Rejuvenation will take longer

Economic Highlights
By Shivaji Sarkar
India is in dire crisis as economic recovery is slow; youth lose 41 lakh jobs during lockdown, employment uncertain, and global extreme poverty to engulf 150 million by 2021. The latest World Bank (WB) and International labour Organisation-Asian Development (ILO-ADB) separate reports have stated that the global situation is grim; the youth are severely challenged in Asia and Pacific due to the pandemic. The worst hits are the construction and farm sector workers.
‘Tackling the COVID-19 youth employment crisis in Asia and the Pacific’ by the ILO-ADB, calls on governments in the region to adopt urgent, large-scale and targeted measures to generate jobs for youth, keep education and training on track, and to minimise future scarring of more than 660 million (66 crore) young people in the region.
The younger they are, 15-24 years, are hit harder than their immediate seniors – 25 years and older – in the immediate crisis and risk bearing higher longer-term economic and social costs, says the ADB report.
Stating that the world has to evolve a “different economy”, the World Bank says it noted that “the lack of recent data for India severely hinders the ability to monitor global poverty. Absence of recent data on India, one of the economies with the largest population, creates substantial uncertainty around the current estimates of global poverty”.
The report says job disruptions are due to reduced working hours and earnings, job losses for paid workers and self-employed and difficulties in getting jobs for fresh graduates.
The reports are mere tip of the iceberg. The job and wage losses have become the virtual norm of the economy. The unlocking was supposed to improve the situation but job cuts continue.
Recently Accenture, a leading IT solutions company as well as BPO provider, having over 5 lakh employees laid off five per cent. It comes to 25,000 workers being sacked in India. Other IT companies have sacked a large force. The IT sector sacks thousand during lockdown and those jobs are not yet restored.
The less is talked about the education sector. Thousands of private schools closed down without paying any compensation. Private universities quietly dismiss faculty and staff or reduce their salaries by 30 to 80 per cent. Some who have not done so have not paid their salaries since March, even in national capital itself.
There is not a sector that is not hit. Automobile sector is yet to get back its sheen. The car maker MG looks for new contracts with M&M and Volkswagen. Overall the road transport sector, employing 60 lakh people, is not doing well as is indicated by the decline in sales of diesel by minus 5.5 per cent. It means the sector, whether trucks or passenger transport, is far below normal operations. India’s small and tiny sectors are yet to resume their work except sporadically.
The hotel and tourism industry having about 5 crore workers and business of Rs 15 lakh crore suffered heavily. Except for small maintenance staff most has dismissed the employees. The Federation of Association in Indian Tourism and Hospitality (FAITH) estimated at the initial lockdown a loss of Rs 5 lakh crore and later revised it to Rs 10 lakh crore. Many sold their establishments or have put these on sale block.
The latest WB report is not encouraging. It says, “The slowdown in India is expected to depress manufacturing, exporting industries and the construction sectors, dependant on migrant workers, is also likely to experience a protracted slowdown due to a limited pipeline of public sector infrastructure projects”. It is a suggestion to the government to strengthen infrastructure and make more people-friendly policies.
It says that even in 2021, the Indian GDP is estimated to contract by 9.6 per cent, a sharp cut from the June forecast of 3.2 per cent due to the lockdown and income shocks. It also says that previous slowdowns were different from the forced lockdowns. Most previous ones were due to fall in investments. This time the lockdown has affected private consumption, backbone of demand in the Indian sub-continent and a core indicator of welfare. The consumption declined by 10 per cent because of increased poverty. The remittances both national and international declined accelerating loss of livelihoods.
The WB has lauded some of the reliefs such as free food grain and economic incentives but says that more universal social protection is needed to be done for the informal sectors. The job losses in small and informal businesses have been more brutal. Except in Bhutan, Bangladesh and Pakistan all others in the sub-continent have negative growth.
In the Indian context, most reliefs were routed through banks since 2009 incentivisation.  The Indian bankers say that they are to bear the maximum brunt of the lockdown reliefs. The banking operations have become more expensive with the introduction of Jandhan accounts and introduction of digital payments. More the freebie accounts are opening, more banking is crumbling. It is hurting their deposits, increasing their operational costs. The latest COVID-19 fiat from the government for extending interest waiver is to add heavy costs estimated at $1 billion.
Further, balances sheets are to be hit further as the banks are saddled with $120 billion of bad loans. During the past three years, the sector has seen several restructuring, but still it is on a razor’s edge.
So the Reserve Bank of India preferred not to tinker with the interest rates at its Monetary Policy Committee meeting, though ideally it should have raised it as inflation is galloping.
Expecting distressed banks to come to the help of the sagging economy is a bit too much. As the government finances are tumbling more, the banks are getting under stress. For an economy to take a turn over as expected by WB, ILO and ADB, innovative policies are required. So far the government has resorted to populist methods with an eye on popular support. Concrete steps are yet to be taken.
The WB expects a rebound after two years i.e. only in 2021-22 provided all COVID-19 restrictions are lifted. The approach is cautious. But historically whatever comes down has to go up. However, it may take longer as most systems have to be rebuilt, banking protected and boosted, taxation system rationalised, State government finances put in order and household incomes back to normal. Time is essence.— INFA