Role of collective organisations during economic crises

Indranil De/Mubashshir Iqbal/Rooba Hasan | Updated on September 06, 2020 Published on September 06, 2020

The government, market and collectives should have worked in tandem to develop resilience of economic institutions during the slowdown in India

The sharp downfall in the economic growth rate could be attributable to a lack of resilience of Indian economy. Only fiscal and monetary policies may not halt the downfall of the economy. Collective organisations, including NGOs, have played an important role in consumption and income-smoothing. The downfall could have been lesser had the market, the government and collective organisations worked together.

A 23.9 per cent contraction during the first quarter of the present financial year is unnerving. It exposes the lack of resilience of the economic institutions of the country. A closer look at the data reveals that contraction is highest in the construction sector at 50 per cent, followed by trade, hotels and other services at 47 per cent. Both these sectors constitute a substantial proportion of the country’s GDP: construction constitutes 9 per cent and trade, hotels and other services account for 18 per cent. Both these industries are labour-absorbing. Massive loss of jobs due to the contraction has taken a toll on private consumption expenditure, bringing it down by 36 per cent.

Consumption expenditure alone constituted 56.4 per cent of the GDP before this quarter. Its downfall not only has a direct effect on the GDP but also on people’s life. The dependence on a few sectors for employment is one of the major reasons of such a sharp slide in the growth rate. Economic activities could not diversify easily during pandemic and economic institutions proved to be lacking resilience against shock.

Economic correction

Fiscal and monetary policies provide stimulus to the economy in the face of slowdown. Government spending has increased by 16.4 per cent, which has implications for fiscal deficit. Expenses made through Pradhan Mantri Garib Kalyan Yojana (PMGKY) is part of the fiscal stimulus administered by the government to revive the economy. This has led to an increase in the share of government expenditure from 11 per cent to 18 per cent. As far as monetary policy is concerned, the RBI injected ₹3.09 lakh crore in the first quarter. But the GDP decline only indicates that all these stimulus policies did not help much. There could be straight arguments that these stimulus packages are insufficient.

Traditionally, economic shocks are dealt with two types of coping strategies: consumption-smoothing and income-smoothing. The lack of purchasing power during an economic slowdown is supported by the provision of food, cash and other necessities by the government. Free ration and refilling cooking gas are the two most important consumption smoothing strategies adopted by Central government during the Covid-19 pandemic. Withdrawal of savings, selling assets and accessing informal credit are important consumption smoothing strategies worldwide.

Income-smoothing strategies are adopted by providing new and diverse employment opportunities. The MGNREGA programme assumes special significance in this regard. To smooth out income, people also diversify their agricultural activities or move to non-farm activities. Selling livestock to cope with income shock is a well-established practice in Asia and Africa.

NGOs during the pandemic

Collective organisations can also play a very important role in smoothing both consumption and income. NGOs and other collective organisations in India have been significant during the onslaught of pandemic. The most important step towards consumption-smoothing adopted in India was through the setting up of community kitchens by various voluntary organisations and groups. It was first initiated in Kerala by Kudumbhashree, a State government-driven self-help group (SHG), to save migrant workers, daily-wage earners, the poor and the destitute by providing free food.

Various NGOs have distributed food kits to vulnerable sections of the population. The interesting part is that they have done it in close coordination with the government, especially the local government. The NGOs have also played important role in distribution of masks and sanitisers. They also conducted various awareness programmes during the initial days of pandemic.

The Kutch Mahila Vikas Sanghathan, an NGO working for the livelihood of women in a small town in Gujarat, provided a cash support of ₹3,000 per family to about 700 families from different towns in the Kutch district. They realised that female migrants, sex workers, survivors of domestic violence, the elderly and single working women are the most vulnerable. They distributed ration kits to 3,000 families based on their vulnerability. The kit was designed so that the beneficiates receive the nutrients needed to enhance immunity.

The NGOs played important role in income-smoothing activities as well. The production of mask by women was encouraged by SEWA Bharat in the Nadia district of West Bengal and the Aga Khan Rural Support Program (AKRSP) in Samastipur, Muzaffarpur and Vaishali districts of Bihar. The masks produced by the women were purchased by the organisations at ₹8-10 per piece. Those who did not have requisite skills for mask production were involved in logistics.

SEWA Bharat linked the weavers of Phulia in the Nadia district to the market through an online platform, Anubandh. They tried to collaborate with IndiaKraft, a wholesale and retail brand, to sell existing stock of sarees through online platforms. Earlier, they were dependent on local middle-men, called the mahajans, for credit and for sales of their produce. These mahajans could not procure the sarees during pandemic due to a lack of transport and the closure of urban markets. After the intervention of SEWA Bharat, the weavers became confident that they would be able to sell sarees during the ensuing Durga Puja festival.

Pragati, an NGO working for social welfare and education in Odisha, attempted to link farmers to the market to sell vegetables, food grains and other perishable farm produce through a farmer producer organisation. To get requisite permission to transport goods they liaised with government officials. The farmers were also supported with seeds for millet, paddy and vegetable cultivation in the wake of the supply chain disruption. AKRSP, through the SHGs, also started an initiative to prepare a list of migrants returning home, so that they may be imparted appropriate skills in future.

Market failure

The pandemic has exposed the weakness of the market as institution. On the one hand, people were seeking any kind of employment, and on the other businessmen did not find labour to upload and unload goods. This has led to income in prices, especially for the retail sellers, who purchased goods at a price 1.5 times the usual wholesale price but sold them at the same MRP. The old system of procuring goods on credit from wholesalers was halted. The retailers had to purchase goods by paying the full amount.

The labour market also failed during the pandemic. While transporters were eager to join the workforce, suppliers were not able to transport goods due to lack of transport. Fish and other perishable produce could not be transported and hence the livelihood of many came to a standstill.

Government intervention made a difference though the public distribution system. Free food-grains distribution reduced the pace at which the poor could have slipped into deeper poverty. Those who did not have ration cards were worried about their future. The other much-canvassed programme, free refilling of gas cylinders, was not very successful. Not may received the benefits. It was observed that in Jharkhand, not only did a migrant who had returned from Kerala not receive free gas but had to purchase a new gas cylinder at a price as high as ₹5,500-6,000.

The downfall of growth could have been limited if we had improved the resilience of our economic institutions by linking small producers to the overall market, and overcoming the supply chain bottlenecks though collective organisations. The collective organisations could have given more direct support by the government to reach the vulnerable and fill the gaps that surfaced due to market and government failure.

Only fiscal and monetary policies may not be sufficient and effective. We need to overcome institutional bottlenecks where collective organisations can play a pivotal role. The government, market and collectives should have worked in tandem to develop resilience of economic institutions. Thus, the vulnerable could have been more appropriately targeted and people would have been able to diversify in other (even informal) activities to cope up with the shock.

De is Associate Professor, Iqbal is Junior Research Fellow, and Hasan is Research Assistant, Institute of Rural Management, Anand. Views are personal

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Published on September 06, 2020
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