In India, a diminished economic future
Employment trends, the shock to informal sector and persistently high demand for welfare present an alarming picture. Don’t get misled by revenue numbers and corporate profits
Recently published data on key indicators of the Indian economy are a sobering reminder of the diminishing economic future that most Indians confront and the stubborn refusal, indeed abdication, by our policymakers, to craft an appropriate policy response.
In late July, the government released estimates from the third annual round of the Periodic Labour Force Survey (PLFS), conducted between July 2019 and June 2020. One of the starkest revelations from the survey is that India witnessed an unprecedented, sharp increase in the share of workers employed in agriculture from 42.5% in 2018-19 to 45.6% in 2019-20. In a sharp reversal of structural economic trends, agriculture was the biggest employer responsible for creating 32.72 million jobs.
This was accompanied by a fall in the share of manufacturing, construction, transport and “other services” in total employment.
That this shift to agriculture is a sign of deep distress and employment of last resort is evident in Santosh Mehrotra’s analysis of poverty incidence using PLFS data. Mehrotra’s calculations reveal that between 2011-12 and 2019-20, the absolute number of poor increased by 70 million.
It is important to note that PLFS data only captures the first three months (April-june) of the pandemic-induced economic shock. As Mahesh Vyas points out, Centre for Monitoring Indian Economy (CMIE) data shows that this “reverse migration” to agriculture has, in fact, deepened through 2020-21 (July-june). In the first wave, the worst impact of “reverse migration” was partially mitigated by the relative resilience of agriculture, which grew by 3.6%, the only sector of the economy to do so. In addition, welfare spending in rural India through the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS), in particular, was ramped up and provided some minimal succour.
But these conditions do not prevail today, in the aftermath of the deadly second wave.
First, the monsoon conditions have not been as favourable. Second, and more importantly, government welfare spending has been stubbornly low.
Central government spending in key sectors such as rural development (MGNREGS) in the first quarter (April-june) of 2021 is far lower than last year, leaving the rural workforce vulnerable. In June 2021, for instance, MGNREGS provided nearly 10 million fewer jobs than in June 2020, meeting apromixately 83% of the demand for jobs compared with 87% in the previous year. The refusal to ramp up spending, despite the deadly second wave, has likely left households in deeper economic distress. Agricultural wages may not remain resilient as they did in 2020, making the need for more government spending in rural India urgent.
Perhaps policymakers have chosen to ignore these vulnerabilities because the formal sector of the economy is showing signs of recovery, in turn, filling the central government’s coffers. The Centre’s revenue receipts and fiscal deficit numbers for the first quarter of this year are looking better than 2019. Overall, it collected 27% of its budgeted receipts in June 2021 compared with 14% in 2019. Of course, part of this is due to the bonanza from excise collections on petrol and diesel.
Significantly, corporate tax collections were a healthy ₹1.23 lakh crore. Healthy corporate taxes underscore the reality that like last year, economic recovery, such as it is, is profit-led. And while this may offer some short-term comfort to those tracking Gross Domestic
Product (GDP) numbers, not only does this expose the bulk of the economy to prolonged vulnerability, this will only deepen the structural crisis highlighted by PLFS.
As HSBC’S Pranjul Bhandari has repeatedly pointed out, gains to the formal sector post the pandemic have come at the cost of putting small, informal firms out of business. And while this “forced formalisation” has kept profitability high, it has left the bulk of India’s households, which find employment in the informal sector, financially vulnerable.
That households are vulnerable is also reflected in the Reserve Bank of India (RBI)’S consumer confidence surveys and points to the deepening demand crisis. The latest survey for July 2021 showed persistent weakness in consumer confidence as most households reported lower incomes than a year ago. If unchecked, the likelihood of the “reverse migration” trend becoming an endemic feature of the economy is real.
In the short-run, the policy prescriptions are well known and have been widely discussed in the public domain. A consumption boost through food, work (MGNREGS), and cash transfers in urban India remain essential for relief today than in the peak lockdown last year. The government’s continued refusal to provide a robust stimulus, beyond an expanded public distribution system, des some fiscal elbow room with relatively hea revenue receipts and a fiscal deficit under trol, is inexcusable, even callous.
However, the long-term challenge for I remains finding its way toward an emp ment-intensive growth trajectory. This require more than the current policy toolk extended credit guarantees and bulldo reforms, as was attempted through farm l Perhaps it is worth acknowledging that t are no clear pathways. From factor ma reforms, to understanding and respondin the unique supply constraints, including d culties that confront the female labour fo to overcoming barriers to scale experience small and medium enterprises, each of t challenges requires careful deliberation coordinated policy action between secto the economy and between the Centre and s governments.
Employment-intensive growth needs S investment in human capital, in markets in enabling regulation. But first, and abov the government needs to acknowledge deep structural crisis that it is staring at.
PM Narendra Modi presiding over a vir SC debate — a first for any Indian PM — sign of a new, more assertive Indian will ness to contribute positively to global p and security issues at the highest poli level. The external affairs minister (EA decision to preside over “in-person” meet of the Council reinforce the thinking that is not a one-off effort. The signals are con ent.
The longer-term significance is of an In political leadership invested in UN iss Again, this is not entirely new. There instances in the past of Indian political lea taking initiatives in matters such as envi ment, the climate crisis and nuclear iss That the current political leadership is wi to stake out new areas reflects inten expand the canvas of India’s foreign po Expanding our objectives is to be welco The choice of the forum means we are read exorcise the ghosts of the past.
Those who think activism as a non-per nent member undermines our quest for manent membership need to remember good performance is usually a means of m ing up the ladder, not a demonstratio intent to stay stationary. Alas, the toxici India’s domestic politics results in foreign icy being viewed through a partisan pr Consequently, the contours of benefi change, even though discernible, are mis