There is a supply chain that is broken, there are finances that are broken, and there is demand that has collapsed. All that coming back to shape is not like a switch on from a switch off, says Centre for Monitoring Indian Economy's MD & CEO Mahesh Vyas uin an interview with CNBC-TV18.

Share Market Live

NSE

According to CMIE data, overall unemployment --urban and rural--rate in the country has now climbed to 27 percent for the week ended May 3.

"Now, it is not only labour that has gone out, it is not only migrant labour that is stressed out and is going back home -- and that is a very big number, but it is also the salaried class, it is also the entrepreneurs who are telling us that there are no jobs available," he said.

Edited excerpts from the interview:

When you released your data on April 5, urban unemployment rate stood at about 30.9 percent and the overall rate was at 23.4 percent, and you believe then that you were surprised by the data. Now the data that you have released, 27 percent as the overall rate for India; this is obviously on account of lockdown 1 and 2. Do you believe that this is likely to get worse or do you believe that this may get better now that relaxations have been put in place as we are in the midst of lockdown 3?

First part of the question mentioned that I was surprised by the increase in the unemployment rate. That is true and I had expected the unemployment rate not to rise, but the labour participation rate to fall. What has happened is, the labour participation rate has collapsed and yet there has been an increase in the unemployment rate. So, this is a double whammy.

People have left the labour markets, they are saying that there are no jobs over here and we are going away. But even the few people who are left behind, are not able to find jobs. So, there is a fall in the labour participation rate and simultaneously there is an increase in the unemployment rate. So, this is really very bad.

I do not expect this to improve very easily. Situation has become really very difficult. Labour, particularly migrant labour, has headed more towards home than towards employment. So, the mechanics of getting the economy back into a running shape is difficult in many ways.

There is a supply chain that is broken, there are finances that are broken, and there is demand that has collapsed. All that coming back to shape is not like a switch on from a switch off. So I think the situation is grim and can get worse.

What is the data is telling you particularly, as far as small traders and the labour because that has been the sector that has been hit the hardest and perhaps the most vulnerable today?

It is not only the labour, what we found after tracking this through the entire month of April, is that there is a significant fall in. Business people are saying that we are rendered unemployed.

Now, it is not only labour that has gone out, it is not only migrant labour that is stressed out and is going back home -- and that is a very big number, but it is also the salaried class, it is also the entrepreneurs who are telling us that there are no jobs available.

What does this mean? It is possible that a street hawker or a daily wage worker or something of that kind can lose a job today, but they can get it back as soon as the economy comes back into shape. But what happens to a salaried employee who lost his job? It is not easy for that person to get a job back again.

It is not going to be easy, but even worse than this is the finding that man business people are saying that we are rendered unemployed. They have no hope of actually getting their business running back. So, I think that is the thing that worries me the most that even the business people are saying that they are not sure they will get back to work once the lockdown is lifted.

If I could ask you to break this up for us as far as states are concerned because if I were to look at your data, Tamil Nadu has seen the highest unemployment rate at around 50 percent and all the other industrial states – Maharashtra and others also seeing very large numbers?

The industrial states have been hit the hardest, so Tamil Nadu, Maharashtra, Haryana have seen big losses. Whereas the agro states have seen less problems. So we haven’t seen worsening of the situation in Punjab, Madhya Pradesh and states of that kind because the rabi harvest did kick-off in the last week of April and that did save the day for them.

So the problem is certainly in the industrial areas, in the more urban areas barring Haryana which is urban, but still had serious labour employment problems. However Haryana had a problem even before the lockdown began. So it has got worse for industrial states, it has got worse for the more urban states.

To some extent the farm sector has been relatively unscathed in comparison and with the migrant labour now moving back to their native villages and with the harvest season being a strong one which was expected and the lockdown not having impacted that, you believe that that is relatively more insulated?

Yes that is insulated because the rabi harvest going on now. It is also a kind of a place you go back to when you don’t get jobs and you declare that you are working on the farms which is actually disguised unemployment.

So when a young person moves from rural India into urban India in search of a job, but when this job in urban India is lost, they go back home, they go back to their villages and they claim that they are working on the farms, which does not add to any production at all. This is mostly disguised unemployment.

So anytime we see an increase in employment in rural India, particularly in agriculture, we should be sceptical that it is not actually an increase in employment but it is an increase in disguised unemployment.

What does all of this then mean in terms of economic activity in terms of GDP growth because the hope is that as more and more of this relaxation translate into a return or a resumption of economic activity on the ground, we will start to see some pick-up. You are not hopeful of that at this point in time, what will it then mean in terms of consumption, what will it mean in terms of growth, if we are sitting on an unemployment number of 27 percent plus?

We cannot seek growth in 2019-2020, so we don’t believe that there will be any positive growth. There will be a contraction. We have had one month which was nearly a complete lockdown, when you have transport that is shutdown, you have a fairly large part of the economy that is actually not working, so you cannot have GDP growth in a year in which 8.33 percent of GDP was washed out.

So less than 20 percent of the economy was working, presumably essentials services account for around 20 percent, but that is also not going to show a growth. So, you see a large part of 8 percent of the GDP is a washout, it will take a very long time to recover this.

I don’t see any way in which India can register even zero percent growth, it has to be in the negative zone.

You are expecting a contraction on the back of what the data is telling you. But where does this leave us then in terms of policy prescription? You talked about migrant labours, you talked about business people, the salaried class, we are still waiting for the second set of measures to be announced by the government whether it is for the MSMEs or a broad based sectoral relief package, we don’t know the quantum of that. Some measures being taken by the RBI largely to enhance liquidity, but where does this leave us then, where does it point the needle to in terms of policy prescription?

You hit the nail on the head. The need for policy prescription, policy initiative is really very serious. It is an urgent requirement today. The government needs to move really very fast, we are already lagging behind a lot in terms of saving the situation. Every day the situation gets worse. I think the need for the government is to act on multiple areas.

There is a need for us to worry about the migrant labour that needs to come back to work. But more than that there is the need for us to look at financing separately and that is a serious problem in its own sense.

Enterprises as our survey shows has been badly impacted, so there is a need for us to fix the problem for enterprise. If there is no enterprise there is no employment, there is no economy. So we are required to have a separate thing to fix the finances of the MSMEs.

We require to fix the supply chain disruptions, we require to solve the problem of aggregate demand that has collapsed, and we have to solve the problem of supplies that are in deep trouble because of the shutdown.

Data from March tell us that petroleum consumption which is exempted, electricity that was exempted, fertiliser that was exempted, all of them registered negative growth in March, so surely April is going to be much worse for a much larger segment.

So we require a multi-pronged integrated effort to look at labour, to look at capital, to look at supply chains and to look at aggregate demand. So the need for the government to step-in in multiple ways is really a very serious ask today.

Something that we have seen across different economies and specifically when it comes to small businesses salary support do you believe that that is something – I don’t know if the government is considering it, we haven’t heard anything on that but it is certainly an idea that is worth considering you think?

I think it is worth considering certainly, the government has done something for ESIC worker support for small companies. So there is some support over there but that is not enough. I think there is a need for salary support to be done. It is not a good thing if good quality jobs are getting lost and we are saying that 20 percent of the salaried employees lost their jobs, 18 million salaried people lost their jobs in a month of April.

So that is a huge loss. Mind you the street hawker can go back to selling her wares the moment the lockdown is removed, but what will happen to the salaried class. There is no guarantee that those companies will take them back because the companies could be in bad shape. So I think salary support and a whole lot of other support is required, the situation is getting very bad today.

I don’t know if you had a look at the PMI data that was released yesterday at a 15 year low for the manufacturing sector. Do you expect that at least as far as manufacturing is concerned we could see an uptick given the fact that at least in green zones and orange zones some degree of economic activity is expected to resume, restart beyond just essential services?

Well it is good to hope for that but I don’t think we can assume that. A large part of the employment by manufacturing sector in recent years in the last 10-15 years or so has relied largely on contractual labour. So contractual labour is not necessarily stable given the circumstances, they could have migrated out and that could hurt the restarting of manufacturing.

It is not that in some green zones you can have manufacturing working while the red zones and the orange zones are not working. So if you don’t have the full supply chain working, if you don’t have old transport working, it is not like some part in green zone, can in isolation continue to thrive. I think that is not really a fair assumption. We require everything to work and it is important to figure out how larger parts can come back into action.