A government that takes jobs away

Govt inaction is preventing job creation; its actions may have led to job losses

It has been over two months since the last official growth data were made available. That print showed that gross value added at basic prices had consistently slowed from January-March 2016 to January-March 2017: From 8.7 per cent to 7.6 per cent to 6.8 per cent to 6.8 per cent and finally to 5.7 per cent. This column pointed out at the time that the economy had begun to revive prior to 2014, but a new slowdown has begun under Prime Minister Narendra Modi’s watch — the ‘Modi Slowdown’, as it were.

It is unfortunate that, in the two months since these numbers, there has been no significant sign that the government is working with new energy to resurrect the economy. It is true that much of the finance ministry at least will be understandably distracted by the roll-out of the goods and services tax. But it is far from clear why there continues to be no movement on more fundamental reform. The winning over of Bihar’s Nitish Kumar to the National Democratic Alliance only reveals with greater clarity the vast difference between the political audacity and policy timidity of this government. It is all very well to say that fundamental reforms, such as to labour laws, are being left to the states to conduct; but when you rule practically every state in the north, west, and northeast, that argument gets shown up as the weak excuse for inaction that it always was. 

The question that must be asked is: Why does the government feel no political pressure to move swiftly on reform before it faces the electorate in 2019? There can be multiple explanations. It could be that the ruling party is simply confident that there is no possibility that the Opposition can take advantage of the subpar economic performance and regroup in time for 2019. But Mr Modi and Amit Shah do not come across as the overconfident sort, and so this theory should be dismissed. It could be that they genuinely think they have fulfilled the promises that they made in 2014; but let us give them credit for enough intelligence to see through that claim, even if they wish to gamely try and sell it to others. 

Is it, perhaps, that they simply do not believe that the impact of their economic management is as worrying as the GDP numbers suggest? After all, they may argue that the human cost of those lost percentage points of growth is not immediately obvious; these costs may not be politically relevant. But that surely cannot be the case. The actual, on-the-ground costs may be hard to calibrate in the absence of high-frequency, high-quality job creation indices, but there are an increasing number of replacements for this lack. One, exclusively discussed on the pages of Business Standard, is the result of an extensive household survey conducted by the Centre for Monitoring the Indian Economy.

The results of this survey, detailed by Mahesh Vyas of CMIE in a series of columns in these pages, have been disturbing. Here are some points made by Mr Vyas, based on the survey, just last fortnight (‘Replace informal occupations with formal ones’, Business Standard, July 17): 

• “Between September-December 2016 and January-April 2017, while the number of farmers who owned land increased by 3.7 million, the number of agricultural labourers declined by 5.6 million.”
• “The number of daily wage earners (non-agricultural) dropped by five million during the same period... In the earlier surveys we saw their numbers grow by about 9.5 million.”
• “During January-April 2016, there were 93 million such [formal] jobs. This fell to 89 million in May-August 2016 and then to 86 million in September-December 2016. They remained at 86 million in January-April 2017. Compared to a year ago, these formal jobs have fallen by about 7 million.”

Put together, this is a disquieting set of numbers. Certainly, the impact of demonetisation on the informal economy is visible in the survey. The number of daily wage earners and agricultural labourers together declined by 10.6 million. But this does not mean that the economy is creating formal jobs to compensate. In fact, such jobs have actually fallen by seven million over a year if the CMIE is to be believed. Note that this process was in motion before demonetisation occurred; the coincidence with the slowdown in growth in the official data must be noted.

Illustration by Ajay Mohanty

This combination of facts suggests very strongly that the past 18 months have seen considerable grassroots distress as a consequence of a failure to sustain economic growth. The government has very few excuses for its inability to do so. Unlike the UPA, it has faced no global economic crisis, it has faced only helpfully low commodity and fuel prices, it has had no “taper tantrum” to deal with, there is a considerable pool of available global capital, and global demand has been slowly reviving.

Seen with cold objectivity, this result under benign circumstances would suggest the Modi government has been one of the most incompetent economic managers of the Indian economy in recent decades. More charitably, it could be said that it has moved too slowly on structural, administrative and financial reform. Even basic “tough” administrative decisions, such as those required to deal with indebtedness and bad loans, have taken too long. Its focus on infrastructure is welcome, but in the absence of competiveness-enhancing structural reform, new infrastructure will simply not create larger businesses and jobs. 

The government thus has no choice but to accept that its actions have not just failed to create new jobs, but likely led to actual job losses. Needless to say, this is the opposite of what it promised in 2014. I do not recall Mr Modi vowing to take voters’ jobs away.

Some may hope to ride out the discontent that this failure has surely created because of the absence of an effective opposition. But that is never wise in any case — opposition can emerge from anywhere if discontent is real. Perhaps it intends simply to divert the national conversation completely away from economic aspirations towards social issues. This, if cynically productive politically, would be unfortunate for India’s future. If these are not its plans, then it is time for some hard thinking and harder decisions. The government must realise that it has very little time to recover itself, its reputation, its legacy — and India’s fortunes.
 

m.s.sharma@gmail.com

Twitter: @mihirssharma