By Satyaki Chakraborty
The Indian economy is going from bad to worse as all indications coming from different sectors of the industry and services suggest a downward swing with no clear signal about the improvement of the economy in the second half of the current financial year..All the international financial institutions have lowered the country’s GDP growth estimate for 2019-20 as against the earlier projections The latest is the rating agency FITCH’s projection that the growth rate will be around only 5 per cent in the current financial year.
More than the issue of GDP growth. the major issue confronting the economy at the moment is the job crisis. New Jobs are not being generated despite the entry of more than 10 million new job-seekers in the working force every year. More damaging is the latest reports that the employment level reached its lowest in 2018 in the last six years. Thus low growth in employment took place despite higher GDP growth in the earlier years. This means that the higher GDP growth did not lead to creation of commensurate jobs, it only led to more inequalities.
A new academic paper — written by Santosh Mehrotra and Jajati K Parida and published by the Centre of Sustainable Employment at the Azim Premji University – has formally concluded that the total employment in India declined between 2011-12 and 2017-18.
This is the first time such a decline has been recorded in independent India’s history. While this point has been made by the same authors as well as some others, such as Himanshu of Jawaharlal Nehru University, this is the first formal paper to this effect. According to Mehrotra and Parida, the “total employment during 2011-12 and 2017-18 declined by 9 million. This happened for the first time in India’s history”. Mehrotra is Professor of Economics at Jawaharlal Nehru University while Parida teaches at the Central University of Punjab.
Mehrotra and Parida claim that employment fell from 474 million in 2011-12 to 465 million in 2017-18. According to Himanshu’s opinion piece in Mint on August 1 — he has not yet written a formal paper on this issue — the total employment fell from 472.5 million in 2011-12 to an even more astounding 457 million — a fall of over 15 million over the six years. In other words, close to 2.6 million jobs were lost every year between 2011-12 and 2017-18.
Further, the unemployment rate in India rose to a three-year high of 8.5 per cent in October, with rural joblessness pushing it up. While urban joblessness rate was 8.9 per cent, in villages it stood at 8.3 per cent, data from the Centre for Monitoring Indian Economy (CMIE) showed. Unemployment was worse only in the pre-demonetisation period, according to the data, at 9.6 per cent in August 2016.
Mahesh Vyas, managing director and chief executive officer at the prominent and independent database agency, said that unemployment rates before demonetisation are not comparable with those today — rather, the 8.5 per cent of today is graver than a same rate before note ban — as the labour force itself shrunk after the November 2016 move.
“The high joblessness in the first half of 2016 was a different story altogether. Many rural women and youth across the regions left the labour force itself after demonetisation, reducing the denominator that is used to calculate the unemployment rate,” he said.
Exactly a month ago — in September — unemployment rate had dropped to 7.2 per cent overall, and further improved to 6 per cent in villages. It has drastically deteriorated in October. “After deeper analysis of this abrupt fall and jump, our investigation showed that a combination of agricultural activities such as late sowing and early harvest contributed to more labour requirement in the rural,” said Vyas.
“Due to the risk of machines getting damaged, farmers in many areas such as Bihar employed manual labour in place of harvesters, helping create temporary jobs.”
Urban unemployment has consistently remained about 1 to 2 percentage points higher than that in the rural, according to the CMIE data. But the gap has narrowed to 0.6 percentage points in October, suggesting a graver deterioration in village jobs.
What is the condition of industry this fiscal? India’s core sector output contracted 5.2 per cent in September, posting its worst performance in 14 years and suggesting that the economy may have slumped further in the second quarter of the current financial year. Economists said the sharp contraction showed the severity of the industrial slowdown and a recovery may take time.
The Index of Eight Core Industries, which measures output in coal, crude oil, natural gas, refinery products, fertilisers, steel, cement and electricity, grew 4.3 per cent in September last year. The estimate for August was revised to 0.1 per cent from a contraction of 0.5 per cent earlier. The eight industries have a 40 per cent weightage in the broader IIP, which may now slump further from a 1.1 per cent contraction in August, its worst performance in over seven years.
“With the y-o-y performance of several lead indicators worsening in the just-concluded quarter relative to Q1, we anticipate that GDP (gross domestic product) and GVA (gross value added) growth may dip further in Q2, despite a favourable base effect and the cushion provided by lower raw material costs,” said Aditi Nayar, principal economist at ICRA.
India’s economy expanded 5 per cent in April-June quarter, the slowest pace in six years, and according to the Reserve Bank of India, is expected to clock a marginally better 5.3 per cent in the July-September quarter. For FY20, growth is forecast to slump to 6.1 per cent from 6.8 per cent in FY19.
“This shows the broad-based slowdown in the economy and confirms that industrial production in the second quarter will be weak. We also expect second-quarter GDP to be a repeat of the first quarter,” said DK Joshi, chief economist at Crisil. ICRA expects industrial growth to contract 2.5-3.5 per cent in September. The official numbers will be released on November 11.
A day after release of dismal core sector numbers, purchasing managers’ index (PMI) survey on Friday showed manufacturing activities’ growth fell to a two-year low in October. PMI fell to a two-year low of 50.6 in October from 51.4 in September. A print above 50 means expansion, while a score below that denotes contraction. PMI was lower at 50.3 in October, 2017.
The PMI report said the cooling of manufacturing sector conditions continued in October, with both factory orders and production rising at the weakest rates. “Subsequently, job creation softened to a six-month low, while companies were reluctant to hold excess stock and lowered input buying in response,” it said.
This all-round deterioration should have awakened the Modi Government to do emergency measures for preventing job losses and creating new jobs. There is no such movement as the ruling party is more engaged in stifling opposition to its Kashmir policy rather than concentrating on steps to deal with the economic crisis. (IPA Service)