Speaking truth to power is a rare virtue. Dr Arvind Subramanian, the Chief Economic Adviser (CEA), has that virtue. Like his predecessor, he has brought original thinking to the Economics Division; like his predecessor, he has found the freedom to speak on a variety of subjects; but unlike in the case of his predecessor, he is not always consulted (e.g. demonetisation).
I have great respect for Dr Subramanian as an economist. Recently, on two occasions he spoke the blunt truth. The first was the famous V K R V Rao Memorial Lecture when he bemoaned the fact that experts tend to “find ex-post logic to attribute merit to government decisions”.
Sectors in Trouble
On May 16, 2017, he made important statements on the state of the economy. Among other things, he said, “India’s current employment challenge is particularly difficult as sectors that did well in generating jobs in the country’s previous economic boom years — information technology (IT), construction and agriculture — are in trouble now.” Observing that many things need to be done to increase employment, Dr Subramanian said, “First, we need to get the economy growing at 8 per cent to 10 per cent rate because we know that if you have dynamism, it can create opportunities for employment. That is absolutely crucial… you can’t have employment growing if the economy is growing at 3-4 per cent.”
The boom years were 2004-2009. In that five-year period, the average growth rate was 8.4 per cent. Following the international financial crisis, thanks to increased spending, the economy continued to grow at a robust rate. Naturally, jobs were created, although not as many as the country needs. Today, if jobs are not being created, it is because we are not growing at the rate that we are told to believe.
Agriculture is the principal source of livelihood for about 60 million owner-households and about 20 million landless labourer households. The construction industry provides 35 million jobs. IT supports 3.7 million jobs in India and is a natural choice for the educated, upwardly mobile middle class. If these three sectors languish, new jobs will not be created. There is evidence that jobs have been lost. In IT alone, the estimated job loss in the near term is 2,00,000 to 6,00,000.
Achhe din is about security — national security, internal security, physical security of the individual, food security, job security and so on. I have written about national and internal security and about the threat to liberty. They may appear to be distant concerns for the overwhelming majority of the people (actually, they are not), but food security and job security are deeply felt concerns in every home.
If there is not enough food in a home, there can be no achhe din. If there are not enough jobs for the millions that enter the labour market every year, there can be no achhe din.
Upon completion of three years in office, questions will be asked. A newspaper considered very friendly to the government did ask some questions and the answers are revealing:
1. Have healthcare facilities and services in your city improved?
58 per cent said NO.
2. Do you feel crimes against women and children have reduced?
60 per cent said NO.
3. Do you feel prices of essential items and cost of living have reduced?
66 per cent said NO.
4. Do you feel the unemployment rate has reduced?
63 per cent said NO.
5. Has corruption reduced as a result of demonetisation?
47 per cent said NO and 37 per cent said YES.
The respondents were also asked, ‘Which according to you has been the most effective mission of the government?’ The only growth/job related scheme that was picked was ‘Make in India’, which was chosen by a mere 8 per cent.
Economists will reach the same conclusions when they look at the economic indicators: declining Gross Fixed Capital Formation (GFCF), negative credit growth to industry, a large number of stalled projects, and acute distress in the farm sector (with farm wages growing at barely 4 per cent annually). The immediate impact is on jobs: new jobs not being created and many jobs in danger of being axed.
As the months roll by, despite the widespread support enjoyed by the Prime Minister, the clamour for jobs will get louder. Where are the jobs? There are no answers yet, except the flaunting of the magic number 7.5 per cent.
Apparently, even the CEA does not believe that number. Otherwise, why would he point out that jobs are not being created and also say that 3-4 per cent growth will not create jobs? Is he hinting at something he knows but we don’t know yet?
I am sure the CEA knows the answers lie in the following:
*Raise the investment to GDP ratio from 29.22 per cent (in 2016-17) to near the peak rate of 34-35 per cent achieved in 2007-08 and 2011-12.
*Reverse negative credit growth to micro, small and medium industries.
*Unblock stalled projects, particularly stalled infrastructure projects whose number has increased from 766 in March 2014 to 893 in March 2016.
* Brush aside orthodoxy and give relief to farmers and raise the minimum wage for farm labour.
The elephant in the room is unemployment. Ask the youth (and their parents) about jobs. That sinking feeling will be complete.