Team Modi Must Plan For These 4 Big Disruptors To The Economy

Goran Persson was the Prime Minister of Sweden for ten years from 1996 to 2006. Before that, he was Sweden's Finance Minister. Persson was on a visit to India recently and wanted to meet me. We have known each other in the past. The first question Persson asked after exchange of pleasantries was why jobs were not growing in India despite high economic growth. "Is India in the grip of jobless growth?" was his direct question to me. I was aware of this problem generally but had not studied it in detail. I offered some explanation to him, and made some excuses. But later, I decided to make some enquiries and this is what I found.

When the Modi government assumed office, it assured the nation that it would create 250 million jobs over the next ten years. This works out to 25 million or 2.5 crore jobs per year. Vajpayee had similarly promised the creation of one crore jobs per year and we had ended up doing better than that. The present government is in the middle of its term and a mid-term review will be useful for the government also.

The latest figures of job creation released by the Labour Bureau of the government of India show that in the last quarter of 2015, there was actually a decline in job creation by 20,000 jobs. In the previous quarter, the figure of new jobs created stood at 1.34 lakh, in itself one of the lowest in the last six years. The total number of jobs created in 2015 stood at 1.35 lakh jobs only, compared to 4.93 lakh in the previous year and a high of 12.56 lakh in 2009.

Considering that figures of employment generation become available with a considerable lag in our system, one has to depend on other sources to glean these figures. Care Ratings recently carried out a survey of 1,072 companies in India to find out how many jobs were created by them. This figure is most discouraging and generally tallies with the Labour Bureaus figures. It shows that all these companies together created only 12,760 jobs in 2014-15 compared to 1,88,371 jobs the previous year. Employment growth in the manufacturing sector actually declined. The argument that fewer jobs are getting created in the organized sector because jobs are being outsourced does not hold water either. The Labour Bureau figures show that the number of contractual jobs in the January-September quarter of 2015 also declined by 21,000 compared to an addition of 1.20 lakh in the corresponding period of 2014.

These figures are sobering. The reasons for this state of affairs are not far to seek. The economy continues to face major legacy problems even after a lapse of 30 months since the present government assumed office. Demand, specially investment demand in the economy, has not yet picked up. As is well known, if demand is sluggish, fresh capacity is not created and fresh investment does not take place. In addition, existing industries are not doing too well either. In July and August, the index of industrial production registered negative growth, and in September, the growth has been a meager 0.7%. The figure of growth for the first six months of this fiscal has declined by 0.1% compared to plus 4% during the same period last year. The stressed loans of banks rose 15% in June to 9.7 lakh crore rupees. These are all legacy problems from the last government, which, naturally, will take time to resolve. As a result, fresh job creation also continues to suffer and will lose its connect with economic growth, specially when such growth is calculated on the basis of value added instead of actual increase in production. This may explain why job creation has not kept pace with high economic growth. But I am sure economists would have more to say on this issue.

What is important for us politicians to remember however is that the aam aadmi is not concerned with theories. He wants results, and if we fail to provide the people with job opportunities in adequate numbers, they will be disappointed. 

The Indian economy is likely to face three expected disruptions in the near future. The elevation of Donald Trump to the presidency in the US has created uncertainties the full scope of which has not become clear yet and may take months to fully fan out. The US Fed is likely to raise rates in its December review with its deleterious impact on the inflow or outflow of funds from India. The introduction of GST will also lead to some disruption in the domestic market. Since these disruptions could be anticipated, one would like to assume that government would have prepared for them and would take appropriate steps at the appropriate time. But the massive disruption, entirely unexpected, which will be caused to the economy in the short term as a result of demonetization and the question mark which hangs on its long-term benefits is the fourth disruption with which the Indian economy is faced today. Only the future will tell how we shall cope with this disruption. It is also difficult to tell how many out of the four will be creative disruptions with a beneficial impact, and how many will be destructive with adverse impact.

There is much that is going right for this government; its ratings are still high despite the short-term inconveniences to the people as a result of demonetization. I am sure those in government are aware of the facts and are taking steps to remedy the situation. However, more needs to be done for the infrastructure, housing and real estate, small and medium industries and self-employment sectors in order to create more employment opportunities which is issue number one in the economy. The policies are already in place. We need vigorous implementation now. I hope that it is done sooner than later.  

(Yashwant Sinha is a senior BJP leader and former Union Minister of External Affairs.)

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