In COVID-19 era, govt should prioritise job creation to spur economic demand

Indian economy has not been doing well for the last two years (2018-19, 2019-20), although the Modi government has been reluctant to admit the fact. The economy was not in a good shape before the 2019 general election, and it did not improve much when Prime Minister Narendra Modi returned to power for a second term in the summer of 2019.

After presenting her first budget in July 2019, Finance Minister Nirmala Sitharaman followed it up with supplementary measures to kickstart the economy in various sectors. In the debates on the economic situation in Rajya Sabha during the 2019 Winter Session, and then again in the 2020 Budget Session in February and March, Sitharaman argued that in spite of the slowdown, the growth figures for the last few quarters were better than it was in 2013 when the United Progressive Alliance-II was in power. It was political rhetoric, which has its place in parliamentary debates.

The harsh reality is that the Indian economy has been in the doldrums. But now with the unexpected unleashing of COVID-19 from February 2020 onwards, and with the breakdown of workday life with its accompanying economic disruption, the global economic recession is a screaming fact.

International Monetary Fund (IMF) Director General Kristalina Georgieva has declared that the world economy is slipping into a recession. It is not just the Indian economy that has been dragging its feet for the last few years. The global economy was a laggard too. From among the advanced economies, only the United States picked up some momentum, ostensibly due to President Donald Trump’s America First policy thrust. But there has been a fierce trade tussle between the US and China, and it has pushed global markets into shoals of uncertainty.

The unimpressive Indian growth rate of the last two years has mainly been due to the lack of demand. Private investors held themselves back from starting new ventures and the existing players did not expand because of the hunch that there was no demand in the market. The government tried to stimulate demand by prodding the Reserve Bank of India (RBI) to ease the interest rate in the hope that a step-up in credit offtake would help bring economic activity to life.

The COVID-19 outbreak has created a problem which is in direct contrast to subdued demand. It has disrupted supply chains. Government largesse may not help much to solve the problem because the lockdown, the only known strategy to contain the pandemic, creates supply shortages.

The importance of creating jobs

The government is still reluctant to infuse money which will allow people to spend on their daily necessities. Instead, it has chosen the subsidy route to funnel things in kind rather than in cash. It has directed that eight crore households which were given gas cylinder connections will now get free cylinders for the next three months. And it has infused limited amounts of cash into the Jan Dhan accounts and to farmers, which would not trigger any economic activity.

The stranded migrant workers have been provided food and shelter by the state governments and non-governmental organisations. Government is also offering free COVID-19 tests and free hospitalisation. It is indeed the need of the hour. But not much thought is being given to what should be done to create paid work, even if it is work under governmental agencies, which would enable people to buy things they need and restart economic activity of sorts. Governments, including that of Prime Minister Modi, have resorted to targeted direct benefits to sections of people. But when the whole economy has come to a standstill, the government would not be able to turn the country into a hostel where food and roof are offered.

It is a challenging situation. The private sector would need a financial stimulus package for no other reason than that they should generate jobs which would restart the economic cycle. The government may not be able to procure the whole of the rabi crop this season. It can buy out only 25 percent to 30 percent of it. Private players must step in, and they would need to spin off the ancillary activities of cold storage, processing food and marketing it. The FMCG segment will have to take up the baton, and the consumer at the end of the chain must have the money to buy things. If private investments do not rise and not enough ventures are spawned this and the next year, the economy will sink further into the slough of despondency. What is needed is economic activity, buying and selling, increased consumption.

Prime Minister Modi and his economic advisors must take a hard look at the past five years and find out why despite record increase in foreign exchange reserves, the economy has failed to get into the fast lane of growth. Global headwinds were a big factor in the sluggishness of the domestic economy, but not enough effort was made to enliven the home market of billion-plus consumers. The cash transfers from the government should have encouraged spending. It has not. The government is not reading the tea leaves correctly. People must spend to make the economy work. Government and the private investors must do all they can to get the people to do it by creating jobs which in turn should create demand.

(The writer is a New Delhi-based political commentator)

The views expressed above are the author’s own. They do not necessarily reflect the views of DH.