In India, a diminished economic future


The recently released data on key indicators of the Indian economy is a sobering reminder of the declining economic future that most Indians face and the stubborn refusal, if not abdication, of our policymakers, to develop an appropriate policy response.

At the end of July, the government published the estimates of the third annual cycle of the Periodic Labor Force Survey (PLFS), conducted between July 2019 and June 2020. One of the most striking revelations of the survey is that the India has seen a sharp and unprecedented increase in the share of workers employed in agriculture from 42.5% in 2018-19 to 45.6% in 2019-20. In a sharp reversal of structural economic trends, agriculture was the largest employer responsible for creating 32.72 million jobs.

This has been accompanied by a decline in the share of industry, construction, transport and “other services” in total employment.

That this shift to agriculture is a sign of deep distress and last resort employment is evident in Santosh Mehrotra’s analysis of the incidence of poverty using PLFS data. Mehrotra’s calculations reveal that between 2011-12 and 2019-20, the absolute number of poor increased by 70 million.

It is important to note that PLFS data only captures the first three months (April-June) of the economic shock induced by the pandemic. As Mahesh Vyas points out, data from the Center for Monitoring the Indian Economy (CMIE) shows that this “reverse migration” to agriculture actually deepened until 2020-21 (July-June). In the first wave, the worst impact of “reverse migration” was partially mitigated by the relative resilience of agriculture, which grew 3.6%, the only sector of the economy to do so. In addition, social spending in rural India through the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS), in particular, has been scaled up and has provided minimal assistance.

But these conditions do not prevail today, the day after the second deadly wave.

First, the monsoon conditions have not been so favorable. Second, and more importantly, public welfare spending has been stubbornly low.

Central government spending in key sectors such as rural development (MGNREGS) in the first quarter (April-June) of 2021 is well below that of last year, leaving the rural workforce vulnerable. In June 2021, for example, MGNREGS provided almost 10 million fewer jobs than in June 2020, meeting around 83% of job demand compared to 87% the previous year. The refusal to increase spending, despite the second deadly wave, likely left households in deeper economic distress. Farm wages might not remain resilient as they did in 2020, making the need to increase public spending in rural India urgent.

Policymakers may have chosen to ignore these vulnerabilities because the formal sector of the economy is showing signs of recovery, in turn filling central government coffers. The Centre’s revenue and budget deficit figures for the first quarter of this year are expected to be better than in 2019. Overall, it received 27% of its budgeted revenue in June 2021 compared to 14% in 2019. Good Of course, this is partly due to the manna of excise collections on gasoline and diesel.

It is important to note that the collection of corporate tax has been a good ??1.23 lakh crore. Healthy corporate taxes underscore the fact that, like last year, the economic recovery, as it is, is focused on profit. And while this may provide some short-term comfort to those who follow the gross domestic product (GDP) figures, not only does it expose most of the economy to prolonged vulnerability, but it will only make the situation worse. structural crisis highlighted by the PLFS.

As HSBC’s Pranjul Bhandari has repeatedly pointed out, the formal sector gains after the pandemic came at the cost of closing small informal businesses. And while this “forced formalization” has maintained high profitability, it has left the majority of Indian households, which find employment in the informal sector, financially vulnerable.

The fact that households are vulnerable is also reflected in the Reserve Bank of India (RBI) consumer confidence surveys and underlines the worsening demand crisis. The latest survey in July 2021 showed continued weakness in consumer confidence, with most households reporting lower incomes than a year ago. If left unchecked, there is a real likelihood that the tendency to “reverse migration” will become an endemic feature of the economy.

In the short term, policy prescriptions are well known and have been widely debated in the public domain. Increased consumption through food, work (MGNREGS) and remittances in urban areas of India remains critical for relief today from last year’s lockdown peak . The government’s continued refusal to provide a robust stimulus, beyond an expanded public distribution system, despite some fiscal leeway with relatively healthy revenue revenues and a fiscal deficit under control, is inexcusable, if not insensitive.

However, the long-term challenge for India remains to find its way to an employment-intensive growth path. This will require more than the current policy toolbox of extended credit guarantees and bulldozing reforms, as has been attempted by farm laws. Perhaps it is worth recognizing that there are no clear paths. From factor market reforms to understanding and responding to unique supply-side constraints, including the challenges faced by the female workforce, to overcoming barriers to scale faced by small and medium-sized Undertakings, each of these challenges requires careful deliberation and coordinated political action across sectors of the economy and between central and state governments.

Job-intensive growth requires government investment in human capital, markets, and enabling regulation. But first and foremost, the government must recognize the deep structural crisis it is facing.

Yamini Aiyar is President and CEO of the Center for Policy Research

Opinions expressed are personal

Please log in to continue reading

  • Access exclusive articles, newsletters, alerts and recommendations
  • Read, share and save articles of lasting value

Source link


Leave A Reply