Will migrant workers get jobs back when they return?

The massive lines of workers snaking out of cities has seemingly surpassed the tragedy of COVID-19. State government intervention, which has already begun, will arrest the pain of the on-going mass migration, but the withdrawal of workers from production centres will have a much larger economic fallout.

For many years now, India has paid very little attention to the creation of labour-intensive production lines as a way to employ its massive human resource. It has also paid scant attention to improving its health delivery system. The combination of the two deficiencies has created a first-class crisis for the Indian economy as things stand. We shall focus on the former in this piece.

India's manufacturing sector is highly skewed in favour of machines compared to labour. As a result of 466 million (2015) workers in India, less than 10 per cent, have a formal sector job, which again is predominantly in the services sector. The manufacturing sector is not just puny at 16.7 per cent of the GDP (2017-18), but it is also hugely capital intensive.

In other words, we use more capital intensive techniques of production in manufacturing than countries at similar levels of development and similar factor endowments. This has been encouraged by generous tax incentives and an often tacit understanding with unions of organised labour to keep the rules difficult, against the easy movement of workers to and from jobs.

The COVID-19 crisis could accentuate this trend just when the government was trying to relax labour laws. Most manufacturing sector firms gasping to survive or those parts of the services sector that are doing well, like e-commerce, will be facing tough questions. This, in a year when the world has entered recession as per the IMF. The toughest of these questions will be whether to rehire workers, who were forced to walk back home hundreds of kilometers away, or substitute them with capital. Firms in both sectors will make these harsh choices in a new and global low-growth ecosystem. With capital being awash in the world economy because of massively low or negative interest rates and labour remaining absent from the production centres, it is clear that coming out of this crisis, there will be far less jobs available in India than when one entered it.

In 2019-20, the India government had rolled out several fiscal incentives for companies contingent on them expanding employment. Even if India just stays above the recession waterline for now, it would be most difficult in the new circumstances to ask them to take on commitments that will hurt their bottom lines. So even as a large number of companies will go under during the year, reducing the demand for labour, those which will manage to survive will become even more capital intensive.

We cannot even figure out at this stage how massive a challenge this will be for the Indian economy. Also remember that it is quite possible that some percentage of workers, having learnt a hard lesson in this migration wave, may not want to travel long distances in the future to pick up jobs with tenuous social security nets.

There is, therefore, an even larger fall out. Those workers who shall return will have to be more prized by the firms. The impact will be on their wage rates, which will move northwards. We can have the peculiar combination of higher wages and less demand for labour in each sector of the economy, from here on. Some of this adverse impact could have been avoided if the centre had not delayed the passage of the labour laws. The Narendra Modi government is of course not the only one which has been uncomfortable in relaxing the labour laws. But having been in the government for six years and yet having managed to pass only one of the four proposed labour codes is a sign of non-seriousness. (The government has planned to combine India’s 40 plus labour laws into four codes, of which that on wages has just got through Parliament).

If this groundwork had been achieved earlier, the firms which come out of the COVID-19 tunnel would have found labour still competitive as compared to capital. They could have made the choice to enhance labour intensive modes of production. Indeed, if India has to compete with not just China, but also other Asian countries to snatch manufacturing jobs, this transition was most necessary. This is most unlikely now. A lot of the economic pain from COVID-19 can perhaps be put down to unexpected circumstances, but a part of it could have been avoided with a little more will to take action.

(The writer is a business journalist and can be reached at [e-mail])

Disclaimer: The views expressed above are the author’s own. They do not necessarily reflect the views of DH.