NEWS
17/04/2020 8:02 AM IST | Updated 17/04/2020 8:03 AM IST

In Rajasthan, The Economic Impact Of Lockdown Could Outweigh The Coronavirus Health Crisis

The lockdown has caused a reduction in state revenues, forcing the Rajasthan government to cut back its expenditure, and an increase in unemployment and hunger especially among migrant workers.

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A medic collects a swab sample of an elderly woman during a door-to-door examination of COVID-19 during a curfew imposed in Jaipur, Rajasthan on April 15.

New Delhi—Rajasthan was one of the first states to impose a state wide lockdown on March 19 and a more restrictive curfew in the town of Bhilwara the same day to contain the transmission of the novel coronavirus, acting quickly to tamp down an outbreak.

Now, state officials, industry representatives, activists and workers are in agreement on one thing: the lockdown’s impact on the state’s economy is likely to far outweigh the state’s public health crisis, and its effects are likely to linger on for several months as shrinking state revenues will force the government to cut back the spending needed to revive a dormant economy. 

State officials are already taking a second look at the new financial year’s budgets which had promised a small but significant increase in spending. Some departments may have to reduce their spending by as much as 25%.

Rajasthan’s troubles offer a glimpse of what awaits the rest of the country as novel coronavirus cases continue to rise and the lockdown that began on the night of March 24 is extended to May 3. It also underlines the need for providing economic relief to state governments whose finances have worsened for multiple reasons.

Rajasthan’s economy, like much of the country’s, was struggling well before the pandemic. The economic slowdown and subsequent closure of much of the state’s businesses and establishments due to the lockdown is likely to have set back state’s revenue by as much as Rs 17,500 crores in 2019-2020, a 12.5 percent reduction compared to the previous year, Chief Secretary Devendra Bhushan Gupta told HuffPost India. Gupta estimated that coronavirus-related restrictions in the last fortnight of March alone had cost Rs 3,500 crores, a 50% reduction compared to the previous year.

“This is the period when maximum revenue comes for a one month period. Because people deposit whatever money is to be deposited compulsorily,” Gupta said, speaking of the last two weeks for March. “Many amnesty schemes have their deadline as 31st March. Sometimes it is preponed, excise money etc also has to be deposited in the last week of March.”

While the numbers were yet to be finalised, Gupta said,  “There is always extra money that comes into the state coffers during this time.”

Another estimation exercise by the state government’s finance department projects April revenues to shrink by Rs 1500 crores, a 60 percent reduction year-on-year, due to the extension of the lockdown till May 3.

While state officials in Jaipur worry over their numbers, activists say the countryside is braced for hunger and widespread unemployment.

Author and activist Bhanwar Meghwanshi was visiting home at the Sirdiyas village in Bhilwara district when the state-led lockdown was imposed on March 19. Over the phone with HuffPost India, Meghwanshi said he appreciated the administration’s attempts to contain the pandemic, but warned that the closure of local factories and businesses had affected the livelihoods of his district’s most vulnerable residents.

“It’s fine to say that the Bhilwara Model worked, more positive cases are not being detected and the community transition stage was prevented. That is good. Safai karamcharis, police officials and health workers have also done a lot of good work,” Meghwanshi said. “But I feel the impending crisis of unemployment and hunger is likely to be more dangerous than this pandemic.” 

Economic Costs Of The Lockdown 

Tourism, one of Rajasthan’s biggest employers, is what brought the novel coronavirus to the state in early March. As health minister Dr Raghu Sharma described in this interview with HuffPost India,  an Italian couple carried the virus to Rajasthan. State authorities reacted quickly — putting in place screening measures for visitors and, subsequently, on March 19 all visitors to the state were prevented from travel by implementing a statewide lockdown

Tourism is one if the most important industries in Rajasthan and is worst hit by COVID 19 as footfall has totally dried up,” said a state government official. “There are currently 90% cancellations and also for bookings for the next season.” The official said tourism contributes as much as a quarter of state GDP; the loss in terms of foregone Goods and Service Tax (GST) collections alone could be Rs 2000 crores.

According to industry estimates which the state government is taking seriously, the official quoted earlier said, “revenue loss in Hotels /Restaurants and other travel services will be more than Rs 12-15 crs and loss of direct and indirect employment of more than 10 lac people is anticipated in next 3 -4 months.” 

With the state’s steel industry hub and the city of Jodhpur also under curfew on the lines of Bhilwara, operations of the industries have been suspended.  According to the official quoted earlier, there are 94 industries in Jodhpur and from them Rs 10 crore GST revenues each month are received. Lockdown closure would mean that revenue is lost.

Similarly, the state’s coaching centre hub of Kota, which is also under a Bhilwara-style curfew, earns the state exchequer about Rs 333 crore per month, according to back of the envelope calculations by the official. 

MSMEs are dependent upon cash flow...It is going to be a challenging time for MSMEs in the near future...they have paid salaries for March but April will be difficult.Vishal Vaid, Rajasthan Chairman, Confederation of Indian Industry

Vishal Vaid, Rajasthan Chairman of industry body Confederation of Indian Industry (CII), said Micro, Small and Medium Enterprises (MSMEs), which account for a little over 90% of industries in the state, were struggling.

MSMEs are dependent upon cash flow. When they receive cash, they pass on ahead. Buy raw material, make the product and sell further down the line. It is going to be a challenging time for MSMEs in the near future,” Vaid said. “They have employees anywhere from 10 to 300, and in the absence of cash flow it is going to be difficult to pay them. They have paid salaries for March but April will be difficult.”

But the slight relaxation of lockdown guidelines announced on April 14, Vaid said, offer some hope. 

Vaid stated that permission to start production in industries which hire local labour, house and feed them within their premises located outside the coronavirus hotspots meant firms can start functioning, even at the modest 25-30% capacity to begin with. He said he was waiting for the state government’s guidelines for further clarity about what could be done and what could not. 

Precarious Livelihoods For Working People

While the local industry has a reason for hope, working people continue to face uncertain times. Nesar Ahmed of the Budget Analysis Rajasthan Centre, a Jaipur-based research organisation, said even though both the state and central governments made some arrangements for the poor via cash transfers as immediate assistance, the number of those who were left out is significant. 

“Migrants who are not covered under the National Food Security Act or the National Rural Employment Guarantee Act are struggling to receive help,” Ahmed said. 

Migrants who are not covered under the National Food Security Act or the National Rural Employment Guarantee Act are struggling to receive help.Nesar Ahmed, Budget Analysis Rajasthan Centre

The case of 32-year-old factory worker Anil Paswan and two of his fellow workers, who stay in the Vishwakarma industrial area of state capital Jaipur and work for different local companies, echoes Ahmed’s observations. 

Speaking with HuffPost India on Wednesday evening, Paswan said he had not received any help from the government since the lockdown was implemented. There was no government ration shop near his place of residence, so he could not buy free or subsidised ration nor access any other help. He said he came to Jaipur from his native village in the Ara district of Bihar about a month before the March lockdown began, and had resumed work as a ball bearing maker in a local company. 

When the first lockdown was announced, he was yet to finish one month working at the new workplace so he did not receive a salary and so had to make do with whatever little money he and two of his room mates had. At one point, when food provisions seemed very less, he reached out to Ahmed who arranged it for him. 

But, Paswan said, that was a temporary arrangement and he needed money to buy essentials and send some cash back home where his wife and three kids stay. “I am going to meet my employer, I hope he gives me some money as advance payment,” he said.  

It won’t be right to say everything is fine. It is an inconvenience to people. There are 400 textile factories in Bhilwara, which were closed down abruptly, migrant workers working there were not given the chance to leave the district,” said Meghwanshi, the author and activist. “Curfew was announced suddenly and made stricter over weeks, so people are stuck. That is also why you didn’t see migrant workers leaving in large groups from here like in other parts of the country.” 

Meghwanshi also noted that the Gehlot and Modi governments both gave some cash assistance but wondered just how many were actually benefited. “We know that the Below Poverty Line lists are flawed and the needy invariably get left out. They are not covered by the National Food Safety Act either,” he said, referring to the migrant workers. 

“So what people get is very less than their requirement — a bit like a grain of cumin in a camel’s mouth. The BPL lists are questionable. There is a need to go beyond them and help people who are left out on a large scale,” Meghwanshi added. 

The full extent of people’s grievances were not visible because of the restrictions on the movement of media in Bhilwara and other areas where curfew has been imposed, he said. 

There are at at least 40 such “hotspots” in 11 districts of the state. Six of these districts are entirely under curfew, according to Chief Secretary Gupta.

“It is unclear how people at large are doing because media passes are not being given to reporters where curfew is in place. So people’s grievances are just not becoming public because communication is one sided,” said Meghwanshi. 

Spending Cuts

The reduction in revenues, Chief Secretary Gupta said, would result in sharp reductions in public spending with cuts across departments ranging from 15 to 25%. 

 

Next three four months will be important for the economy. We will have to rework our strategy or even the budget estimates will have to be reworked. There will be an impact on the revenue expenditure because our revenue figures will go haywire. On the expenditure side we have to cut down accordingly.Rajasthan Chief Secretary Devendra Bhushan Gupta

“Next three four months will be important for the economy. We will have to rework our strategy or even the budget estimates will have to be reworked,” Gupta said. “There will be an impact on the revenue expenditure because our revenue figures will go haywire. On the expenditure side we have to cut down accordingly. Some of the announcements will have to be re-examined, if necessary.”

Gupta said the finance department has been told to start the exercise. 

“From April 16, our offices will be opened partially and every department will be asked to cut down 15-20% or, in some cases, even 25% of their expenditure. So they have to prioritise their demands and their priorities have to be reworked. Some of their demands will have to be cancelled or postponed for the next year,” he said.  

Will The Modi Govt Grant Financial Help?

Given this state of Rajasthan’s economy, Chief Minister Ashok Gehlot has written several times to Prime Minister Narendra Modi seeking financial assistance from the centre. One key route for this is in the form of a grant of Rs 1 lakh crore from the central government to help all states tide over the economic slowdown caused by the coronavirus pandemic and lockdown

This is apart from other requests which include relaxation of fiscal deficit limit imposed through the Fiscal Responsibility and Budget Management Act and transfer of pending GST refunds. 

In his letters, Chief Secretary Gupta said, CM Gehlot suggested two criteria for deciding which state should receive how much from the Rs 1 lakh crore financial grant sought: population of the state and extent of spread of COVID-19. Based on these two factors, all states should receive proportionate amounts. 

The IAS officer explained the state government’s expectation, thus, “The population of Rajasthan comes close to five percent, so suppose it is Rs 1 lakh crore, Rajasthan will get Rs 5000 crore. Some kind of grants should be there because now PM-CARES etc fund has been created.” 

Gupta, however, clarified that the state is not insisting that the grant should be given  from PM-CARES. Whatever be the “modus operandi”, he said, some grant should be given and some moratorium should be provided for “deferment of interest etc for Power Finance Corporations and other liabilities.” This deferment should be given free of interest because, “if interest is charged for this delayed period, then they will be losers later on.” 

The demand for financial assistance through different means is steadily catching steam as other chief ministers have also raised it with the Prime Minister. The centre has, thus far, hesitated citing lack of funds and fiscal deficit concerns but has hinted at the possibility of providing some measures for economic relief.