What could be the cost of another lockdown?
Any decision to impose a blanket lockdown or even a partial closure of markets must take into account the importance of the retail and recreation sector in the economy and the persistence of the post-lockdown distress in the sector.
Large parts of India are headed towards a second wave of the Covid-19 pandemic. Delhi is already in the middle of its third. With infections rising again and reports of medical infrastructure coming under stress in many places, talk of reimposition of restrictions on mobility has started doing the rounds. In fact, in some places such as Ahmedabad, authorities have already enforced restrictions and partial curfews. Over the past few weeks, images of crowded markets and large-scale violations of social distancing norms have served as precursors of a spike in infections. Even so, any decision to impose a blanket lockdown or even a partial closure of markets must take into account the importance of the retail and recreation sector in the economy and the persistence of the post-lockdown distress in the sector.
Shopping has not reached pre-pandemic levels yet
While anecdotal evidence of crowded markets has been suggesting that both sellers and buyers have given a complete go-by to pandemic-related concerns, data from Google mobility trends shows that markets, especially those dealing with non-essentials are yet to regain their pre-pandemic activity levels. Google has been providing data on community mobility for five categories: retail and recreation, grocery and pharmacy, parks, transit stations, workplaces, and homes as a percentage change from the baseline. The baseline value is the median day-value from the five-week period from January 3 to February 6, 2020. For India, only mobility related to grocery and pharmacy had entered positive territory until November 17, the latest period for which data is available. While the retail and recreation sector reached its highest post-lockdown value on Diwali eve, it was still 15% less than the baseline scenario. In fact, a comparison with the United States and Brazil, the first- and third-ranked countries in terms of the total Covid-19 cases — India is second — shows that the retail and recreation sector may have suffered the most in India. Reportage from Delhi, which saw among the most crowded markets before Diwali, confirms the devastation of the tourism sector because of the pandemic (bit.ly/39kvlsLbit.ly).
Retail and recreation sector is the biggest source of non-farm employment
How important is the retail and recreation sector in India? It is the most important source of livelihood outside of agriculture. Data from the 2018-19 Periodic Labour Force Survey (PLFS), the latest period for which data is available, shows that trade, hotel and restaurants had the single largest share in employment after agriculture. Its all-India share in employment was higher than both construction and manufacturing. In cities, more than one in five jobs are generated by this sector.
Trade is among the relatively better-paying mass employment sectors outside agriculture
Getting people out of agriculture into remunerative jobs is India’s biggest economic challenge. The textbook case of economic transformation from an agrarian to industrial economy has eluded India thus far. Manufacturing’s share in employment and gross domestic product (GDP) has been almost stagnant in India during the past few decades. Manufacturing’s share in employment and GDP was 10.6% and 14.5% in 1993-94, the first post-1991 year for which National Sample Survey Office’s (NSSO) employment figures are available. This increased to 12.1% and 18.1% by 2018-19, the latest period for which data is available.
Construction and trade have emerged as the main source of non-farm employment in the post-1991 period in the country. The Reserve Bank of India’s KLEM (Capital with a K, Labour, Energy, Material) database captures this very well. In 2017-18, the latest period for which this data is available, these two sectors had a share of almost 40% in total non-farm employment in the country. However, unlike construction, where labour earnings have stagnated in real terms, trade has seen a rise in per-worker earnings over time. This underlines the sector’s importance in supporting mass incomes.
A new lockdown will deliver yet another blow to the retail and recreation sector, which has not even recovered from the pandemic’s impact until now. Such a disruption can create both demand and supply side disruptions in the economy. Most experts have been sceptical about the question whether the recent economic recovery reflects a sustained improvement or a pent-up/festive demand blip. A blow to the sector, which is one of the biggest sources of mass employment, will have an adverse impact on incomes and therefore demand. At a time when inflation, especially in food items, has reached alarming proportions, restrictions or closure of markets are bound to make things worse. It would be better if all options other than a lockdown are explored before unleashing the most extreme step in the government’s pandemic playbook.