Migrants’ exodus: Labour shortage looms; manufacturing units, MSMEs may be worst hit, says India Ratings

The labour shortage may be more pronounced for micro, small and medium enterprises (MSMEs) than large corporates.

Besides the Covid-19 pandemic fear, increased availability of jobs under rural job guarantee scheme and free rations may deter return of migrant labourers to cities and industrial centres, causing a further dent on capacity utilisation for several firms across sectors, India Ratings has warned. “The credit and liquidity profiles of the companies based out of the states that heavily depend on in-migration will face challenges, if migrant workers do not return to the work place by end-Q2FY21,” the rating agency said.

The labour shortage may be more pronounced for micro, small and medium enterprises (MSMEs) than large corporates. Manufacturing, which employs around 6.5 million inter-state migrant workers, and where anecdotal evidence already suggests labour shortage, could be the worst hit if the return of migrants get delayed.

Maharashtra and Delhi receive the largest number of migrants, whereas Uttar Pradesh and Bihar have been the states of origination for them.

On June 30, the Narendra Modi government extended the three-month (April-June) free-grains scheme unveiled in late March amid Covid-19 outbreak for another five months to November-end, a move that will increase the total cost of the scheme to around Rs 1.4 lakh crore. Similarly, it has raised the budget outlay for Mahatma Gandhi National Rural Employment Scheme (MNREGS) by Rs 40,000 crore to a record Rs 1.01 lakh crore for FY21 to cater to surge in demand for works in rural areas after massive reverse migration of people to their native places.

The reverse migration has led to immense labour shortage and high labour cost. The construction sector, which typically employs a larger number of short-term migrants seasonally, is facing business disruption due to reverse migration. Another sector that has been severely impacted by reverse migration is logistics, IndRa wrote, attributing it to the shortage of drivers for trucks and workers at warehouses. This sector plays a crucial support function for the manufacturing sector, by providing the last mile connectivity to manufactured goods.

While the labour employed in the production of essential commodities has been less impacted, due to the country-wide lockdown, the manufacturing of non-essential commodities has suffered. “This has led to an income loss for the labourers employed as daily wagers or contractual workers, which has ultimately led to the reverse migration of labourers,” the agency observed.

“The (MSME) sector might keep facing labour shortage in the near term if labourers do not return to their workplace by Q2FY21. This will lead to an increase in labour wages in the near term, which may erode MSMEs’ profits. This rise in wages may correct itself once the labour starts returning,” it added.

MSMEs contribute 45% to the manufacturing output and MSMEs manufacturing segment contributes 8% to the country’s gross domestic product (GDP). The dependence of migrant labourers is proportionately larger in MSMEs than large enterprises.

The rating agency anticipates Bihar to suffer the most in terms of agricultural output. Agriculture contributed 22.2% to the economic activity of the state in FY19 and the number of migrant workers in the sector is around 600,000 of the total agricultural labour force.

The trend in migration suggests the migrant labours largely tend to move to neighbouring states for livelihood than to far-off states.