Open Forum

New Delhi, 12 July 2023

Is Economy Reviving?

JOB PROSPECTS LOOK BLEAK

By Dhurjati Mukherjee 

There is growing chorus over the economy’s resilience and the new growth trajectory fired by public spending, reforms, digitisation and the likes. It is bolstered further by the projection of the International Monetary Fund (IMF) that the country is the fastest growing major economy in the world. The resilience of the economy cannot be doubted, but the over enthusiasm needs to be seriously considered due to certain developments such as inflation, inadequate consumption growth and the lack of job opportunities. 

In fact, the 27^th issue of the Financial Stability Report (FSR), released recently, the Reserve Bank of India observed: “Despite the global economy facing heightened uncertainty due to banking system fragility in certain countries, persisting geopolitical tensions and moderating but elevated inflation, the Indian economy and the domestic financial system remain resilient supported by strong macroeconomic fundamentals”. 

However, a Finance Ministry report rightly cautioned that it is no time to rest on laurels nor risk diluting the painstakingly and consciously achieved economic stability. It added that despite the challenges in the last few years coming on top of balance sheet troubles in Indian banking and non-financial corporate sectors, “macroeconomic management has been stellar”. Though the annual report stated that rural demand is also on the path to recovery with robust growth in two and three wheelers, this is possibly not the case in most parts of India. 

Available data after the pandemic has not been all that encouraging – about 3 to 5 percent in the last three years against 5.7 percent in the pre-pandemic reference period. Final consumption expenditure, adjusted for inflation, is slower at 4.5 percent on average compared to a corresponding pre-pandemic 6.2 percent, which itself had been a sharp fall from the successive annual growth of 8 percent before. What is surprising is that government consumption grew slower on average in the last three years at 1.9 percent contrasting poorly with the robust 7.5 percent three-year average growth recorded before the pandemic. 

However, manufacturing has grown faster after the pandemic at an average 5 percent compared to 3.3 percent earlier. Also, construction segment increased pace by a similar magnitude. Apart from these sectors, the share of agriculture in overall value-added stands enlarged after the pandemic with an increase in workers’ engagement in this sector. Though these are quite positive attributes, the quarterly GDP data displays signs of fading demand, mainly due to inflation. Private consumption contracted -3.2 percent over the previous quarter, slowing down to almost half its rate of growth a year ago. 

The consumption slowdown is part of a longer trend and this, no doubt, is not conducive for a growing economy. According to a recent RBI report, personal consumption is slowing down due to inflation and, as a result, businesses are not making significant investments despite increased capacity utilisation. This comes after top economists in the Finance Ministry maintained that a slowdown in consumption demand during the recent quarters could not be compared as estimates currently available are preliminary. 

The not-very-encouraging role of the private sector vis-à-vis investments is also another area of concern. They are more interested in sectors such as education, health and construction where investments are sure to reap dividends. Added to all this is, of course, the global situation with prospects of increasing exports not bright and possibilities of the country not achieving the target remain. 

Meanwhile, exports declined for the fourth consecutive month by 10.3 percent year-on-year to $34.98 billion in May while the trade deficit widened to a five-month high of $22.12 billion, according to the Commerce Ministry. Further, the contribution of merchandise exports may waver as several of India’s trade partners witness an economic slowdown. In such a scenario the projection of Minister of Commerce and IndustryPiyush Goyal that Indian exports are expected to reach US$ 1 trillion by 2030 may not be a reality. 

Despite lot of talk regarding investment and manufacturing, the fear of absorption of surplus Indians into the job market remains high on the agenda. A report indicated that jobs in the country’s public sector units (PSUs) decreased from 16.90 lakh in 2014 to 14.60 lakh in 2022. Congress leader Rahul Gandhi questioned, and very rightly, that is it possible that employment opportunities decrease like this in a progressive country? He added that “those who made a false promise of creating two crore new jobs every year wiped out two lakh existing jobs”! Though statistics for the private sector are not available, the situation appears to be further dark. 

There are various reasons for the failure in tackling unemployment and underemployment. Primarily, it must be admitted that the country has not been able to create enough manufacturing jobs in labour-intensive sectors. The type of education imparted in schools and colleges yet to make desired changes to deliver employable graduates, barring a creamy layer. And finally the trend towards computerisation and adoption of advanced technology, both in administration and operations, has brought down the requirement of jobs. 

At same time, though the RBI governor is optimistic about controlling inflation and recently stated that the central bank will strive to get headline inflation to its 4 percent target, he flagged El Nino as a challenge in its efforts. Das stated that the economy will grow at 6.5 percent in FY 24 as estimated by the RBI though other agencies have put the figure at around 6.3 percent. 

But this optimism may hold well for the buoyant capital market but not for food inflation which has shown rapid increase, thereby putting a burden on the poor and marginalised sections of society. If El Niño affects the Indian sub-continent, even with 20 percent less rainfall, agricultural production would be affected, and food prices may rise. There have been differences of opinion on the effect of El Nino, but current trends indicate the possibility of a deficit in rainfall this season. 

The positive trends in the economy after the pandemic have unfortunately not benefited all sections of the population. It is only the upper and middle-income sections of society who have derived benefits from so-called reforms like employment, business expansion, entrepreneurship development etc. Technical and specialised education has gone mostly to the upper and middle-income sections of society and these have mostly benefited in matters of employment. 

Though economists’ project that at 7 percent growth rate India will become by 2047 a $19 trillion economy with a per capita income of over $10,000, the moot question that arises is how much this will benefit the poorer sections, i.e. the bottom 20 percent of the population. The trends that have been manifest over the years with centralised administrative machinery may not augur well for the deprived sections and the backward castes, who have little education or skill training. This needs greater attention.---INFA 

(Copyright, India News & Feature Alliance)