Pandemic may go, but recovery will be halting
The social distancing that the fight against the pandemic demanded, ensured a differential impact on industries
If one takes an economist’s lens to look beyond the death and despair of 2020, it is difficult to miss the shape of the letter K. Across the world, this shape has been seen primarily as a pattern of recovery where one section of the economy grows rapidly while the other declines equally sharply.
In States like Karnataka, this pattern has already manifested itself in the way the pandemic has played out. The social distancing that the fight against the pandemic demanded, ensured a differential impact on industries. In IT and other industries where the challenge of distance could be overcome with technology, the negative impact was controlled. Some of these industries may have even gained by recognising that they had, out of habit, been bringing workers over great distances when they did not need to.
In other industries where the challenge of distance could not be overcome, especially manufacturing, the pandemic caused a dramatic decline.
The pressure on manufacturing, and other distance-challenged industries, came from multiple sources. There was the administratively imposed lockdown, which ensured they could not produce. After the lockdown was lifted some of the effects remained.
Migrant workers – especially those from distant districts of north and east India – fled Bengaluru. In addition to these supply side constraints, demand also collapsed. With the global economy slipping into negative territory, the demand for export-related goods fell. And the Central government’s stubborn refusal to add more money to the economy, to make up for the loss of jobs, ensured that domestic demand too stagnated.
There was some improvement in demand due to festival expenditure in October, but the signs are that the gloom has returned in November.
It is tempting to follow the optimistic official view that this is just a bad year, and the economy would return to normal as rapidly as it declined: the much touted V shaped recovery. But for this to happen, several things would have to go perfectly right.
Migrant workers would have to return as rapidly as they left. They would have to forget the fact that they were left to their own devices when the lockdown was imposed, often ensuring they walked hundreds of kilometres to reach home. While dire economic necessity in their villages may force some of them to indeed forget the pains of the last year and return to work in distant cities, a significant number of them are unlikely to do so. It would be no surprise if the economies of Bengaluru and Karnataka have to cope with a longer-term constraint on low-skilled labour.
At the same time, there are pressures in the opposite direction on relatively higher skilled labour in the manufacturing sector. The constrained local and global demand for manufactured products increases the competition among manufacturing units for a share of the shrinking market. This could lead to pressures on workers in the organised sector to step up productivity per worker. This has already formed the basis for industrial disputes, such as the one in Toyota Kirloskar Motors in Bidadi.
To make matters more unpredictable, there is the longer-term problem of the informalisation of the formal sector. For some years now, companies have, in an effort to reduce labour costs, outsourced the lower end of their operations, beginning with security. The units to which these activities are outsourced rely on contractors to bring in unskilled labour to carry out these tasks. The extent of this outsourced work has grown, with some units even finding a place for them on the shop floor.
The contractors who provide these workers typically source them through informal networks. These networks, with strong rural loyalties overriding commitment to the firm, can be quite volatile in the workplace. And as the manufacturing units simultaneously try various methods to reduce their wage bills, the sense of dissatisfaction can even explode into violence, as happened in the Wistron factory at Narasapura.
The pandemic will, hopefully, fade away in the first half of 2021, but the recovery is likely to be more halting. It is possible that a sporadic recovery in manufacturing will be glossed over by a rapid recovery of the information technology industry. But as the recent industrial unrest has shown, an uneven recovery could have less predictable social and economic consequences.
(The author is Professor and Dean, School of Social Sciences, Head, Inequality and Human Development Programme, National Institute of Advanced Studies)