companies with the dignity of a capital investment that could help the business come out of any distress situation & save employment for thousands of people at risk if such a business stops operations.

 

  • Donate directly to a small business: For many third world countries business can be started with donations as small as US$ 1,000. This helps generate income & livelihood for an entire family sometimes comprising of 10 members. Such donations can be part of Corporate Social Responsibility (CSR) of the Corporates. Each such recipient is a verified individual creating immense opportunity of raising people above the poverty line with dignity.

In case you would be interested to provide support to such small/single person businesses, please reach out to us.

 

For more information and to review some of the case studies, please visit https://www.corporatematchingprogram.com/business-opportunities-country/14

Gautam Khurana
25 May 2020

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