Two paths of recovery
Persistence of high demand for Mahatma Gandhi National Rural Employment Guarantee Scheme shows the crisis in the informal economy
That the economy is on the path to recovery, and has been for some time, is beyond doubt. This recovery could have been even stronger if not for glitches in international value chains that have created a supply-side constraint in crucial industries such as automobiles and electronics. Does that mean the Indian economy has fully shed its pandemic blues? Data on the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) shows that such a conclusion is far from true. MGNREGS is the employment of last resort in rural India. It involves manual work, pays less than market wages and the payments come with a delay. Yet, demand for MGNREGS work continues to be high. HT reported on October 31 that the programme continues to see high participation, so much so that it now needs more funds.
The fact that MGNREGS demand has not fallen back to its pre-pandemic levels is proof that India’s blue-collar workforce, a large part of which moves between cities and villages, is yet to see a complete revival in employment levels. This is in sharp contrast to formal sectors such as information technology (IT), which require highly skilled workers and where employers are complaining about high attrition levels and difficulties in retaining talent. The divergence in rural and high-skill labour markets, the former characterised by strong demand for MGNREGS and the latter by high attrition rates in sectors such as IT, is the best description of what is happening in the economy today. A small (significant in absolute numbers though and with a high importance when it comes to aggregate demand) section of the 400 million-plus workforce has seen a strong revival in its fortunes, and is perhaps in a better situation than what existed even before the pandemic struck. A large majority (its relative share in private consumption is lower though), however, is still struggling to get jobs and watching inflation eat into incomes.
Both from the moral imperative of equality and the material concern of long-term sustainable growth, the fortunes of the informal sector and the low-income workforce matter a lot. Policymaking has a big role to play in meeting this challenge. To begin with, it should be made sure that shortage of funds does not become an impediment in MGNREGS work. The government should also try and expedite all pending payments. At the same time, efforts need to be made to revive the larger economy which offers millions of MGNREGS workers better paying work. The result will be a further boost in demand.
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