Friday, Jul 20, 2018 | Last Update : 04:33 AM IST
The World Bank in its draft World Development Report 2019 said in India the formal sector or industry pays twice as much as in the informal sector.
After completing four years, the Narendra Modi government should finally take a serious look at the economy. Though the latest GDP growth figure of 7.7 per cent sounds good, one wonders if it can undo the damage inflicted. It has so far taken the route by bluffing to present a false rosy picture to the public. Thus, soon after taking over, the government came out with a new set of growth figures that elevated GDP growth figures by around two per cent by shifting the parameters. These inflated growth rate figures made the economy seem better than it really was. Thus, a poor four to five per cent growth in the GDP looks more impressive when changed to six to seven per cent.
Now when the rate of job creation is important for voters, ways are being found to create an optimistic story, forgetting that for people seeking employment the ground reality is important and the job opportunities available not the statistics. A member of Prime Minister’s Advisory Council Surjit Bhalla, who draws on a private database and government data, claims that job creation in 2017 was around 15 million.
He has been accused of “inventing” the employment data. The head of the Centre for Monitoring of Indian Economy (CMIE), Mahesh Vyas, has contended the economist distorts its nationwide employment survey to claim that India created 15 million jobs in 2017. Mr Vyas told a news organisation that the CMIE’s survey for 2017 shows an overall employment growth of just 1.8 million.
While it is difficult to assess the conflicting claims of economists, a brief look at some economic parameters presents an alternative view. Much depends on the small-scale sector or the informal sector. This section of industry and services, with employment of less than 20 people, accounts for 84 per cent of all non-agricultural employment according to the International Labour Organisation, and contributes around 40 per cent of our exports.
The World Bank in its draft World Development Report 2019 said in India the formal sector or industry pays twice as much as in the informal sector. Besides this self-employment, informal wage work with no written contracts and protections, are low-productivity jobs. “Informal firms are run by uneducated owners, serve low-income consumers, and use little capital — informal firms add only 15 per cent of the value per employee of formal firms,” the report added.
But people such as former chief statistician of India believe that enough jobs are not being created by the corporate sector and the construction sector, which has the potential to create a lot of jobs of largely unskilled people, is also in shambles. They have to tap the informal sector through a comprehensive survey to capture jobs being created there.
The fall in exports has hit labour-intensive areas like gems and jewellery, petroleum products, readymade garments and farm products, and pulled down India’s overall exports by 0.6 per cent to $29.11 billion in March 2018. This has caused exporters to worry, as several sectors that have taken a hit are labour-intensive, which they say is due to liquidity problems partly due to the demonetisation and largely through faulty implementation of the GST.
While construction has increased and accounts for nearly one-third of the new jobs added in the Indian economy, the share of manufacturing has remained at 10 per cent. India’s taxation regime may have harmed workers by subsidising investments in capital rather than in labour, whereas to create employment they should be replaced with labour subsidies. But this government is so much in thrall of big industry that it is unable to see where its long-term labour-creating and electoral interests lie.
Instead of stagnating at around 10 to 12 per cent of GDP or around $275 billion (versus the target announced in 2014 of total exports worth $900 billion by 2020), Indian exports could soar when the world is experiencing income and consumption growth, and there is no reason why we shouldn’t win a larger share of the world trade.
If we focus on labour-intensive exports such as agriculture, textiles, footwear and tourism actively, and aggressively promote participation in global value chains and insist on large-scale job creation, we can capture a part of the growing market. The Chinese consumer market also presents a large opportunity. Over the next five years, China promises to import $24 trillion of goods and services. It will hold the world’s first mega import expo (yes, import expo!) in November.
The government’s dubious stand on MGNREGA, which offered a living wage to poor agricultural families, is also deplorable. NREGA Sangharsh Morcha, an organisation agitating for the rights of workers covered under MGNREGA, has said in a letter how 99 per cent of MGNREGA wages have still not been paid in April 2018. Given that the financial year has just begun, it’s not the paucity of funds but the stringent regulations placed by the finance ministry that has squeezed funding. It indicates the government is keen to meet its fiscal deficit targets than to keep its promises made to the poor.
All this comes at a time when oil prices are rising. Between 2015 and 2017 crude oil prices fluctuated by $30 and $50 a barrel, down from over $100 a barrel. Instead of letting petrol and diesel prices drop, the government increased the excise duties three fold from `886 billion in 2013-14 (before being voted to power) to `2.58 trillion in 2018-19. This has been unusual sweet spot because the low oil prices led to the current account deficit falling to 0.7 per cent of GDP in 2016-17. In 2018-19, India’s current account deficit can be 2.9 per cent of GDP.
At the same time the bonanza in excise duties helped keep the fiscal deficit under control. Now with the government’s income falling with rising oil prices, the fiscal deficit will be more difficult to control. Simultaneously, the current account deficit will go up. This will also be accompanied with a slow withdrawal of foreign investors from the equity market, putting strain on the rupee and on government finances. Not a good time for increasing jobs.