If the Indian economy had been humane, India’s revenues in 2020-21 and 2021-22 would have been lower than in 2019-20. At least that’s what the latest World Bank forecasts tell us. We are facing enormous, perhaps unprecedented economic pain. Both policies will play an important role in mitigating this problem. Poor policies can slow down and even undermine economic recovery. A good policy can ensure that the suffering of the masses is minimized. What can you do about it?
A three-part series on these pages describes the nature of India’s economic problems. The main argument was that India needed a demand-side intervention. But India’s economy is both large and diverse. This diversity needs to be taken into account when defining policy measures. Only then can appropriate measures be taken where necessary. Policies, especially in times of crisis, are also about allocating limited resources to competitive needs.
In a democracy, politics has a great influence on this process. The two-part series tries to answer these questions. The first part will show how the decline in growth rates will be uneven between regions and sectors. The second part explores possible means of political mobilisation.
Earlier this week, the World Bank released its Global Economic Outlook report. It forecasts that India’s gross domestic product (GDP) will fall by 3.2 percent over the period 2020-21. In the years 2021-22 there will be a moderate recovery, with growth of 3.1%. This means that GDP in 2021-22 will be lower than in 2019-20. Of course, India is not the only country facing this situation. The East Asian region seems to be the only exception. (see figure 1)
What does a fall in real GDP mean? Revenues will fall. Jobs will be lost. However, the impact of the reduction will vary from sector to sector, from country to country and even from social group to group. This knowledge is essential for effective policy intervention.
For example, it is expected that no reductions will be made in at least two sectors – agriculture and government. The share of both sectors in total gross value added (VAT) was almost 30% between 2019 and 20 years. This means that the economic pain will be much greater in the rest of the economy.
Imagine that the growth rates of agriculture and the public sector over the next two years are just as easy to average as over the past three years. This amounts to 4.1% for agriculture and 9.7% for the government.
Based on the World Bank’s forecast of a contraction of 3.2% in 2020-21 and growth of 3.1% in 2021-22, the rest of the economy is expected to grow. This means a decrease of 7.2% in 2020-21 and an increase of 1.4% in 2021-22.
The non-agricultural and non-governmental economy comprises many sub-sectors. The reductions in each sub-sector will have different effects in different countries and at different workplaces. For example, the non-agricultural and non-governmental sector accounted for 86% of Delhi’s gross value added (VAT). This percentage was 56% for Madhya Pradesh and only 38% for Arunachal Pradesh. This means that the economic pain of Delhi will be much greater than that of Arunachal Pradesh. (see graph 2)
What about employment? In some sectors, reductions may have a greater impact on employment than in others.
In the years 2018-19, for example, construction accounted for 8% of gross added value. However, the share in employment was 12%, according to the Occasional Labour Force Survey (OLS) of 2018-19. By contrast, financial, real estate and professional services accounted for 22% of gross value added in 2018-19. The share of employment in this sector was only 3.4%. This means that construction is a more labour-intensive sector than the financial sector.
With the same loss of production, job losses in the construction sector will therefore be significantly higher than in the financial sector. Saving the construction industry can save many jobs, especially for the poor.
Support funding should alleviate the burden on the least well-off and on sectors dependent on their demand.
A useful method for measuring job losses during downsizing is to use the so-called elasticity of output to employment in the economy. This corresponds to a change in the number of jobs per unit of production. This concept reflects the idea that job creation varies from sector to sector at the same rate of growth. It also means that job losses during the withdrawal phase will vary from sector to sector.
An annual comparison of GVA and employment growth in 2018-19 shows that construction and trade, catering, transport, storage and communication had the highest elasticity of employment in the non-agricultural and non-governmental sectors. (see Figure 3)
The question of which states or sectors should be supported is not the only political issue. There will also be a choice in terms of support for producers and consumers.
For example, according to the Annual Industry Survey (ASI), Tamil Nadu, Gujarat and Maharashtra accounted for 45% of the value of textile and clothing production in 2011-2012. These products were consumed throughout the country. Analysis of the 2011-12 consumer spending survey shows that Uttar Pradesh and Bihar account for 19.9% of total consumer spending on clothing and bedding. In these two countries, the share of textile and clothing production was only 3.9%. If consumer demand does not recover in these two countries, support for textile companies will not work. (see figure 4)
When monitoring consumption trends, policymakers are confronted with the problem of blind spots. In India, there will be no Consumer Spending Survey (COSP) after 2011-2012. This will be a period of ten years, from 2021 to 2022. The conclusions of the CES 2017-18 were rejected by the government.
After the financial crisis of 2008, job losses were very uncertain. India had no data on the use of radio frequencies. The government of the United Progressive Alliance (UPA) has asked the Bureau of Labour to monitor the employment and unemployment indicators on a quarterly basis.
Today, the LTPA actually collects employment data for each quarter of the year. However, the government does not regularly publish quarterly data. The results for 2018-19 were not published until the beginning of this month. It would also be advisable to start collecting and publishing data on high frequency consumption. Until more and better high-frequency data on the state of the economy is available, policy interventions will remain poorly informed. If the polls show bad news, so be it. We’re officially in recession.
(This is the first in a two-part series on the role of politics and policy in solving the economic problems raised by Kovid-19. The second part deals with possible means of political mobilisation. )covid-19 map india,www covid-19