COVID-19 and Sectoral Shifts in India

The Indian economy is a budding powerhouse, rapidly becoming an integral cog of the global economy. It has been propelled into glory by its mammoth labour force and boasts a young population with a low dependency ratio, strong savings, and stable investment rates. 

The services sector has proven a key driver of India’s economic growth; it is the largest recipient of Foreign Direct Investment (FDI) in India, namely inflows of $80 billion (USD) between April 2000 and December 2019. This sector contributes 61.5% to the Indian GDP; however, it is not yet the critical vehicle for employment generation, only employing 25% of the working population; this is in comparison to the Agriculture and Allied sector, which employs 53% but only contributes 15.4% to GDP. The profitability and growth of this sector traditionally thrived mainly on labour market arbitrage, but reliance on cheap labour is not sustainable in the future. The global perception of Indian companies cannot remain as just being low-cost suppliers or subcontractors to multinational companies. In order to increase economic productivity, the economic focus must shift to boosting the manufacturing sector and moving up the value chain through the development of new, skilfully branded products and services to meet global service demand. Strengthening these systems will accelerate the reduction of employment dependency from agriculture, and is crucial to Indian productivity.

Curtailing Covid-19 has driven the global economy to an unprecedented but necessary halt, resulting in a significant negative impact on plantation workers in India’s export-oriented, labor-intensive agricultural production, and threatens the progress of this important change in India’s sectors. Agriculture in India remains characterised by a lack of social protection coverage, and Covid-19 has marginalised those employed in this sector; indeed, without a clear social welfare package, hunger presents itself as a much more real threat than Covid-19 for much of the Indian population.

Covid-19 has prompted the government to announce an £18 billion relief package, consisting of food, grains, and cooking gas. Still, with a decentralised state system and agricultural workers disproportionately living in rural areas, there appears to be no plan to distribute this effectively. Some states have facilitated cash transfers, but for village dwellers, unable to access banks, this provides little comfort.

The historical restriction of civil society by the government is proving incredibly problematic in this current crisis. This has led to the government pleading for support from over 92,000 NGOs in the fight against the pandemic. Having previously canceled the licenses of many of these NGOs to receive foreign funds throughout 2014-2020, the government has systematically starved these organizations of both financial and social support. The frayed relationship between the two has been exacerbated, rather than improved during this pandemic. NGO support has been the lifeline for many of the poorest in India, with NGOs outperforming state governments in feeding people in 13 states and union territories. However, with resources stretched significantly, a lack of government support and concerns regarding their future Corporate Social Responsibility funding has heavily limited their capabilities.

The government's waiving of farm loans may appear positive, but this has not fully benefited the majority of small and marginal farmers, and negatively affects the future creditworthiness of borrowers while also damaging the agricultural credit culture as a whole. The expansion of crop loan lending is necessary to sustain the sector through the rainy season to come. The private sector is required to bolster the government's efforts.

The manufacturing and services sectors have suffered considerable losses in the short run during this economic decline. The agriculture sector must be supported to bring resilience to food security. This can only be achieved through a consistent emphasis on productive investments and robust infrastructure. Inter-state disputes, insufficient and cursory mitigating measures and a lack of effective communication between the government and the workforce are threatening future supply chains. Indeed, the failure of the Indian government to secure the safety of its people is not simply risking the health of the workforce, but also risks destroying the future position of India in the global world order.