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Opinion

Labor shortage looms as India's migrant workers stay at home

Workforce faced grueling journey out of cities after COVID-19 lockdown

| India
Migrant workers get on a bus to reach a railway station to board a train to their home state of Bihar in Ahmedabad on May 23: will they return in time to meet the rising labor demand?   © Reuters

Ritika Mankar consults with Mumbai-based brokerage Ambit Capital as a thematic specialist and also serves as a director on CFA Society India's Board.

In March 2020, Indian policymakers decided to impose a stringent lockdown to fight COVID-19. The lockdown curtailed construction and restricted manufacturing activity, and e-commerce companies halted deliveries of nonessentials. This set off a powerful force: it drove 30 million blue-collar workers -- at a conservative estimate -- back from workless cities to the villages they came from.

But the lockdown also entailed restrictions on highway movement and train services. What followed were arduous journeys for migrant workers trying to make their way home, often on foot, with limited or no food. Some reached home by road or on board special trains that the government eventually set up, but even now others are still undertaking this fraught journey.

This will not be an entirely permanent migration: city wages are much higher than those on offer in India's rural hinterland, so the blue-collar workforce that powers India will eventually return to urban areas. However, the question is, once the lockdown is relaxed, will they return in time to meet the steadily rising labor demand?

In their latest book, economists and Nobel Prize-winners Esther Duflo and Abhijit Banerjee quote a British Somali poet who wrote: "No one leaves home unless home is the mouth of a shark." They go on to highlight that the decision to migrate is not just driven by the prospect of better wages -- migration in search of work only occurs when conditions at home are untenable.

Migrant workers can earn 1.5-3 times more in urban areas compared to rural areas, but home may actually offer respite for a few months. Besides better living conditions compared to overcrowded, unsanitary cities, the prospects of rural India's farm economy may be looking up.

Farmers carry harvested paddy on the outskirts of Gauhati on June 2: the prospects of rural India's farm economy may be looking up.   © AP

The Reserve Bank of India expects gross domestic product to contract this year but said the farm sector provides a "beacon of hope." Indian farms have harvested a bumper winter crop and a good summer crop appears likely. Besides high output, cereal prices globally have been stable.

The government has been supporting the rural economy through spending and this could gather steam as Bihar, the state which is the second largest supplier of migrant labor for India, is due for elections in October this year and the ruling Bharatiya Janata Party can see the political benefit in helping it.

All of this means that as the lockdown is progressively lifted from June 2020 and labor demand in cities rises from its near-zero levels, there is a distinct risk that labor supply might be missing in the short term as blue-collar workers do not return just yet.

According to a study conducted by MART, a consultancy focused on rural India, nearly a quarter of migrant workers said they would not return and would instead stay in villages. Another 19% said they would look for opportunities in nearby towns instead of returning to their earlier employers.

Four states -- Maharashtra, Gujarat, Karnataka and Tamil Nadu, all located in western and southern India -- are most vulnerable to a shortage. These four are the most industrialized states in India and account for 40% of national income.

A child of a migrant worker drinks water while waiting in a queue for transport in Ahmedabad on May15: the journey to their home state of northern Uttar Pradesh is long and arduous.   © Reuters

The problem is they are 1,000 kilometers to 2,500 kilometers away from the two main northern states which supply migrant labor, Uttar Pradesh and Bihar. Given the recent trauma migrant workers have experienced, if and when they do set off for work, they may prefer this time to migrate to closer states.

Moreover, there are strong reasons for migrant workers to stay in the agricultural north for the final quarter of the year, which contains the harvesting season for the summer crop and many Hindu festivities, rather than move to the industrial west and south. This year there is a distinct probability that migrant workers see merit in hanging back at their native villages till both these events pass.

While these unsung heroes of India's growth will eventually return to earn higher wages, there is a risk that businesses in cities feel an acute shortage between now and December 2020.

Given the likelihood of this happening, it makes sense for India Inc. to prepare. It would mean, naturally, a temporary spike in blue-collar wages to attract more workers back to cities. There is some justice here for India's mistreated blue-collar workforce. But if a second wave of COVID-19 necessitates another freeze in interstate movement later in the year, this shortage could last longer and then even higher wages will not help.

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