How to save the informal economy

A helping hand: The government must offer that, now

Needed is a holistic approach anchored on income generation, demand creation and expansion of social security cover

A recent survey of economists predicted that employment and wage loss would be one of the immediate outcomes of the Covid lockdown. Reports by other major organisations similarly predict significant job and wage loss. To test these prections, we surveyed 500 workers in Ahmedabad and, unfortunately, our study confirms the dire forecasts of economic loss to individuals and families.

We studied the effects of the lockdown on employment and living. With the help of Ahmedabad-based Saath Charitable Trust, we conducted the survey in July, which allowed us to capture the state of affairs during and after the lockdown. In the sample of 500 informal workers, 335 were wage-employed, 161 were self-employed, and four participants were unemployed. Interviewees were wage-employed in activities such as delivery, domestic work, plumbing, factory floor jobs, construction, and driving. Or, they were self-employed in a small tailoring unit, beauty parlour, roadside food stalls, among others. We had a 60:40 ratio of women to men participants.

Income post-lockdown

The average income of the participants in February was about ₹8,000. We found that most (70 per cent of our sample) had resumed their jobs at the time of the survey. However, of those working, about half were working only part-time. Research firm CMIE, in its latest report, explains that the salaried class with 18.9 million job loss across the nation is worse hit than the informal sector, which has lost only a third of that number since April. This may be true for the country as a whole in terms of jobs. But we found that while the daily wage workers may have gone back to their old jobs, what is not captured is that they are facing significant income loss. It may be due to two reasons, reduced number of days of work and/or reduced wages.


Among the informal workers, the average income loss has been higher for the self-employed than the wage-employed as we show in the graph. Our sample of self-employed workers with activities such as tailoring, beauty parlours, and roadside food stalls were directly affected because of the lockdown and social distancing. Stories like that of the chef in an international cruise ship now working as a carpenter in Kerala to meet ends are becoming commonplace. Further, the urban informal worker is likely to be more affected than the rural worker, according to an Action Aid survey. The boom in farm employment may explain the rural buffer.

In a situation where many continue to be unemployed or working fewer hours and earning less, it is but natural that there is job insecurity. We found that a whopping 70 per cent of them were worried that they might lose their jobs. It is not surprising then that people consider Covid-19 an economic rather than a health crisis.

Living conditions

Next, we consider living conditions (ration, bills, etc.), which hold a mirror to the economic impact. As expected, we found that the lockdown months had been hard for most of our respondents. But what is untold are the pinching circumstances that persist even though the lockdown ended months ago.

For the lockdown months of April and May, 42 per cent of our respondents reported having less ration than what they needed. Unfortunately, the situation has still not improved for many, with a third of the respondents reporting insufficient ration for June even as the economy started opening up. We found that during the lockdown months, 70 per cent of the respondents received free ration from the government while only 14 per cent reported not receiving free ration from any source. While the economy did not pick up right away in June, only 38 per cent received government ration, while 58 per cent reported no help with ration from any source.

Only 40 per cent received help in the form of cash from the government during the lockdown, which was down to 14 per cent after the lockdown. Many non-governmental organisations had stepped in with provisions of free meals during the lockdown, and 45 per cent of our respondents report getting some free meals during the lockdown period. Still, this source of help has effectively vanished during the post-lockdown period.

The direct fallout of this lack of ration and help meant that many of our respondents did not have enough to eat, with two-thirds reporting that they ate less than before.

Income constraints affected other payments, which could not be avoided. Most of the respondents were in rented accommodations, and rent payments were a big concern. Despite the fall in incomes, 25 per cent reported that they had to pay rent as before, while 66 per cent said that they were allowed by landlords to pay in instalments. However, no such relief was found on payment of the electricity bills or EMI for loans taken. About half of them struggled to pay their EMIs, and three-fourth of the participants struggled with electricity bills.

As a consequence of the economic distress, people had to borrow money for food and power. Even though the government promised loans, we found that only a minuscule fraction (0.5 per cent) took loans from banks. Eighty percent of the respondents sought help from friends, family, or neighbours.

Offer support

The most critical issue today is the lack of demand for goods. Loss of jobs and income due to low demand affects both wage- and self-employed workers. The availability of adequate food is also a cause for worry. In the short term, some form of basic income needs to be provided monthly for low-income informal workers, mainly as many are not able to return to work or earn as before. This is required to be done immediately and must continue for the next six months. This will also stimulate demand.

In the medium term, a special stimulus with a focus on some clusters of industries that are labour intensive, such as power looms, would help revive the economy. Since many such enterprises, including the construction sector, are dependent on migrant workers. Encouraging and incentivising the workers to return would require offering them some benefits such as health and occupational safety cover. This is an opportunity to make these standard perks of a job.

In the longer term, with much of commerce and services moving online, bridging the digital divide is required. Nation-wide Internet connectivity is needed, if not rural areas and small towns will be left behind. Affordable smartphones, tablets, and laptops are essential; if not, women and young will be left behind. Affordable data charges and broadband is critical; if not, the poor will be left behind.

Dev is Associate Professor, Economics, and Vijayalakshmi is Assistant Professor, Marketing at the IIM Ahmedabad. Unni is Professor, Economics at Ahmedabad University

Published on September 09, 2020

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