NDA failed to do its job on the economy: Big job-creating schemes needed to revive consumer demand & small businesses

Unfortunately, the economy never recovered meaningfully thereafter to be able to support job creation on a big scale.

Seven years after the BJP-led NDA government came to power, incomes and wealth in India are more unevenly distributed than they been in a long time. Last Friday, the ILO said the country’s unemployment rate in 2020 was the highest since at least 1991. That is disturbing. And it cannot be blamed on the Covid-19 pandemic even though there is no doubt the many lockdowns and curfews have hit businesses across the country. The jobs data has been worsening for some time now—not surprising in a crawling economy—and it looks like demonetisation did a lot of the damage. Many felt the pain from DeMo would be transient but even though cash levels have gone up significantly, the informal sector simply hasn’t got back its momentum. That’s probably because the DeMo shock was so severe, it hurt business and consumer confidence to a point where job creation was postponed. Unfortunately, the economy never recovered meaningfully thereafter to be able to support job creation on a big scale.

There was no pandemic in FY18 when the economy grew at an unremarkable 6.8%, though the moderation in growth could have been exacerbated by the GST which was rolled out in July 2017. There was no pandemic in FY19 when our economy clocked in an unimpressive 6.5% and neither in FY20—except for about two weeks—when growth collapsed to an embarrassing 4%. Ironically, it was in May that year, after the NDA had been re-elected, that the government announced it would make India a $5 trillion economy by FY25. Given the economy is estimated to have contracted by about 8%, that goalpost will now need to be shifted.

But there is little point in the economy climbing to new heights if employment is going to descend to new lows. Let’s change the narrative, set a target for new jobs by FY25 and track if India is creating the largest number of jobs in the world each year; growing fast or even fastest is not good enough, nor is some grandiose GDP number. That the country’s unemployment rate is at a three-decade high is a shame; joblessness rose to 7.11% in 2020, the ILO said based on the ILOSTAT database, from 5.27% in 2019.

But, this hasn’t happened overnight. An analysis by the Centre for Economic Data and Analysis (CEDA), based on the CMIE monthly time-series of employment by industry, shows manufacturing employment in FY21 was nearly half of what it was five years ago. Not flattering especially since Make in India, launched with much fanfare, was supposed to have changed the face of manufacturing. Not only has the share of manufacturing fallen to sub-16%—the Narendra Modi government had said, it would take it up to 25% by 2022—employment in the sector has fallen too. From all appearances, FY22 could be worse than FY21 when the average unemployment rate hit 8.8%. First, the services sector—a large employer—has been slow to recover. Moreover, the informal sector, which is about 45% of GDP and accounts for 80% of employment and which depends mostly on cash transactions, is in a shambles. Another sector that provides jobs in big numbers, exports, has fared poorly during the Modi regime, having contracted in four of the seven years. With the informal sector languishing post the pandemic, and the organised sector shedding jobs, the unemployment rate shot up to 14.5% in the week to May 16 and further to 14.7 in the week to May 23, according to CMIE data. At the last count, the cumulative loss of salaried jobs, since the pandemic, was 12.6 million across urban and rural areas; as of April 2021, there were just 73.3 million of them.

It is critical to address unemployment since incomes and jobs drive consumer spends, which in turn drive businesses. So far in this fiscal, little direct expenditure has been targetted at the vulnerable sections, but if payroll support isn’t possible, the Rs 3-lakh-crore guaranteed loan scheme—ECLGS—for the MSMEs should be topped up. Moreover, allocations for MGNREGA can definitely be upped to meet the increasing demand.

While revenue receipts for FY22 would probably fall short of estimates, direct tax collections are likely to remain robust since the organised corporate sector is doing extremely well; within this, segments like financial services, IT and e-commerce that have large high-paid workforces as also the government sector will keep personal income tax collections strong.

While the government does need to be mindful of the fisc, overshooting the budget in times like these won’t hurt the nation’s credibility. As many economists have pointed out, if consumer confidence and demand aren’t revived quickly, the economy runs the risk of falling deeper into the trough. And the focus must be on jobs, not the size of the economy.