Modi gov­ern­ment must fo­cus on in­for­mal sec­tor

The Sunday Guardian - - THE BIG STORY - JAYSHREE SENGUPTA

In­dian econ­omy is still the fastest grow­ing econ­omy in the world, though its GDP growth has slowed down in the last quar­ter of the FY2018-19 to 7.1. The IMF and the Re­serve Bank of India have pre­dicted that it will grow at 7.4% in 2019. The re­cent state elec­tion re­sults, how­ever, have pointed out what is lack­ing in this high growth econ­omy. There were con­tin­ued agrar­ian stress and farm­ers’ sui­cides in 2018. On the job front, the youth re­mained dis­sat­is­fied, as 16% of the ed­u­cated youth re­mained un­em­ployed (Azim Premji Uni­ver­sity “State of Work­ing re­port” 2018). The growth of jobs in the econ­omy has been slow as both pri­vate and pub­lic sec­tor jobs have been shrink­ing. The unem­ploy­ment rate was at 6.7% in Novem­ber 2018. Around 28.54 mil­lion peo­ple are un­em­ployed in India today, ac­cord­ing to the Cen­tre for Mon­i­tor­ing In­dian Econ­omy. Labour par­tic­i­pa­tion rate also fell due to de­mon­eti­sa­tion. Women’s par­tic­i­pa­tion in labour force de­clined more in 2018. The bank­ing sec­tor is also un­der stress and the gov­ern­ment’s on­go­ing ef­forts to re­cap­i­talise banks have not suc­ceeded in elim­i­nat­ing the moun­tain of NPAS and there is a liq­uid­ity crunch. The failed IL&FS, the mega in­fra­struc­ture fi­nanc­ing ser­vices com­pany, has added more prob­lems in the area of fi­nance and ag­gra­vated the prob­lem of liq­uid­ity in the Non-bank­ing Fi­nan­cial Com­pa­nies. They are not able to eas­ily ac­cess funds from mu­tual funds that were in­volved in debt pa­pers issued by IL&FS and have suf­fered a dam­age of Rs 2.4 lakh crore, as large investors pulled out from fixed in­come schemes. The stressed fi­nan­cial re­sources have been crimp­ing the ex­pan­sion and growth of MSMES as they bor­row from the NBFCS ex­ten­sively. On the in­vest­ment front, there has been a lit­tle im­prove­ment in the Gross Fixed Cap­i­tal For­ma­tion, but for much of 2018, slow in­vest­ment and ex­cess ca­pac­ity in the in­dus­trial sec­tor curbed its growth. Man­u­fac­tur­ing growth has been lack­lus­tre though it picked up in Novem­ber 2018. Jobs for un­skilled labour are mainly gen­er­ated in the man­u­fac­tur­ing sec­tor and its slack pace has led to slow ab­sorp­tion of labour. India jumped 23 places to 77th in the World Bank’s global rank­ing in Ease of Do­ing Busi­ness in 2018. It is a good sell­ing point for at­tract­ing FDI. But more struc­tural reforms are needed to en­hance the sup­ply of land, strengthen the power sec­tor to en­sure con­tin­u­ous sup­ply of power and also ex­pand the reach of for­mal fi­nance in the ru­ral sec­tor in order to at­tract more FDI. The ser­vice sec­tor grew at a slower pace of 7.5% in Q2 and ex­port earn­ings de­clined in 2018. The de­pre­ci­a­tion of the ru­pee to near Rs 73 helped in gar­ner­ing more earn­ings in IT ex­ports, but oil price rise led to a bloated oil bill. Also due to ru­pee’s de­pre­ci­a­tion the prices of all im­ports have gone up, lead­ing to the widen­ing of the cur­rent ac­count deficit at 2.9% of the GDP (Q2). This rise in CAD will put more pres­sure on the ru­pee, For­eign Port­fo­lio Investors are likely to with­draw funds from the stock mar­kets to seek higher re­turns else­where. The de­pre­ci­at­ing ru­pee will thus give neg­a­tive sig­nals to the FPIS in the fu­ture. 2018 saw the max­i­mum with­drawal of FPIS from the mar­kets at Rs 1 lakh crore, which made it the worst year in terms of FPI in­vest­ments as com­pared to the record net in­flow of Rs 2 lakh crore into eq­ui­ties and debt se­cu­ri­ties in 2017. Ex­port prospects will be flat­tened by the slow global growth in 2019. Pri­vate con­sump­tion, how­ever, did not go up much in 2018 due to the cau­tious spend­ing by the farm sec­tor, but pub­lic con­sump­tion was up. In­fla­tion was kept at bay and re­tail in­fla­tion re­mained be­low the tar­geted rate at 3.3% due to low agri­cul­tural prices. Agri­cul­ture has grown at a ro­bust rate of 5.3% in Q1 and 3.8% in Q2, but this has not re­duced farm dis­tress.

The de­mand for higher MSPS has been par­tially met, but farm prices re­mained be­low MSP in 2018. This is be­cause the costs in agri­cul­ture have gone up, es­pe­cially for marginal farm­ers and the gov­ern­ment pro­cure­ment agen­cies failed to lift their pro­duce in a sit­u­a­tion of glut. A mega scheme Ayush­man Bharat has been started to re­duce the bur­den of rising costs of health­care and it might bring re­lief to the com­mon man or woman. Oth­er­wise, the fruits of growth have re­mained un­equally dis­trib­uted. In­equal­ity of in­comes has soared and the top 10% are get­ting 73% of India’s wealth (Ox­fam 2018). The in­equal­ity of in­come is starkly vis­i­ble in ru­ral India, where av­er­age house­hold in­come is around Rs 8,931 per month (2016-17), but in big cities live India’s 101-dollar bil­lion­aires. This con­trast be­tween the rich and the poor is grow­ing with India’s in­creas­ing wealth and its aim of be­com­ing a $5 tril­lion econ­omy in the next two years. It is cre­at­ing angst and dis­con­tent. India re­jected the World Bank’s Hu­man Cap­i­tal In­dex in which India ranked 115th out of 157 coun­tries. HCI mea­sures the amount of hu­man cap­i­tal that a child born today can ex­pect to at­tain by the age of 18. Ac­cord­ing to its pa­ram­e­ters, a child born in India today will be only 44% as pro­duc­tive as she could have been if she en­joyed com­plete ed­u­ca­tion and full health. In other words, there are grave de­fi­cien­cies in our ed­u­ca­tion and health­care sys­tems that are prevent­ing our chil­dren from reaching their full po­ten­tial. Un­doubt­edly, India needs a bet­ter qual­ity of pri­mary ed­u­ca­tion sys­tem and health­care net­work in ru­ral and ur­ban areas which are grossly inad­e­quate to cater to the needs of the peo­ple. The in­for­mal sec­tor that ab­sorbs about 90% of the labour force needs at­ten­tion. It lacks the in­fra­struc­ture to sup­port mil­lions of in­for­mal sec­tor work­ers who mi­grate from vil­lages to towns. Ad­e­quate hous­ing, easy and cheap trans­porta­tion, and so­cial safety net for the work­ers is largely lack­ing in the in­for­mal sec­tor. Jayshree Sengupta is a noted econ­o­mist

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