Author: Rajiv Kumar, CPR
Extensive commentary on the latest Indian GDP growth numbers has been unable to clear prevailing confusion on whether the economy is in its recovery phase or not. It would be more useful to focus on the data that the ordinary Indian cares about: jobs growth and employment. Yet, unfortunately, employment still does not seem to figure as a priority for Indian policymakers. This lack of attention to employment in a country that boasts the youngest population in the world is simply incomprehensible.
Combined with the fact that growth momentum was visibly weaker in the second half of 2014–15 compared to the first six months, it can be reasonably argued that overall economic weakness is persisting. This has prompted the Reserve Bank of India (RBI) to revise its growth target for 2015–16 downward from 7.8 to 7.6 per cent in the second bimonthly policy statement issued in early June.
The economy needs a strong stimulus in the form of a combined dose of fiscal expansion and monetary easing. Thankfully, the latest data show that as much as 9.1 per cent of total annual expenditure has been spent in a single month in April 2015.
This demonstrates a welcome resolve to hike public capital expenditure, reflecting an improvement in governance across the board but especially in ministries such as surface transport, which accounted for a major chunk of the expenditure in April. This has been supplemented by further monetary easing with the RBI announcing a 25 basis points cut in the repo rate — that is, the rate at which the RBI lends to commercial banks — in early June. This combined stimulus is most welcome.
The need for sustained stimulus is evident when one looks in some detail at both consumption and investment data. Consumption continues to display continued weakness especially in rural demand.
Here India’s Central Statistical Office (CSO) data seems at odds with trends from other sources. Normally, growth in private final consumption expenditure (PFCE) is closely correlated with growth in corporate income and sales. This is not surprising as both are two sides of the same coin. This correlation has curiously snapped during the 2013–2014 financial year with CSO data showing a rising trend in PFCE. In contrast, corporate sales have plunged. This is inexplicable. Imports have not covered this supply–demand gap as they have pretty much collapsed.
The investment scene is somewhat better. Data from the Centre for Monitoring India’s Economy shows that the number of new project announcements is increasing, the number of projects abandoned is declining and the number of projects under implementation is just beginning to perk up. The major fly in the ointment is the sharply declining rate of growth of credit off-take by corporates from commercial banks, which has plunged to below 4 per cent. Investment is a mixed picture. But it will hopefully improve if public capital expenditure is sustained.
So, it’s not surprising that we get very mixed signals about the state of the Indian economy. Corporate pessimism exists simultaneously with official effervescence, which — let’s admit — sometimes verges on the irrational.
Real estate suffers from anaemic demand and sluggish growth. Exports have declined for five months continuously and core sector growth remains weak. The best one can say is that there are signs of recovery, which need to be nurtured and reinforced. They certainly do not warrant any complacency.
Ordinary Indians are left numbed by the numbers game. As is to be expected, they are more interested in news on job opportunities than economic growth. But news on this front unfortunately remains negative. Worse, real wages are flat in cities and declining in rural India.
Rising employment opportunities are the only guarantor of a better life and higher welfare for ordinary people or Modi’s neo-middle class. Employment signifies inclusion through empowerment and not entitlements. To expand employment as rapidly as possible must surely be this government’s topmost priority.
In this context it is ironic that for a country faced with a very serious demographic challenge, credible official data on employment are still produced by the National Survey Sample Organization, which releases its ‘thin’ and ‘thick’ rounds once every two and five years respectively. The annual labour data produced by the Labour Bureau is, from all accounts, quite worthless.
As pointed out in the India Labour and Employment Report of the Institute of Human Development, the level of unemployment does not correspond to ground realities because the term ‘self-employed’ is used as a residual category to include all those who are unemployed or underemployed. Regular and credible data on employment is a critical policy input.
With all this in mind, shouldn’t the National Institute for Transforming India Aayog — which replaced the Planning Commission in 2015 — be charged with producing credible labour market data, if not also a plan for maximising employment in India?
Rajiv Kumar is a senior fellow at the Centre for Policy Research and founder director of Pahle India Foundation.