Keeping aside the terror strike and the counter strike debate for a while, Political Parties must revert to economic growth and its effect on job creation and the farmer distress. It appears that India, Asia’s third-largest economy lost momentum in its growth story. The first quarter in 2018 recorded 8.2% growth, fell to 7.1% in the second and to 6.6% in the third, much lower than expected and the slowest pace in five quarters. Weaker domestic and external demand are key factors behind the less than 7% growth. Further, Gross Value-Added growth stood at 6.9% in the second quarter compared to 8% in first quarter of this fiscal. This is a concern, since the fall is happening in spite of the larger public spending. Economic growth occurs when a country’s manufacturing capacity increases. So economic growth refers to an increase in GDP, which in turn leads to job creation and employment opportunities. In an election season, when politicians extol the virtues of a robust economy, we need to understand the fine print.
India has more than 50% of its population below the age of 25 and more than 65% below the age of 35. It is expected that, in 2020, the average age of an Indian will be 29 years, compared to 37 for China and 48 for Japan. India’s dependency ratio, a measure showing the ratio of the number of dependents aged zero to 14 and over the age of 65 to the total population aged 15 to 64, is currently about 0.52. The Labour force participation rate updated every year, is the section of working population in the age group of 16-64, which dropped to 48% in 2018 from 51.0% in 2017, and 53.8 % in 2016 and way below an average of 59.4 % for the years 1990 to the current. A dropping trend indicates lower labour participation rates. Does this not indicate a steady loss of jobs due to a drop in economic growth? In spite of a well-intentioned “Make in India” program and a much-publicised FDI inflow, the country has underperformed in the manufacturing sector even as it emerged as the world’s sixth biggest auto manufacturer, and expanding production of smart phones.
Production of goods and services, a factor for GDP growth, requires raw materials and other resources. When new source of raw materials, such as oil is discovered, more products are made. At a time when high international crude oil price is directly impacting India’s GDP, inflation and current account deficit, its production at home has fallen continuously, for at least six years in a row. The crude oil production, which was 38.1 million metric tons in 2011-12, slumped to 35.7 million metric tons in 2017-18, as per data of the Petroleum Planning & Analysis Cell. Juxtaposed, against an over 82% of crude requirement met through imports, the economic growth story seems to be sputtering and faltering. India’s gas production certainly showed a small rise by better fracking, but is insufficient to offset the negative sentiments.
Economic growth also shows a marked improvement in GDP when the labour force gains more human capital, including skills and general knowledge, as producers gain the tools to make more goods and provide more services. National Skills Qualification Framework (NSQF) which could institutionalise Skills in education has not made any headway, limiting only modular skills to be implemented. Skill Mission in some way, left a lot desired in implementation, depriving the industry from skilled manpower. Education reforms should have been fast tracked.
The discovery of new processes, tools, or devices can lead to a huge jump in economic growth and productivity. For example, the invention of the assembly line sped up the production of automobiles, clothing, and toys. When entrepreneurship results in new discoveries, the whole economy benefits. Start-ups like Ola Cabs, Address-Health, Zomato and Paytm have been very successful. However, the number of new jobs that they have added as a percentage of growth is debatable. With a Global innovation index of 57 and a great dependence on imported technology, India has a long way to go in enhancing economic growth through India made products and processes. A transforming technology that is heavily dependent on Automation and AI has mutated and shrunk the available job markets adding to the overall pressure.
When people trade their money for goods and services, a mutually beneficial exchange occurs that, when multiplied across the entire economy, increases growth and well-being. Reducing regulation, taxes, and barriers to trade will allow for more exchanges to occur. This too has a pronounced effect on the growth rate. India’s trade with the rest of the world jumped 11% last year driven by several factors ranging from a weaker rupee to environmental interventions in China, according to the AP Moller-Maersk Trade Report. This may also indicate a declining effect of both demonetisation and the implementation of GST, coming at a time when global trade has taken a hit on account of protectionist measures rising in countries such as the U.S., China and the U.K. Even so, the World Trade Organisation pegs the merchandise trade volume growth of 4.4% in 2018, as measured by the average of exports and imports, lower than the 4.7% increase recorded for 2017 and expected to moderate to 4% in 2019. FDI, on the other hand, fell to 28 Billion USD in 2018 from a high of 43 Billion USD a year earlier.
A cumulative fallout of all of the above, is lack of jobs both in the urban and the rural landscape. Growing signs of weakness in the economy, most alarmingly in rural communities where incomes have been hit by falling farm prices has only compounded the problem and probably forced the government to announce direct benefit transfers to the farmers. The opposition has been quick to point out the fallacies. In a political world, the cause one is fighting for must seem more than just the opponents. By questioning the motives one can narrow the base of support and room to manoeuvre. When all parties come under moral attack from each other, they will whine or get angry and fight fire with fire. The curtain rising has begun. The Show will begin soon.