NREGA workers, informal sector need more cover
- Many businesses have shut due to the lockdown, so have small shops
- The Centre has raised the wages under the National Rural Employment Guarantee Act (NREGA) by ₹20 to ₹202 a day
Late last week, the finance minister announced a slew of measures to deal with the negative economic impact of the ongoing nationwide lockdown to curb the spread of Covid-19. The Reserve Bank of India (RBI) got into the act as well. Mint analyses if their response is enough.
Is the ₹1.7 trillion relief package big enough?
Steps such as providing free rice/wheat and pulses over and above the current allocation, ₹50 lakh insurance cover for health workers and ₹500 a month for women Jan-Dhan account holders in the next three months are good. According to the International Labour Organization’s India Labour Migration Update 2018, the overall proportion of informal workers in total employment (unorganized sector workers, informal workers in the organized sector) has been stable (92%); thus, a majority of the Indian workforce deals with some level of informality in their jobs. The package doesn’t do enough for informal workers.
Why does the informal sector need more?
Many businesses have shut due to the lockdown, so have small shops. Daily wage labourers across the country are facing a tough time. The pain for those working in the informal sector and those earning daily wages will worsen as the lockdown continues. In this scenario, the finance minister should have put money into all 382.8 million Jan-Dhan accounts. At ₹500 a month for three months, this would have cost the Centre ₹57,420 crore. The total savings in Jan-Dhan accounts at present amount to ₹1.18 trillion. This would have added to the Jan-Dhan accounts and given citizens some economic confidence.
What else can the Centre do in the current situation?
The Centre has raised the wages under the National Rural Employment Guarantee Act (NREGA) by ₹20 to ₹202 a day. The trouble is the worksites under this job scheme are not operating due to the lockdown. So the wage hike doesn’t help. The scheme has 128 million active workers (see chart). Money can be directly put into the bank accounts of these workers.
How much would this cost the government?
At ₹500 a month over the next three months, the bill works out to ₹19,195 crore. This isn’t the most optimal targeting given that Jan-Dhan account holders can also be working under the rural job scheme. As accurate targeting is not possible at present, this is the best way to go about things. Also, this step, along with money being deposited into Jan-Dhan accounts, is the quickest way of ensuring that money reaches those who need it the most. If the lockdown goes on, the government may have to look at increasing these amounts.
What about the repo rate cut done by RBI?
RBI cut the repo rate by 75 basis points to 4.4%. One basis point is one hundredth of a percentage point. The repo rate is the rate at which RBI lends to banks. The hope is banks will cut interest rates and make lending cheaper. The State Bank of India has cut interest rates already; other banks need to follow. But banks’ record on this front has not been good over the last one year. Also, lending will not pick up before the lockdown ends. So the Centre needs to do more.
Vivek Kaul is a Mumbai-based economist.
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First Published:29 Mar 2020, 11:09 PM IST
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