Economic Challenges Ahead
By Dhurjati Mukherjee
The economy is in a bad shape and experts believe it is in a worse shape than five years ago. Obviously the new Government has to face the challenges with great vision and tenacity. Topping the agenda is job creation, high growth and more investments besides the need to check the fiscal deficit and removing farm distress.
Undeniably, the rural sector is beset with varied problems as the focus of development is on the urban sector. It is noteworthy that within 24 hours of taking oath, the Government approved extension of the PM-Kisan income support scheme to all farmers, removed the limit of 2 hectares and cleared a pension scheme for agriculturists and self-employed persons.
“The decisive election result will propel India’s growth pace to the next orbit and drive the transformation of the country”, stated CII President Vikram Kirloskar recently. Certainly, such positive statements look quite encouraging, however the crisis is quite deep and only a judicious approach which is inclusive and takes a balanced view of the situation should be undertaken.
Importantly, a Centre for Monitoring Indian Economy data on the unemployment situation shows the number of unemployed increased by 11 million in 2018 which has gone up further in the last 5 months. Another study, State of Working India 2019 report by the Azim Premji University found that five million men lost their jobs in 2016-2018.
The beginning of jobs decline coincides with demonetisation in November 2016 although no direct casual relationship can be established, the report added. It also found that in addition to rising unemployment among the higher educated, less educated workers have also seen job losses and reduced work opportunities since 2016.
The report on India’s labour market is based on the Centre for Monitoring Indian Economy (CMIE) Consumer Pyramids Survey. It found unemployment has risen steadily post 2011 with the overall unemployment rate being around 6% in 2018, double of what it was in the 2000-2011 decade. Adding to rising unemployment among the higher educated, the less educated workers have also seen job losses and reduced work opportunities since 2016.
Meanwhile, economic growth fell to its slowest pace to below 6% in 18 quarters in January-March as demand for cars and consumer goods slumped while farm output contracted, posing an immediate challenge to the Government. Alongside, with limited fiscal space and build-up of massive off balance sheet liabilities, a focused effort to address a strong and sustained revenue mobilization is necessary.
True, the fiscal deficit has been kept low on paper by accounting tricks. But the total public sector borrowing requirement exceeds 8% of GDP, among the highest in the world.
According to National Institute of Public Finance & Policy’s Prof. N. R. Bhanumurthy there is need for fiscal stimulus to take a look at fiscal consolidation. There is also need to incentivise domestic savings and increase public spending as measures to rejuvenate the economy. Clearly, consumption has to be addressed immediately.
On the export front, India’s trade deficit reached a record high of $ 176 billion in 2018-19. Worse, exports failed to touch the Government’s internal target of $ 350 billion. A continuous import shoot-up, which grew at double digit levels for six months in the last 12 months, took cumulative imports to a soaring high of $ 507.44 billion. This trade deficit needs to be brought under control carefully.
The only redeeming feature has been road building which continued since Vajpayee’s time as also electrification and electricity distribution. However, though rural schemes have got a thrust, they have been rebranded from Congress nomenclatures. While most toilets either do not have water or sewage connection, gas cylinders are not replaced. The lack of proper decentralization or the Government’s lack of concern to implementation and follow-up on these schemes is a big challenge.
The ‘Make in India’ programme is one key feature that need to be given a thrust. Besides, promotion of agro-based and micro or cottage industries that have great potential for employment generation should be given necessary support along-with massive skill generation training would be a step in the right direction.
Further, to check imports of electronic goods, attention should be given to the electronics sector as the private sector has somewhat failed to set up world class semi-conductor manufacturing company in the last two decades.
As electronic devices proliferate, there has to a genuine effort to boost R&D and try manufacturing some key components, specially semi-conductors which are in huge demand and profits are high. With the Government’s special relations with Japan and South Korea, collaborations in this field may yield the desired results. Indeed, the new industrial policy may make the ‘Made in India’ dream a success.
In the rural sector, there has to be serious introspection in ensuring that benefits reach those whom they are intended for, specially tribals, dalits and the rural poor. For this to happen there has to be definite rural orientation in the planning and implementation strategy with more powers to panchayats and grass-root organizations.
Noticeably, health and education has been neglected due to resource constraints and lack of strict monitoring. In Mahatma Gandhi’s 150th birth anniversary year, it would be prudent to push ahead with political and economic decentralization in the true sense of the term.
Resource mobilization is a key factor for India’s first woman Finance Minister Nirmala Sitharaman in carrying out developmental activities. She will have to restore the country’s economic health and contend with the banking industry’s bad loans alongside an industry that has shown a marked aversion towards attracting investments.
There is feeling, and not without justification, that higher the tax rate, greater the incentive to evade taxes, for instance, by transfer pricing. Low tax rates combined with low depreciation rates might have a strong incentive effect. But, tax for the super rich class need not be reduced and the top business class should be persuaded by the Government to take up developmental schemes, not on their own accord but as stipulated by it.
The private sector’s involvement leaves much to be desired. Those who talk of privatization fail to realize that this sector aims to amass profits and has no social objective. As such, privatization may not be the answer but public-private partnership with management control jointly shared could yield desired results. It cannot be denied that this sector has not been investing enough to boost growth and generate industrial activity.
Finally, as the new Government readies to present the budget on 5 July it should seriously consider the problems affecting the country and try to find the best possible solution in the given circumstances. It is easy to point out challenges however, a dedicated Government can overcome these in the coming years. —— INFA