Recession and Unemployment during Covid-19Pandemic

Nayan David

Aug, 07, 2020

The International Labour Organization (ILO) in its report titled 'ILO Monitor 2nd edition: COVID-19 and the world of work, describes coronavirus pandemic as "the worst global crisis since World War II.Since the first ILO Monitor, the COVID-19 pandemic has further accelerated in terms of intensity and expanded its global reach. Full or partial lockdown measures are now affecting almost 2.7 billion workers, representing around 81 per cent of the world’s workforce.

The International Labour Organization (ILO) in its report titled 'ILO Monitor 2nd edition: COVID-19 and the world of work, describes coronavirus pandemic as "the worst global crisis since World War II.Since the first ILO Monitor, the COVID-19 pandemic has further accelerated in terms of intensity and expanded its global reach. Full or partial lockdown measures are now affecting almost 2.7 billion workers, representing around 81 per cent of the world’s workforce.

In the current situation, businesses across
a range of economic sectors are facing catastrophic losses, which threaten their operations and solvency, especially among smaller enterprises, while millions of workers are vulnerable to income loss and layoffs. The impact on income-generating activities is especially harsh for unprotected workers and the most vulnerable groups in the informal economy. Using this approach, as of 1 April 2020, the ILO’s new global estimates indicate that working hours will decline by 6.7 per cent in the second quarter of 2020, which is equivalent to 195 million full-time workers

Indian status quo
Mahesh Vyas, the CEO and Director of CMIE(Centre for Monitoring Indian Economy), reports: “An unemployment rate of 23.4 per cent during this week; an LPR [labour participation rate] of 36 per cent and an employment rate of 27.7 per cent.” Now, over 20 per cent joblessness is bad news for any country. The real eye-popping figure, however, is that just 27.7 per cent of the working-age population is employed.India currently has a population of about 137 crore. Of this, about 103 crore are in the working-age, above 15 years. Let us take the broadest definition of employment to include any kind of paid work, formal or informal – salary, daily wage or self-employment of any kind. Using this definition, in February 2020, pre-coronavirus pandemic and national lockdown, about 40.4 crore Indians were employed, as per the CMIE report for the month of April. At that point, 3.4 crore were unemployed.

The CMIE estimates that only 27.7 per cent of the working-age population (103 crore) was employed in the week after lockdown began. That works out to 28.5 crore. So, within two weeks, the number of gainfully employed has come down from 40.4 crore to 28.5 crore, a drop of 11.9 crore.
The findings are consistent with what one should have expected even otherwise. There are about 11 crore non-farm wage earners, 6 crore self-employed and 2.5 crore salaried workers with insecure jobs. News reports and common sense tells us that an overwhelming majority of these three categories have lost jobs.Finally, let us not forget the 3.4 crore persons who were unemployed even before lockdown. Add their numbers to the 12 crore who lost their jobs after lockdown and we are staring at a figure upwards of 15 crore. Besides, many persons who may not have reported themselves jobless in this survey may find themselves without a job after the lockdown if many enterprises refused to take them back. Many self-employed persons like street vendors may not be left with the capital to restart their businesses. Many farmers, including dairy and poultry farmers, may need to shed workers if they fail to get remunerative prices. In sum: we could be looking at 15-20 crore Indians who face or may soon face livelihood crisis.

In India, with a share of almost 90 per cent of people working in the informal economy, about 400 million workers in the informal economy are at risk of falling deeper into poverty during the crisis. Current lockdown measures in India, which are at the high end of the University of Oxford's COVID-19 Government Response Stringency Index, have impacted these workers significantly, forcing many of them to return to rural areas
This comes in the backdrop of the ongoing job crisis due to the lockdown. Companies are aggressively downsizing employees and implementing salary cuts to keep up with the running costs. Recently, apparel major Raymond fired hundreds of employees to overcome mounting losses. With this, it joined start-ups like Ola, Uber, Zomato and Swiggy, which cited COVID-19 crisis to lay off employees and cut salaries.

Ola and Swiggy fired 1,1100 and 1,400 employees, owing to the fall in revenues. While Zomato laid off 13% of the workforce. In addition to this, many companies like Uber, Gartner and energy major Schlumberger have even revoked job offers extended to the fresh graduates at premier institutions like Indian Institutes of Technology (IITs) and Indian Institutes of Management (IIMs).

The impact of the pandemic is such that experts believe that the economy is likely to slip into recession in the third quarter of 2020-21. According to Dun & Bradstreet (D&B), the job loss and salary cuts will slow down the recovery even after the pandemic. This has directly impacted the labour participation rate (LPR), which dropped to 38.7%

Legal Aspects and Reliefs provided by the govt:

To minimise the effect in the economy caused by the COVID -19 outbreak, the Union Finance & Corporate Affairs Minister, on 24.03.2020, announced several important relief measures taken by the Government of India, especially on statutory and regulatory compliance matters related to several sectors. The Central Government, amongst others, announced much-needed relief measures in areas of Income Tax, GST, Customs & Central Excise, Corporate Affairs, Insolvency &Bankruptcy Code (IBC) Fisheries, Banking Sector and Commerce, intended to boost the economy.
Steps taken by the Indian Government:
The Central Government, amongst others, has taken the following decisions in these directions:
a. Income Tax
i. Extension of last date for income tax returns for financial year 2018-2019 from 31.03.2020 to 30.06.2020.
ii. Aadhaar-PAN linking date to be extended from 31.03.2020 to 30.06.2020.
iii. Due dates for issue of notice, intimation, notification, approval order, sanction order, filing of appeal, furnishing of return, statements, applications, reports, any other documents and time limit for completion of proceedings by the authority and any compliance by the taxpayer including investment in saving instruments or investments for roll over benefit of capital gains under Income Tax Act, Wealth Tax Act, Prohibition of Benami Property Transaction Act, Black Money Act, STT law, CTT Law, Equalization Levy law, Vivad Se Vishwas law where the time limit will be expiring between 20.03.2020 to 29.06.2020 shall be extended to 30.06.2020.
B. GST/Indirect Tax
i. Those having aggregate annual turnover less than Rs. 5 Crore can file GSTR-3B due in March, April and May 2020 by the last week of June, 2020, without any interest, late fee, and penalty.
Others can file their returns due in March, April and May 2020 by last week of June 2020 but the same would attract reduced rate of interest @9 % per annum from 15 days after due date. However, no late fee and penalty shall be charged, if the compliance is made before 30.06.2020.
ii. Date for filing GST annual returns of financial year 2018-2019, which is due on 31.03.2020 has been extended till the last week of June 2020.
iii. Due date for issue of notice, notification, approval order, sanction order, filing of appeal, furnishing of return, statements, applications, reports, any other documents, time limit for any compliance under the GST laws where the time limit is expiring between 20.03.2020 to 29.06.2020 shall be extended to 30.06.2020.
iv. Payment date under Sabka Vishwas Scheme shall be extended to 30.06.2020. Further no interest shall be charged if the payment is made by 30.06.2020.

Relief for Poor
The Indian Government, on 27.03.2020, announced a Rs 1.7 lakh crore relief package aimed at providing a safety net for those hit the hardest by the Covid-19 lockdown, along with insurance cover for frontline medical personnel. About 800 million people are expected to get free cereals and cooking gas apart from cash through direct transfers for three months.
Such steps include:
i. Ujjwala beneficiaries to get free cooking gas (LPG) cylinders in next three months.
ii. Collateral-free loan doubled to ?20 lakh to 63 lakh women self-help groups.
iii. Government will pay EPF contribution, both of employer and employee, for 3 months for all those establishments with less than 100 employees out of which 90% earn less than ?15,000 per month.
iv. Ex-gratia of Rs.1,000 shall be granted to 3 crore poor senior citizen, poor widows and poor disabled.
v. Every MNREGA worker to get hike of Rs. 2,000.
vi. Health workers to get medical insurance cover of Rs. 50 lakhs.
On 09.04.2020, the Indian Government approved a COVID-19 package worth Rs 15,000 crore to build on health infrastructure till March 2024, to be given to state governments and Union Territories to develop COVID-19 hospitals, purchase of personal protective equipment, setting up of laboratories, procurement of essential medical supplies, medicines and consumables, and for strengthening health systems.
Steps taken by the Reserve Bank of India (RBI)
The RBI, on 27.03.2020, also announced a Regulatory package to mitigate the burden of debt servicing brought about by disruptions on account of COVID-19 pandemic and to ensure the continuity of viable businesses. Such steps, inter alia, include:
i. All commercial banks (including regional rural banks, small finance banks and local area banks), co-operative banks, all-India Financial Institutions, and NBFCs (including housing finance companies) ("lending institutions") are permitted to grant a moratorium of three months on payment of all instalments falling due between 01.03.2020 and 31.05.2020. The repayment schedule for such loans as also the residual tenor, will be shifted across the board by three months after the moratorium period. Interest shall continue to accrue on the outstanding portion of the term loans during the moratorium period.
ii. In respect of working capital facilities sanctioned in the form of cash credit/overdraft ("CC/OD"), lending institutions are permitted to defer the recovery of interest applied in respect of all such facilities during the period from 01.03.2020 upto 31.05.2020 ("deferment"). The accumulated accrued interest shall be recovered immediately after the completion of this period.
iii. In respect of working capital facilities sanctioned in the form of CC/OD to borrowers facing stress on account of the economic fallout of the pandemic, lending institutions may recalculate the 'drawing power' by reducing the margins and/or by reassessing the working capital cycle.
iv. Wherever the exposure of a lending institution to a borrower is Rs. 5 crore or above as on 01.03.2020, the bank shall develop an MIS on the reliefs provided to its borrowers which shall inter alia include borrower-wise and credit-facility wise information regarding the nature and amount of relief granted.
On 27.04.2020, RBI decided to open a special liquidity facility for mutual funds of Rs.50,000 crores which shall be used by banks exclusively for meeting the liquidity requirements of mutual funds by extending loans, and undertaking outright purchase of and/or repos against the collateral of investment grade corporate bonds, commercial papers (CPs), debentures and certificates of Deposit (CDs) held by mutual funds.

Force-Majeure
In India, the concept of force majeure finds its genesis under the Indian Contract Act, 1872 (‘Act’). When it is relatable to an express or implied Clause in a contract, it is governed by Chapter III dealing with contingent contracts, and more particularly, Section 32 thereof. A force majeure event which occurs de hors the contract, it is dealt with by a rule of positive law under Section 56 of the Act. Section 56 of the Act deals with the agreement to do an impossible act or to do acts which, afterwards become impossible or unlawful.
Before considering the realm of operation of force majeure, it is important to highlight two fundamental principles which should be kept in mind while dealing with principles of contract. First is the Latin maxim Pacta Sunt Servanda. This speaks of purpose of the contract in accordance with the terms of the contract. The other principle is Rebus Sic Stantibus. This speaks of discharge of contractual obligations owing to events which had occurred, destroying the basic assumption which the parties had made at the time of entering into the contract.

The spread of the COVID-19 pandemic and lockdowns imposed by several nations have made performance of contracts challenging and/or impossible. India was until recently, under a complete lockdown since 25th March 2020. All commercial activities saving a few ‘essential services’ were suspended. Resultantly, Indian courts have started witnessing the onslaught of contractual disputes inter-alia revolving around the doctrine of frustration. The initial approach of the Indian Courts has varied from case to case as can be seen from the recent Orders of the Bombay High Court and the Delhi High Court.

Bombay High Court’s Order passed in Rural Fairprice Wholesale Ltd. &Anr. vs IDBI Trusteeship Services Ltd. &Ors. on 3 April 2020
In this case the Bombay High Court recognized the market situation pursuant to the COVID-19 and observed that the share market had collapsed due to COVID-19, therefore, it was a fit case to restrain the bank from acting upon the sale notices and a direction to withdraw any pending sale orders for the pledged shares.
Bombay High Court’s Order passed in Standard Retail Pvt. Ltd vs Gs Global Corp And Ors on 8 April, 2020
In a departure from its 3 April 2020 Order, the Bombay High Court refused to grant interim measures to the Petitioner observing that the commodity in question was an essential item and lockdown is only for a limited period. Consequently, Petitioner cannot resile from its contractual obligation of making payments to the Respondents.

Delhi High Court’s Order passed in M/s. Halliburton Offshore Services Inc. vs Vedanta Limited &Anr. 20 April 2020
The case pertained to restrain on invocation of bank guarantees. While granting interim relief on the invocation of bank guarantees, the Delhi High Court observed that the country wide lockdown was prima facie, in the nature of force majeure. Therefore, it could be said that special equities do exist, as would justify grant of the prayer, to injunct invocation of the bank guarantees.
Delhi High Court’s Order passed in Indirajth Power Private Limited v. UOI &Ors on 28 April 2020
The Petitioner sought interdiction of the Bank Guarantee inter-alia on account of the lockdown in the country due to spread of COVID-19 pandemic, which could drive the Petitioner towards being declared an NPA.
The Court while observing the Petitioner’s conduct i.e. despite the extension of 12 months, could not fulfil its obligation under the Contract, refused to grant relief to the Petitioner. The Court observed that Petitioner’s position under the contract was unaffected by the imposition of the lockdown.

Uttar Pradesh Temporary Exemption from Labour Laws:
The Uttar Pradesh Temporary Exemption from Certain Labour Laws Ordinance, 2020, only retains the Bonded Labour Act, 1976, Employee Compensation Act, 1923, and Building and Other Construction Workers’ Act, 1996.Pertaining to women and children, like the Maternity Act, Equal Remuneration Act, Child Labour Act, and Section 5 of the Payment of Wages Act, which states that wages of a person earning less than Rs 15,000 a month cannot be deducted, are also being retained.Some of the laws that would no longer apply include the Minimum Wages Act, Trade Unions Act, Industrial Disputes Act, Factories Act, Contract Labour Act, Payment of Bonus Act, Inter-State Migrant Workmen Act, Working Journalists Act, Employees’ Provident Funds and Miscellaneous Provisions Act.The ordinance has been sent for approval to the central government, since labour is on the concurrent list of subjects.

Delhi-based labour lawyer Sanjoy Ghose said given the size of the population, even the formal sector is made up of several lakh workers, who will be affected by the ordinance.
Ghose told ThePrint that the arguments referring to unorganised and organised workers are “bogus”, because Parliament had passed the Unorganised Workers’ Social Security Act in 2008, with an objective “to provide for the social security and welfare of the unorganised workers and all matters connected with it”.
“If they wanted to protect the unorganised workers, the legislation was there, but till date, no state has implemented it,” Ghose said.
The ordinance would result in the termination of the services of all permanent employees the moment it receives the President’s nod, and they would be replaced with contract workers, Ghose said, adding that the legislation is “absolutely atrocious”.

He highlighted the issue of gratuity payments. “A person who has worked for 30 years and knows that he will get this money to build his house post-retirement… just because is retiring now during the pandemic, he would not get any gratuity?
International Status Quo

These lockdowns meant confining millions of citizens to their homes, shutting down businesses and ceasing almost all economic activity. According to the International Monetary Fund (IMF), the global economy is expected to shrink by over 3 per cent in 2020 – the steepest slowdown since the Great Depression of the 1930s.

In the US, Covid-19-related disruptions have led to millions filing for unemployment benefits. In April alone, the figures were at 20.5 million, and are expected to rise as the impact of the pandemic on the US labour market worsens. As per a Reuters report, since March 21, more than 36 million have filed for unemployment benefits, which is almost a quarter of the working-age population. The IMF’s estimate of the global economy growing at -3 per cent in 2020 is an outcome “far worse” than the 2009 global financial crises. Economies such as the US, Japan, the UK, Germany, France, Italy and Spain are expected to contract this year by 5.9, 5.2, 6.5, 7, 7.2, 9.1 and 8 per cent respectively.

Advanced economies have been hit harder, and together they are expected to grow by -6 per cent in 2020. Emerging markets and developing economies are expected to contract by -1 per cent. If China is excluded from this pool of countries, the growth rate for 2020 is expected to be -2.2 per cent.China’s GDP dropped by 36.6 per cent in the first quarter of 2020, while South Korea’s output fell by 5.5 per cent, since the country didn’t impose a lockdown but followed a strategy of aggressive testing, contact tracing and quarantining.
In Europe, the GDPs of France, Spain and Italy fell by 21.3, 19.2 and 17.5 per cent respectively. [7]
According to an assessment by the World Economic Forum (WEF), supporting SMEs and larger businesses is crucial for maintaining employment and financial stability.

In India, Finance Minister Nirmala Sitharaman has announced some details[8] of the Atmanirbhar Bharat Abhiyan package, to provide relief to Medium, Small and Micro Enterprises (MSMEs) in the form of an increase in credit guarantees.
Many advanced economies in the world have rolled out support packages. While India’s economic stimulus package is 10 per cent of its GDP, Japan’s is 21.1 per cent, followed by the US (13 per cent), Sweden (12 per cent), Germany (10.7 per cent), France (9.3 per cent), Spain (7.3 per cent) and Italy (5.7 per cent).
However, the WEF notes, “…there is concern that the size of packages may prove insufficient for the duration of the crisis; that disbursement may be slower than is needed; that not all firms in need would be targeted; and that such programmes may be overly reliant on debt financing.”

A second report from WEF, ''Challenges and Opportunities in the Post-COVID-19 World'', draws on experiences and insights of thought leaders, scientists and researchers to outline emerging opportunities to build a more prosperous, equitable and sustainable world.
WEF's Managing Director Saadia Zahidi said the COVID-19 crisis has devastated lives and livelihoods while triggering an economic crisis with far-reaching implications and revealing the inadequacies of the past."As well as managing the immediate impact of the pandemic, leaders must work with each other and with all sectors of society to tackle emerging known risks and build resilience against the unknown. We now have a unique opportunity to use this crisis to do things differently and build back better economies that are more sustainable, resilient and inclusive," she said.