To revive India’s growth story and to cash in on our rapidly closing demographic dividend window, Prof Santosh Mehrotra, a human development economist suggests four essential proposals that must be included in the Budget 2021. This includes an increased expenditure in infrastructure, health sector and an urban employment guarantee programme. The fourth most significant measure according to him is a minimum income guarantee of Rs. 500 per month to the poor households - both urban and rural.
He adds that this could be done as a substitute to the PM KISAN scheme and the benefits could be extended not just to the owner cultivators but also the tenant farmers, landless labourers and the rural and urban poor. The beneficiaries should be identified using the Socio-Economic Caste Census (SECC) data.
This will cost the exchequer only about Rs. 10000 crores more than the expenditure on Pradhan Mantri Kisan Samman Nidhi (PM KISAN), estimates Mehrotra, a Retd Prof, JNU. He was delivering a special lecture organised by Impact and Policy Research Institute (IMPRI) on ‘Labour, employment and pandemic: Policy suggestions and way forward for budget 2021’.
Discussing India’s demographic dividend, which is defined as the rising share of the working-age population in total population and fall in the share of dependant population, Mehrotra said that demographic dividend is seen as a once-in-a-lifetime opportunity in a nation's life.
“It began in the early 1980s and we are about two-thirds of the way through. It will end in 2040. The working-age population, which is normally in the range of 15 to 64 years, needs to be increasingly absorbed in non-agricultural activities considering that agriculture is in distress. This should lead to higher income and hence higher growth,” he said.
He recalled how in the year 1979, both India and China had the same level of per capita income but thereafter, China rode the wave of its demographic dividend to achieve a growth rate of 10%. To emulate this, there is a need to create jobs for all the young people entering the working-age and achieve a 9-10% growth rate. However, this has happened very rarely here and achieving this is the big challenge, adds Prof Mehrotra.
The growth rate of the country was falling quarter by quarter since 2016 and had hit a dismal low of 4.1% in early 2020 from 8% in 2012 when we faced a global economic recession. The unemployment rate is pegged at 7.1% in January 2020. Youth unemployment has tripled between 2012 and 2018 from 6% in 2012 to 18% in 2018. Unemployment reached its highest level in 2018 in the last 45 years.
Prof Mehrotra cites a few unemployment statistics to point out that the unemployment rates have been the highest in recent times and that going into the ill-planned lockdown, India already had about 280 million unemployed people in addition to the 205 million in agriculture. He draws attention to the falling growth rates due to a series of policy mistakes, causing the economy to shrink quarter by quarter since late 2016 for nine quarters before 2020.
The pandemic has only aggravated the situation. There was an increase in the absolute number of workers in agriculture until 2004, but the pandemic saw a sharp increase in workers in agriculture due to reverse migration. In 2000, construction accounted for 17 million jobs, which rose to 26 million in 2004-05 in 51 million in 2012-13. It grew after 2013 but at a lesser rate. The stringent lockdown following the pandemic sent these workers home.
“The increase in the absolute number of workers in agriculture would hinder the structural transformation in a developing economy in the absence of a shift of workforce away from agriculture and a shift of the composition of output away from agriculture. The process was underway during the period 2004-5 and 2011-12 when 7.5 million non-agricultural jobs were being generated and about 5 million people were pulled out of agriculture per annum,” says Mehrotra.
This was an unprecedented development and MGNREGA too tightened the labour market leading to an increase in both rural and urban wages. This was stalled over the period 2012-2018.
The lockdown imposed in March, which is touted as the most stringent in the world by various reports, skyrocketed India’s unemployment rates and contracted the growth rate lower than any other G-20 country. While entering the ill-planned lockdown, the country already had about 280 million unemployed people.
The bouncing back of unemployment figures post-pandemic after July is really in a casual or self-employed livelihood generating sector. Creation of an urban employment guarantee would be substitutive of MGNREGA and would pull workers back into the urban economy.
The stock of those between 15 to 29 in 2019 who are entering the labour market is 127 million. They are probably joining at 5 million per annum. But they will join at an accelerating rate until 2030 they will join at an accelerating rate. From 2030 onwards, they will join at a decelerating rate. At present, because jobs are not growing and younger people or employable are entering the labour force looking for work, the country needs to generate sufficient jobs to absorb them.
He observed that the fiscal stimulus provided by the government post lockdown was severely inadequate. was not sufficient to revive the economy. The schemes introduced were about half the size of those put in place in 2008/09 during the global financial meltdown when the impact on the economy was much lesser, adds Mehrotra. To tackle the current situation, revive India’s growth story and cash in on the rapidly closing demographic dividend window, Mehrotra postulated four essential features that must be included in the Budget 2021.
He suggested that the Fiscal Responsibility and Budget Management Act must be relaxed and there should be an increased expenditure in infrastructure which will create jobs in the construction sector as well as increase private investment. He maintained that India should aim towards investing 2.5 % of its GDP on health in the next three years if it aspires to immunize 60-65 % of the population and achieve herd immunity.
Prof Dev Nathan, Insitute for Human Development while chairing the session dwelled upon the issues in the political economy that is leading to certain policy responses. There is a historical disparity whereby the focus has been on the hyper-scale sector and the rural sector has been given very little. He highlighted how the responsibility of putting any downturn in the economy is put on the rural economy.
“This happened during the 2008 economic crisis too when the MGNREGA was strengthened and the burden of social security net provisioning was put on the rural economy. This happens at both at the macroeconomic and microeconomic levels. Urban informal workers go back to rural areas for certain months every year, or when they fall sick or get retired. So, a large part of the cost of reproduction of labour is borne by the rural economy. This has come out in a stark manner during the pandemic induced crisis,” he said.
Prof Sarthi Acharya, Managing Editor of Indian Journal of Labour Economics (IJLE) highlighted the structural inefficiencies that existed in the economy since the 1990s, which has exasperated the effects of the pandemic. He batted for long term industrial and agricultural policies and focus on small and medium enterprises and value-added exports. He also mooted the need for restarting the 5-year planning model which was also corroborated by Prof Mehrotra.
Dr Amrita Pillai, Research Fellow at National Institute of Public Finance and Policy (NIPFP) suggested measures that need to be included in the Budget 2021 to give a push to the Micro, Small and Medium Enterprises (MSME) sector. Adding that the MSME’s are the second largest employers with around 11.4 crore employees, she said that there should be a focus on strengthening this sector to create more non-farm jobs.
Pillai suggested that the government should consider conducting the 5th MSME survey to understand where the sector stands after the effects of demonetization, GST implementation and COVID-19. She also voiced out for the need of a direct support scheme, package for first time MSME borrowers, a credit backstop facility to encourage entrepreneurship, which could be managed by Small Industries Development Bank Of India (SIDBI), an extension of the Emergency Credit Line Guarantee Scheme (ECGLS) scheme and the creation of a commission to review and rationalize compliance requirements for MSME.
Pillai remarked that due to the recent amendments in labour laws by several states, women are discouraged to join the workforce. To rectify this, there should be a special relief package for women-led MSME’s, added Pillai.
Prof Utpal De, North Eastern Hill University (NEHU) and moderator for the session agreed to the broad points raised by Prof Mehrotra and raised concern about the lack of market sentiment after 2016, where due to rising uncertainty, private investments have been falling.
Prof Indira Hirway, Centre for Development Alternatives (CFDA) stated that there should be a larger focus on the political economy questions and the gender aspects of the effects of COVID-19.
Prof Abdul Wadud and Prof Elias Hossain of Rajshahi University, Bangladesh appraised the situation in Bangladesh post the pandemic and how the country’s economy has been more resilient than the Indian economy. Prof Wadud added that he hopes the growth rate will bounce back to 8% or more in less than 2 years.
Dr Arjun Kumar, Director at IMPRI, raised several issues regarding the size of the budget that would be needed to tide over the current turbulent situation, the issue of widening digital divide, the delay in notifying the National Employment Policy, need for other sources of revenue like a green bond or a wealth tax, the role of the tech economy and about the impediments in reviving the manufacturing sector of India.
Acknowledgements: Nikhil Jacob, based in Goa, is a research intern at Impact and Policy Research Institute (IMPRI), New Delhi and is pursuing a post-graduate diploma in Environmental Law and Policy from the National Law University, Delhi.
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