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An Economy In Freefall: What The New GDP Numbers Mean

Where are the jobs?

13/06/2017 9:34 AM IST | Updated 13/06/2017 9:34 AM IST
Vivek Prakash / Reuters

As the saying goes, "as you sow, so shall you reap." Nearly, three years of economic mismanagement has finally begun to show up even in the questionable GDP figures of the Modi government. Growth has fallen to a measly 6.1% over the Jan-March period.

Three years back, the government devised a "new method" of calculating GDP which lifted the projected growth rate from 4.7% to a respectable 6.9% for the year 2013-14. Over the past years, many renowned economists and agencies have questioned the "new methodology" as a blatant overestimation when the economic indicators render a very different ground reality. The growth is primarily driven by government and consumer spending. Capital spending is declining and the manufacturing sector is sluggish with little relief in the horizon.

Make in India" is little more than a branding exercise... unless robust growth is seen in the manufacturing sector, jobs will never be generated at the required rate.

Keeping aside the cacophony of newsroom, let's delve deeper into what's wrong with the Indian economy:

Ours is a cash dependent economy. Nearly 68% of the transactions in India are cash based. This means if you deliberately pull out most of cash (₹500 and ₹1000 notes together stood for about 80% of the cash value in circulation) the purchasing power of people is severely reduced. Whether demonetisation helped the government unearth tons of black money, stymie terror-funding and paralyse counterfeit currency in circulation is debatable. But there's no doubt that the much celebrated demonetisation broke the back of the common Indian consumer. The decrease in purchasing power had a domino-effect—manufacturing suffered with reduced demands taking away jobs. Today, the unemployment rate is steadily rising, which doesn't serve a government that promised crores of jobs under the "Make in India" banner. The crux of the story is that demonetisation was a colossal failure, and in Jean Dreze's words "it was like shooting at the tyres of a racing car."

Another important factor leading to a slump in the Indian economy is the phenomenon of "jobless growth" where the economy apparently grows but, there're no new jobs in the market. In some ways jobless growth is actually deceptive; it helps the government in its PR exercise. They can continue gloating over the numbers even as nothing really trickles down to the masses.

Between 2009 and 2011, India's GDP grew at an average of 8.5%. The organised sector was producing nearly 950,000 new jobs every year. Compare this to the period between 2015 and 2016, when employment generation nose-dived to around 200,000 jobs a year. As expected, the government panicked and tweaked the methodology for data gathering. The manufacturing sector was expanded to include some key services industries such as education, health and restaurants. Obviously, this was done with the only intention to exaggerate the growth in the manufacturing sector.

The ruling party may be on a winning spree by harping on emotive issues but unless they get their act together, we better be prepared for the worst.

Over the years, the Indian economy has seen robust growth, but jobs weren't generated at a similar pace. The growth is primarily driven by the service sector where traditionally fewer people are required hence, fewer jobs. The increasing unemployment rate only further stresses the economy. Remember, we're conditioned to believe that India would be at an advantageous position owing to its young demographic "joining the workforce" but, then we're standing at the stark reality where a significant portion of our young people won't find jobs. What happens then? An aspirational young demographic that is agitated would be an end game scenario for the ruling party in the next general elections. Maybe the ruling dispensation only understands the language of electoral arithmetic. They must know that alienating the youth severely damages their 2019 prospects.

And then, for all its pomp and show, "Make in India" is little more than a branding exercise. The manufacturing sector which is at the heart of "Make in India" is turning out to be a laggard. Unless robust growth is seen in the manufacturing sector, jobs will never be generated at the required rate. Attracting investments in the service sector creates only few high skilled jobs. This only perpetuates the cycle of jobless growth. The World Bank's "ease of doing business index" continues to place India at an unenviable 130th position out 190. In other words, it's just too tough to start a business in India and foreign investors are averse to tackling the bureaucratic red-tape which is more of an inhibitor when it's supposed to be a facilitator. For all its theatrics, the Modi government is clueless how to manage an economy as diverse as India. They'll do well if they'd only divest the overburdened finance-cum-defence minister of some responsibility.

The ruling party may be on a winning spree by harping on emotive issues but unless they get their act together, we better be prepared for the worst.

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