Global Economic Crisis - Impact on the Poor in India: A Synthesis of Sector Studies

30 Nov 2009


Examining the impact of volatile global market on the workers and small producers in six sectors across five major states of India, this report reviews interventions to mitigate the impact of similar crisis in the future.

There is now considerable evidence (NCEUS 009, Mahajan 009, Kumar 009) to show that the global economic crisis has had a significant impact on developing economies. The initial idea that developing countries are ‘decoupled’ from the global crisis is no longer accepted as valid, as it is clear that multiple channels have transferred the crisis to these countries.

The nine percent decline in world trade during the year 008-09, the biggest decline since World War II, has led to a huge fall in exports from developing countries. Similarly, the crash in the equity market, emanating from capital outflow from developing countries has resulted in a severe financial crunch, with credit for small producers in the informal sector having almost dried up. It has been estimated that the capital outflow from the developing countries, in Asia, was about US$ 0 trillion by the end of 008 (Chhibber et al. 009). This is the equivalent to roughly one year’s GDP, in this region. The pressure on the exchange rate coming from the capital outflow, declining reserves of foreign exchange, decline in exports, etc, reduced the value of national currencies, which in turn made imports of raw material and intermediate goods expensive. This has hit the industries dependent on these imports very hard. Finally, the decline in foreign direct investment (FDI) and in tradable services like tourism and Information Technology (IT) services has led to a further decline in growth and employment rates in developing economies.

The International Labour Organization (ILO) has described the impact of the crisis as ‘a global catastrophe’ (ILO 009). It has estimated that about 9 million jobs have been lost already at the global level and that this figure may go up to 59 million, in the worst case scenario. This number is in addition to 90 million new entrants in the labour market, who are unlikely to find jobs in the prevailing recessionary situation. Estimates made by the Food and Agriculture Organization (FAO) show that the number of hungry people has increased from 9 5 million people in 008 to .0 billion people in 009 (FAO 009). Similarly, World Bank estimates say that there is an unforeseen increase in the number of poor, with about 0 million people being pushed into poverty by 009 and 00 million likely to be pushed into poverty by 0 0, in Asia alone (Chhibber et al. 009).

The Indian economy has been quite adversely affected by the global crisis, through the channels mentioned above. Indian exports crashed in the second half of 008-09, showing a decline in the quantum of exports of about 4 percent. The decline was more than 50 percent in some sectors like gems and jewellery, textile and garment manufacturing and leather goods. On the financial side, the capital outflows as well as decline in revenue resulted in a severe liquidity crisis. Decline in remittances from abroad, as well as in the FDI put severe constraints on the economy and on the Government. The depreciation of the Indian rupee has adversely affected the growth of industries that depend on imports of raw materials and intermediate products, both of which have become more expensive.

The impact of the crisis in India, has been observed in the slowing down in the growth rate of the economy, between August 008 and March 009, by about four percent (Gangopadhyay 009), and in the increase in unemployment (Labour Bureau Reports 009).

This phenomenon is not merely a ‘slow down’, but it is definitely a crisis for the affected sectors and workers, as there has been a sudden fall in production, employment, wages and earnings.

The first survey of the Labour Bureau, Government of India, stated that the employment in the economy fell by 500,000 jobs during October-December 008. The next survey, reported that one million jobs were lost, during January 009. Though a slight improvement is observed in employment during January-March 009, it is not clear whether this is sustainable (Labour Bureau 009, Economic Survey 009).

Macro data, however, does not tell the full story. Since exports account for only percent of the Gross Domestic Product (GDP), in India (NCEUS 009), the decline in exports appears to have created a small direct impact on the economy. However, this impact is a matter of serious concern because first, the affected workers and small producers are largely in informal employment (they are therefore unprotected in a crisis like this) and second, the indirect impact and continuing impact in the subsequent rounds is likely to be significant and widespread.

Informal workers constitute 9 percent of the total workforce in the country. There are about 58 million non-agricultural informal enterprises in the country, accounting for percent of the exports from the country (NCEUS 009). Any decline in exports impacts both the producers and the workers in these labour intensive sectors. Given the informal nature of their work (i.e. temporary, scattered, sporadic and short term), they are not likely to be represented in the quick surveys of the Labour Bureau. Thus, the macro picture hides more than it reveals with regard to the impact of the global crisis on the economy.

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