JOIN USHoping for a better 2017 after dismal investments, job creation
In a year blemished with political earthquakes, rising sentiments of national territoriality across the world and with death of some much-loved icons (including David Bowie, Leonard Cohen, Prince to name a few), the collective memories from 2016 forces one to be seized by an eerie premonition.
Decades down the line, we can expect students of history to be faced with questions on identifying and analysing the impact of events of 2016, and the parallels drawn between the 1930s and the 2010s.
India in 2016, in spite of the world disintegrating in spells of political crisis, remained largely consumed under the rhetoric of Prime Minister Narendra Modi. In India’s macroeconomic performance in 2016, one can point at some positives that surfaced during the year, either as a result of government action or from the absence of it. The overall annual growth rate relatively picked up to 7.3% during the year (accounting for a change in the growth metric calculation methods).
The Current Account Deficit came down to around 1.25% which reflects a stronger level of trade-induced competitiveness level and perhaps an increasing level of economic integration (both regionally and internationally) of the economy. But, can we say that the overall aggregate economic growth scenario in India for 2016 based on the above factors presents an overall healthy picture? Here are some caveats:
Shock in transition — the demonetisation effect: 2016 saw one of the largest impromptu economic reform experiments conducted in India’s independent history. The reform’s larger objective of moving towards a “cashless” India is mainly aimed at substantially increasing the tax revenue base by bringing a larger share of the circulation of money in the economy under the scanner of a government controlled tax machinery.
In this regard, the announcements to be made in the Union budget of 2017 and 2018 on direct, indirect tax rates (likely to go down with an increase in tax revenue base) will remain key from the perspective of governmental allocations to be made particularly in areas of education and healthcare (currently marred by poor government spending).
Having said that, the disruption and the administrative costs incurred in an ill-planned execution of the reform is likely to remain high putting additional burden on the already ailing public sector banks for the next few quarters at least.
At the same time, one may also expect a more targeted attack on enforcing declaration of unaccounted property (in which most of the black money is converted through real estate transactions) by the government. In other words, the state’s absolute power and control over the distribution and creation of all economic resources will remain on greater exhibit in times to come while we shift to the times of “inspector raj”.
Lowering of agricultural incomes: the overall GDP from agriculture has decreased to Rs 3,095.38 billion in the third quarter of 2016. The note ban further disrupted agricultural incomes across the agrarian states where cash is the primary mode of exchange for most transactions. Some of the steps taken by states like Maharashtra in setting up farmers’ markets as against the usual farmer-consumer markets have further increased the role of middlemen as agents influencing the price of farm products in these markets. This is may further negatively impact farmer’s ability to get a fair price for his produce in APMC style markets.
Low levels of industrial production and private investment: The much-hyped push for Make in India seems to have hardly worked in pushing either private investment across sectors or increase the levels of industrial production where big heavy industries seem to be still struggling from a weak domestic and international demand.
The low private investment levels seem to be now pushing the government to increase public spending on infrastructure and other related big funded projects which is usually attached with substantial macroeconomic risks (like debt accumulation, cost overruns etc) over time.
Beginning of a “jobless” phase of growth: As per the Labour Bureau Report 2014, the current size of India’s formally skilled workforce is small, about 2%. The poor skill levels among the workforce are attributed to dearth of a formal vocational education framework with wide variation in quality, high school dropout rates, inadequate skills training capacity, negative perception towards skilling and lack of ‘industry ready’ skills even in professional courses. Some recent initiatives — centrally planned schemes — hardly made any impact on the actual creation of employment opportunities amongst the employable youth.
Informal labour force
The critical issue that remains here is in not just providing employment but increasing the employability of the labour force. Employability remains contingent upon knowledge and skills developed through quality education and training which seems to be hardly the focus of the current regime. The large scale of unorganised informal labour force is another issue which has accentuated the urbanisation problem with most young people from semi-urban, rural areas migrating to cities in search of alternative employment opportunities.
In a spectre of economic stagnation, evident from low private investment levels, the demonetisation’s catastrophic effect on agriculture and “jobless” situation in the employment sphere, we seem to be becoming increasingly dependent on the state to provide for not only the basic economic resources or private property protection but also do much beyond that.
This offers more unconditional, absolute power to the state in using “development” as a façade for creating all other kinds of fiscal and institutional distortions. We are already seeing this happening with the institutional credibility and the nature of independent functioning of institutions like the Reserve Bank of India (post the demonetisation announcement), investigative agencies and courts.
It is prudent that institutional arrangements (including those representing the civil society) are allowed to practice an impartial scrutiny of the state’s policies through instruments of public discussion to validate the positive externalities from state engineered policies while eliminating the negative ones in the year(s) to come.
(The writer is Assistant Professor of Economics, Jindal School of International Affairs, O P Jindal Global University, Sonepat, Haryana)