All jobs lost due to Covid may not return even after recovery
The survey said that efforts must be made for front-ended fiscal spending to generate high-paying jobs
NEW DELHI: All jobs destroyed by the coronavirus crisis may not be regained even after the economy gathers steam, the Economic Survey 2020-21 warned on Friday, calling for all-out efforts to stop the possibility of an ‘economic hysteresis’, or the continued ill-effects of the recession long after it is over.
“The Covid-19 pandemic has created a significant negative shock to demand. The various costs of financial distress that firms face even before potential bankruptcy… combined with possible firm bankruptcies on the one hand, and the possibility that jobs lost during the lockdown may not get fully retrieved, on the other hand, create the possibility of economic hysteresis that must be avoided at all costs,” it said.
“To eliminate the possibility of growth being impacted in the medium to long run, the government has been extremely proactive in launching several seminal reforms. However, their impact will manifest in the medium to long term. To ensure that the economy remains in good health to avail the full benefit of these significant reforms, the ‘economic bridge’ to the medium and long term has to be created. Only an active fiscal policy—one that recognizes that the risks from doing too little are much more than the risks from doing too much—can ensure that this ‘economic bridge’ is well laid out,” the survey added.
The survey said the primary sector in India, which includes the agriculture and mining sectors, contributes around 16% of gross value added (GVA), while it employs around 43% of the workforce. “This indicates the huge potential to provide gainful employment opportunities for people employed in these sectors. The secondary sector provides expanded opportunities for formal employment with enhanced incomes, income stability and social security provisions,” it added.
The survey said the Indian economy should not fall into a “low wage-growth trap” and efforts must be made for frontended fiscal spending to generate high-paying jobs.
“With the National Infrastructure Pipeline (NIP) already laying out the agenda for ambitious public spending, fiscal policy catering to funding NIP in the first few years can boost growth. At a time of excessive risk aversion in the private sector, which is characteristic of any economic crisis, risk-taking via public investment can catalyze private investment and unleash a virtuous circle. It will crowd in private investment, rather than crowd it out. Second, there is a risk of the Indian economy falling into a low wage-growth trap, as has happened in Japan during the last two decades. Implementing the NIP via front-ended fiscal spending could generate higher-paying jobs and boost productivity.”
The survey tabled in parliament underlined that structural reforms undertaken by the government and “farsighted policy response” will generate productivity gains in the medium to long term.
“These reforms primarily focus on strengthening the potential of primary and secondary sectors of the economy to create jobs,” the survey said.