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A worker prepares vermicelli at a factory in Prayagraj (AP)
A worker prepares vermicelli at a factory in Prayagraj (AP)

India is set to feel labour pangs as it reopens for biz

The Centre started running trains last week so that migrant workers stuck in big cities and industrial belts could go home. Will this lead to a labour shortage in the industrial sector, especially with the Centre also letting industries resume operations? Mint takes a look.

What’s affecting plans to resume business?

India has a 465 million workforce, says a recent note by Crisil. Of this, around 415 million individuals work in the informal sector of the economy, where no social security benefits are available. This is why the lockdown has been so tough for a large section of the population. The informal economy also includes regular wage workers, who work on a contract basis in the organized sector. Casual labourers also work for businesses in the organized sector, in areas such as construction and transport. With many of them going back to their native places, some parts of the organized sector may find it difficult to open up.

Why will some workers not return soon?

The last few weeks have been mentally, physically, financially and emotionally difficult for migrant workers stuck in cities and industrial belts. News reports suggest many of them have used up whatever little money they had. As such, it is unlikely that these people will come back to cities and industrial belts in a hurry. This will impact not only sectors such as construction and transport, but also many services businesses such as e-commerce companies, which depend on delivery boys for their last-mile deliveries. Such businesses are likely to face problems as well if they want to resume full-scale operations.

Graphic: Paras Jain/Mint
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Graphic: Paras Jain/Mint


What do companies have to say about this problem?

CARE Ratings reached out to experts across fields to understand “the likely impact of the extended lockdown on the Indian economy". While 62% of the 224 respondents said there “could be labour shortages in the corporate sector following the easing of the lockdown", 40% expected labourers to resume work within three months after the lockdown.

What about Indian workers abroad?

Indian workers in foreign countries sent home $83 billion in remittances last year, the highest in the world. A bulk of these remittances came from people working in the Gulf countries and in the UK, US and Canada. Crisil estimates that these remittances are likely to drop by 23% this year because of a massive fall in oil prices as well as a contraction in some of the biggest economies of the world. The incomes of India’s external migrants will thus go down and so will the remittances they send home.

Will lower remittances affect the economy?

The huge amount of remittances sent by India’s overseas workers has over the years helped balance the country’s need for foreign exchange. Global investors leaving India in 2020 remains a major risk. When they do so, they will want to sell rupees in exchange for foreign currencies such as the dollar. In this scenario, the demand for foreign currencies will remain high. With remittances coming down, this will put more pressure on the value of the rupee.

Vivek Kaul is a Mumbai-based economist.

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