Indian Economy Is Finally Showing Signs of Recovery

Protection of jobs and creation of employment should be the top agenda for the government writes, ANJAN ROY.

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In the wake of the pandemic it is the sheer suffering of the most vulnerable sections of society which takes the uppermost priority, the numbers about GDP growth or shrinkage would automatically gets addressed when the activity tends towards normality. 

In this context employment creation and income support for the poorest that deserves greatest attention. The stimulus packages seem to have not neglected these.

A glass of water could be taken as half-empty or half-full, depending on how you look at it. 

The Reserve Bank of India has constructed a model for estimating the GDP trends every month based on tracking high frequency data of twenty-eight sectors. The model shows that the economy has shrank by 8.6 per cent in the second quarter of the year (July, August, and September 2020). 

Earlier, in the first quarter (April-June), the Indian economy had contrasted by almost a quarter, to be specific 23.8 per cent, as revealed by data released by the national accounting office. 

Technically, if an economy shrinks for two quarters consecutively, then it is said to have entered a recession. The RBI nowcast as said as much that for the first time India has got into a recession. However, if we care to remember, the Indian economy had a similar experience towards the end of 1960s when the entire engineering industry was hit by a severe shrinkage. 

But the question can be raised, can in the current perspective a two-quarter shrinkage be immediately dubbed a recession? More so, now that the extent of shrinkage is apparently getting moderated. 

The new data can be seen pessimistically — that the economy was still shrinking at a hefty pace. It can also be interpreted enthusiastically —that we are shrinking much less than in the previous quarter. 

In the context of what we are going through, it is the latter point of view that should be more appropriate than the former. After all, in the first quarter we had a severe lock down when entire railway traffic had disappeared, aviation industry had virtually shut down, not to speak of the manufacturing sector, which had ground to a halt. 

The vicious lock-down has not really slowed the spread of infection and the daily new infection incidence has been mounting. Possibly given the huge population and the somewhat relaxed attitude of the people to wearing masks and maintaining social distancing, our experience has still been wee bit fortunate. 

When economic activity is so suspended, no wonder that income generation would suffer. With gradual resumption the economy is sprinting back into life and the indicators all point at this direction. RBI "Nowcasting" as the new index is being called, also goes to happily confirm the gradually normalising trend. 

In the midst of all this "nowcasting" of GDP trends, the finance minister, Nirmala Sitharaman, has waded in with her latest package of stimulus measures. In the foreground to her presentation of the new round of stimulus package, she of course echoed what RBI had shown in their data models. She referred to published figures showing recovery in economic activity, possibly obliquely hinting at the good effects from her previous rounds of stimulus packages. 

We had roughly had three previous rounds of stimuli announcements, all of which would have worked their way into the economy in various stages. It is difficult to really isolate how much the growth contraction was checked by the previous rounds of interventions. 

Once again, somewhat charitably one can factor in these government sops to have moderated the rate of shrinkage and introduced a measure of growth impulse. They surely have had some ameliorating impact. 

However, for the present, the new announcements appear to have been crafted with the principal objective of encouraging those segments which have the largest multiplier effect for every measure of stimulus. How far should these really help.

The latest package has laid stress on construction, infrastructure building and completion of stalled housing projects. These sectors are employment intensive. They employ the least skilled casual workers and generate income for those who tend t migrate from rural areas into construction activity centres. So any encouragement of the construction and infrastructure building activities is a direct incentive to employment creation. 

It is employment creation which is the urgent need. She continued on her incentives for companies to rehire workers who had lost jobs in the pandemic period with further sops. However, these could not really raise overall employment. That can happen only when the overall activity improves and hits a higher trajectory. 

The more effective stimulus towards achieving these goals could be facilitate employment generating sectors.

The widespread lock down had affected construction activities across the countries and this alone had resulted in forced migration of these workers. Now that construction is attempted to be resumed, the migrant labourers should again get back into work. But then, questions have been raised if they would really go back again.  

There have been sporadic reports about select construction companies asking their workers back and some have even offered to pay airfare for their return. But these must be really sporadic and exceptional. Possibly another set of workers would now get into their shoes. But they will get employment all the same. 

Resumption of construction and housing completion should trigger demands for aa variety of items from iron and steel to cement and consumer durables. The announcements yesterday had sought to put some estimates of additional off-takes in these sectors. 

The other scheme she announced was the PM Awas Yojana for the urban areas which also should address employment creation in a segment where there is real need. Urban poor had faced the worst hardship n the wake of the pandemic. 

In rural areas, farming had resumed and jobs were generated even otherwise under the MNREGA schemes. Nothing of the kind had happened for those in urban areas and the renewed bid for urban housing for the poorer sections should address the social distress among these sections of the poor. 

In the context of the pandemic, it is not only the numbers but the qualitative impact of measures in taking care of the huge suffering of the weakest sections of society that assumes greatest priority. The numbers can be taken care later. (IPA)