What’s in the news?

• Following is an analysis of economic impact due to COVID-19 pandemic by Professor of Economics Santosh K Mehrotra.

Worse than 2008 crisis

• Comparing the present situation with the pre-2008 crisis, he said, the current situation is a global economic crisis of much worse than the 2008 one. 
• Before 2008, all engines of growth were firing. India’s investment-to-GDP ratio was at an all time. GDP growth was 8-9% per annum and because of that the job growth was very rapid. India had five million unskilled workers leaving agriculture for the first time in Indian history because non-agri jobs were growing.
• Until 2012, nearly 7.5 million non-agriculture jobs were being created per year, but thereafter there was a slight economic slowdown, but still the average GDP growth over 2004-14 was 8% per annum.
• There were two years of droughts in 2014-2015. The slowdown also accelerated after 2014 because of some misplaced economic policies. The rate of non-agricultural jobs was reduced to 2.9 million per annum.
• Now, this was happening at a time when young entrants into the labour force were increasing. Until 2012 the number of new entrants in the job market was only 2 million per annum (as youth were entering school in much larger numbers than before). Thereafter the number looking for work increased to roughly 5 million per annum. These young people were getting better educated and no longer wanted to be tied down to agricultural jobs. The result was open unemployment. And that is how India’s open unemployment rate reached 45-year high in 2018.
• The state of the economy and joblessness continued to worsen through 2019 because the growth rate slowed. India entered 2020 with seven quarters of systematic decline in growth rate, investment rate and exports.
• At present, every engine of growth had stopped firing; government revenue growth slowed, the real fiscal deficit in 2018-19 was 5.68% of GDP for the central government (as revealed by CAG) when the government was claiming it was 3.4%. By early 2019, the government did not have the fiscal space left any longer to actually jump start the economy if a shock was to happen.

Need for demand side action

• Commenting on the government’s recent stimulus package (refer pulse 50 & 51 edition- Atmanirbharta abhiyan topic), the professor said that the package focused more on the supply side and neglected the demand side.
• He also said that the stimulus is heavily dependent on banks extending loans. However, the probability for an entrepreneur to borrow from the bank when the demand is already extremely low in the economy, both domestically and internationally, is very less.
• Therefore, he called for steps to put money into the hands of people to see a revival of demand. 

Demographic dividend

• On demographic dividend, the Professor said that realising India’s demographic dividend requires job growth at a rate faster than the number of entrants into the labour force. 
• If new entrants into the labour force, who are better educated, are entering at a rate of more than 5 million per annum, the country has to create at least 5 million non-agricultural jobs.
• Secondly, there is also a need to create enough jobs to employ the currently unemployed, which has risen sharply.
• Third, in 2018 the country had 205 million people working in agriculture. From 2004-05 until 2018 the absolute number of workers in agriculture was falling, because non-agri jobs were growing fast. Which means the process of structural transformation of redirecting the workforce from agriculture to construction/industry/services was underway.
• But post-2012 we have been seeing a decline in jobs in manufacturing for the first time in India’s history. If we are to realise the demographic dividend we need a shift of jobs from the agriculture sector to manufacturing. 

Reference:

https://www.thehindu.com/business/Economy/reverse-migration-to-villages-has-set-economy-back-by-15-years-says-jnu-professor/article31671389.ece