Open Forum
New Delhi, 19 January
2022
Economic
Scenario
Challenges
& Expectations
By
Dhurjati Mukherjee
There is much talk of
reforms and the economy standing on sound footing. Experts believe that the
next fiscal could see both investments and consumption drive growth with
exports providing a helping hand. But the main problem is that of resource
crunch of the government, both at the Centre and States, and overcoming this to
continue development programmes and infrastructure related work remains a big
question.
Moreover, labour
shortage, pandemic-related closures, rising energy and commodity prices and a
scarcity of some key materials are all holding back growth and adding to cost
pressures. Inflation has increased significantly in this recovery phase and
there are indications that inflationary pressures are proving stronger and more
persistent than expected.
Added to this is the
fact that India’s unemployment rate hit a four-month high in December, as per
data from the Centre for Monitoring Indian Economy (CMIE). The unemployment
rate rose to 7.9 percent in December from 7 percent in November, its highest
since 8.3 percent in August. While urban unemployment rate rose to 9.3 percent
in December from 8.2 percent in the previous month, rural unemployment rate was
up by 7.3 percent from 6.4 percent. Also India’s labour force participation has
plummeted alarmingly. Official statistics reveal that 40 percent of Indians
seek work and 38.2 percent are employed, according to the Periodic Labour Force
Survey.
Meanwhile, the Indian
economy faces headwinds from global developments and Omicron and inflation
continued to remain a concern buffeted by the build-up of cost pressures. These
are part of the Financial Stability Report (FSR) released by the Reserve Bank
of India on December 29. The RBI pointed out that the government’s fiscal
deficit target of 6.8 percent for the current fiscal is likely to come under
strain following the second supplementary demand for grants (Rs 3.7 lakh crore)
presented in December 2021. While the economy expanded beyond the pre-pandemic
level, the virus is adding to inequality. “The pace of the recovery remains
uneven across sectors, inflation formation is being subjected to repetitive
supply shocks and the outlook is overcast with global risks. Omicron haunts
near-term prospects”, the RBI observed.
However, it is
gratifying to note that private consumption, the biggest GDP component, rose by
over 8.6 percent in the second quarter of the fiscal but is yet to cross
pre-Covid levels. If the economy recovery continues, private consumption is
expected to rebound too. Though Omicron cases are rising, experts rightly
believe the effect would not be as damaging as the past and the economy many
not be affected much.
In spite of the
imposition of GST, resource mobilisation has not been up to expected levels.
This has put the Centre in a precarious position. One may mention here two
developments in the education sector. While the Major Research Project (MRP) of
higher education regulator, UGC has been lying dormant allegedly due to lack of
funds from the Centre, other listed closed programmes include Emeritus
Fellowship, Dr S. Radhakrishnan, Post-Doctoral Fellowship in Humanities &
Social Sciences, Post-Doctoral Fellowship to Women Candidates and Post- Doctoral
Fellowship to SC/ST Candidates. The National Fellowship for Scheduled Caste
students is also shown to have been discontinued in 2018-19. It may also be
mentioned that in 2019, the UGC launched a Scheme for Trans-Disciplinary
Research for India’s Developing Economy (STRIDE) to promote innovative
solutions for regional, national and global problems but no further progress
has been made since.
The other is the grim
fact that almost 55 lakh post matric scholarships for SC students are held up
across States, including poll bound ones, even as the academic session winds up
to a close. Poll bound Uttar Pradesh managed to disburse scholarship amount to
just Rs 1.3 lakh students by December-end against an identified 13 lakh student
beneficiaries, as per latest Central government data. Punjab has not disbursed
a single scholarship to the 2.24 lakh SC students waiting for it and this
includes States such as Karnataka, Maharashtra and Kerala.
The problem has
another dimension which pertains to investments and lack of technology
upgradation to make manufacturing in the country reach global standards.
Private investment and innovation as also attracting foreign is lagging in a
big way. Notably, India’s total investments are about 30 percent of GDP, which
amounted to Rs 60 trillion in 2020-21. The corporate sector accounted for only
half of these investments, lower than in most other country. To push investment
higher, which appears not quite plausible, it would rather be impossible to
make a case for national investment recovery unless corporate and households
sectors show strong signs of improved financials.
However, the silver
lining is a recent report of a proposal by the Centre that US electronics giant
Apple generates annual production output worth $50 billion in India over the
next 5-6 years and expands its locally made product kitty beyond iPhones to
include MacBooks, iPads, air pods and watches. Foxconn and Wistron are already
manufacturing for Apple in India at a top rate though the volumes are negligible
when compared to what they manufacture in China. Whether this will finally
materialise remains to be seen as the possibility of corporate investments
picking up looks far-fetched.
A section of experts
believe that the recently announced production linked incentives (PLIs) may
help in export promotion or import substitution but may not boost investments
in the country. Thus, the only option before the government is disinvestment of
profitable public sector units, which again is opposed by most economists as
the Indian private sector is interested in them just to reap easy profits, not
to modernise and diversify through innovation and technology
upgradation.
As the preparations
for the Budget in the next fiscal have already begun, it is necessary that
allocations may be made keeping in view the emerging problems of unemployment
and underemployment, resource constraints, health and education infrastructure
development etc. It may be prudent for the government to announce a minimum
wage for labour in the Budget. All schemes have to be geared for boosting
incomes of the EWS and helping groups such as marginal and small farmers,
migrant labourers, tiny units employing two or three employees. Additionally, focus
needs to be put on labour intensive industries in rural areas, more funds for
rural job scheme and starting a similar urban job scheme.
As mentioned,
garnering resources remains a big concern and challenge for the government. The
policy thrust should be to increase jobs and income so as to enable the savings
rate of private households, particularly given that fiscal deficit will take
time to reduce. Thus, there is need for taxing the super-rich, more so because
sooner or later the State must seriously consider implementation of a universal
rights-- to employment and to education. and these rights would need to be financed
largely by taxes levied upon it.---INFA
(Copyright, India
News & Feature Alliance)
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