The Impact of COVID-19 on the Household Economy of India

The Indian Journal of Labour Economics https://doi.org/10.1007/s41027-021-00352-8 ARTICLE The Impact of COVID‑19 on the Household Economy of India Bino Paul1 · Unmesh Patnaik1 · Kamal Kumar Murari1 · Santosh Kumar Sahu2 · T. Muralidharan3 Accepted: 1 November 2021 © The Author(s), under exclusive licence to Indian Society of Labour Economics 2021 Abstract COVID-19 has disrupted the Indian economy. Government-enforced lockdown to restrict the spread of infection has impacted the household economy in particular. We combine aggregates from national income accounts and estimates from the microdata of a labour force survey covering more than 0.1 million households and 0.4 million individuals. The aggregate daily loss to households is USD 2.42 billion. While loss to earnings accounts for 72% of the total, the rest 28% is wage loss. Service-based activities account for two thirds of wage loss, and natural resource-based activities are responsible for most of the earning loss. The dominance of informal job contracts and job switching in labour markets intensifies this, with the most vulnerable group consisting of 57.8 million in casual engagement, who have a high degree of transition from one stream of employment to another on a daily basis. Keywords COVID-19 · Household economy · Loss · Vulnerability · India * Bino Paul Unmesh Patnaik Kamal Kumar Murari Santosh Kumar Sahu T. Muralidharan 1 Tata Institute of Social Sciences, Mumbai, India 2 Department of Humanities and Social Sciences, Indian Institute of Technology Madras, Chennai, India 3 TMI Group, Hyderabad, India 13 Vol.:(0123456789) ISLE The Indian Journal of Labour Economics 1 Introduction The COVID-19 outbreak and ensuing lockdowns resulted in multiple economic challenges for transitional economies like India. Policy responses to mitigate the impact of shutdown are dependent upon the assessment of losses. The relief packages announced for India range between 0.1 and 11% of the national income (IMF 2020). Most of these government backed packages are found on crude calculations of impacts at the aggregate level while ignoring the bearings on livelihood of the households. The households play a pivotal role in the circular flow of goods and services in the economy, especially in the Indian context, where the informal sector is a major contributor to the economy (Sengupta et al. 2008; National Commission for Enterprises in the Unorganised Sector 2008). The Indian labour market vastly differs from geographies like USA, Europe and China since regular wage employment accounts for a mere one-fourth of total employment, while for the above set of geographies regular wage employment forms the core (International Labour Organization 2020). In the absence of jobs that are aligned with any form of employment relation, as in India, streams of employment tend to be embedded with the household economy that has principal stakes in production, consumption and distribution (Baker et al. 2020). Therefore, the impact of lockdown due to pandemics for India will be very different from the above geographies. However, our results may be representative of other countries in South Asia. No study has explored these multifarious attributes that proliferate the vulnerability of households (Morduch 1994). The issue of vulnerability pertinent to households is captured through three constructs: (1) wage loss, (2) earning loss and (3) extremely vulnerable workforce (high chances of shifting employment within a small window of 7 days). We develop a systematic method to account the impacts of such risks on consumption, production and distribution from the standpoint of households in India based on microdata (Deaton 1997). We have done two novel things: (1) we control for formal employment relations and (2) we account for earning loss. Quite importantly, wage is an outcome of formal or informal employment relations, while earning emanates from self-employment. Further, we disaggregate losses with respect to principal and subsidiary engagements. Further, we compute the probability of transition in the stream of employment during a small window of 7 days, capturing the magnitude of what we term as ‘extreme vulnerability’. The first confirmed COVID-19 case in India was reported on 30 January 2020. Till the last week of March, the spread of COVID-19 cases in India was slow (Fig. 1a). Anticipating an intensive spread, the Government of India declared the first lockdown on 25 March that continued till 14 April with strict social distancing norms and regulation on outdoor movement. Although the spread of COVID19 was very slow during this period, the suspension of economic activities has devastated labourers. Our thesis is on the pivotal role of households in the Indian economic system. The household, as an institution compared to other two major institutions—government and corporate sector—constitutes a principal share in employment, production and consumption and therefore very important in the 13 ISLE The Indian Journal of Labour Economics Fig. 1  COVID-19 progression in India. a The percentage values in the parenthesis (brown font) show the growth rate of confirmed cases, recovered cases and deaths, respectively. The values in the parenthesis corresponding to the loss show lower and upper bounds of the estimation. b The location of green, orange and red zones. The white fill is the administrative boundary and shows non-availability of data in b. c The number of marginal workers, total households and total workforce in the green, orange and red zones based on Census 2011 (International Labour Organization 2020) circular flow of economic resources (Table S1 in the Appendix). While this is conveyed by macroeconomic identities, the manuscript uses a large sample survey data to pinpoint the significance of households in the economy. 2 Data and Methods 2.1 Data 2.1.1 COVID‑19 Cases Data on COVID-19 progression (as shown in Fig. 1a) were taken from the Centre for System Science and Engineering at John Hopkins University, tracking daily records of confirmed, deaths and recovered cases due to COVID-19 from 22 January 2020 to till date. We used India specific data for the period from 22 January 2020 to 31 May 2020. The data set was downloaded on 11 June 2020.1 1 The data can be accessed from https://github.com/CSSEGISandData/COVID-19. ISLE 13 The Indian Journal of Labour Economics 2.1.2 Census 2011 District-scale total number of households, marginal workforce and total workforce (as shown in Fig. 1c) were extracted from Census 2011.2 These data are merged with the district-wise zoning information obtained from Government of India notification (National Accounts Statistics 2019a, b; Census of India 2012; PIB 2020a, b, c, d). 2.1.3 Periodic Labour Force Survey (PLFS) Data For loss assessments, we use the recent microdata on labour from the Periodic Labour Force Survey (PLFS3), to disaggregate wage with respect to economic activities t (...truncated)