Economic Survey fails to find solutions to jobs, burnng Indian economy : FPI

New Delgi: Economic Surveys are expected to assess the current State of the Economy and outline the path that we can potentially take for progress and prosperity and being an economic powerhouse said Freedom Party of India (PI) national president MA Mujeeb.. 

The current survey (2023-24) that was released on July 22, like last year's survey, does inform us that we are in good shape, but it does not seem to reflect the confidence that the economic leadership was demonstrating last year about our economic future, he added.

Are we giving up on our ambition of being an economic powerhouse?  You please analyase yourself with facts he said.

Last year's survey stated the following about the state of economy:

"India had a good monsoon, and reservoir levels are higher than last year and the 10-year average. The fundamentals of the Indian economy are sound as it enters its Amrit Kaal, the 25-year journey towards its centenaryas a modern, independent nation. Policies pursued carefully and consciously have ensured that the recovery isrobust and sustainable."

The current survey mentions the following:

"The Indian economy is on a strong wicket and stable footing, demonstrating resilience in the face of geopolitical challenges. The Indian economy has consolidated its post-Covid recovery with policymakers – fiscal and monetary – ensuring economic and financial stability".

"Nonetheless, change is the only constant for a country with high growth aspirations. For the recovery to be sustained, there has to be heavy lifting on the domestic front because the environment has become extraordinarily difficult to reach agreements on key global issues such as trade, investment and climate."

The above set of statements implies that we have limited potential for participating in global value-chains, an implication that is reinforced by discussion on global conditions. Global economic and geo-political conditions, combined with AI, will hold back India’s progress!

The survey suggests that the economic conditions for us have started posing a significant challenge in about a year:

"Between the last Economic survey published in January 2023 and this one, big changes are afoot in the geopolitical environment. The global backdrop for India's march towards Viksit Bharat in 2047 could not be more different from what it was during the rise of China between1980 and 2015. Then, globalisation was at the cusp of its long expansion. Geopolitics was largely calm with the end of the Cold War, and Western powers welcomed and even encouraged the rise of China and its integration into the world economy. Concerns over climate change and global warming were not so pervasive or grave then as they are now. Fourth, the advent of Artificial Intelligence casts a huge pall of uncertainty as to its impact on workers across all skill levels – low, semi and high. These will create barriers and hurdles to sustained high growthrates for India in the coming years and decades. Overcoming these requires a grand alliance ofunion and state governments and the private sector."

The survey seems to suggest that the global geo-political and economic conditions are against us. In another context, it mentions de-globalisation and suggests that US and China are reducing their dependence on global markets, even when the global trade does not seem to bear that. he added

Global markets are and will always be competitive. Our ability to grow is a function of our investment in raising our labour and capital productivity and value-creation through innovation.

Labour and capital productivity are the most important driver of Growth, but the survey does not discuss them

Unfortunately, the Survey or other policy announcements do not seem to recognise the problem of productivity that we are faced with. I would have liked the Survey to address the questions that have arisen from an analysis of recent economic performance data.

For example, if we trust the employment numbers that the KLEMS database reported in July this year, we discover that there was a decline in labour productivity last year. The survey does not try to explain the fall in labour productivity or continuously declining growth in capital productivity. While it does discuss the problem of productivity in agriculture and other sectors, the word search did not find a reference to capital productivity.

Value-creation through innovation

The survey does mention the fact that we have granted more than one lakh patents last year, but it does not discuss our performance in the global context. I would have liked to know the number of Indian companies that get listed in Top 300 list of organisations that have been issued US patents.

Private Consumption: Is it really steady as claimed by the Survey?

The survey states that private consumption has been steady as investment drives growth – a statement that is not borne by fact once more.

Private consumption growth during the last six quarters has been just 3.2%, which is about half of pre-pandemic growth during thirty quarters. The pandemic period (including the recovery phase) growth averaged 5%. The survey mentions growth in passenger vehicle sales and domestic air passenger traffic as evidence for steady urban consumption growth which is, at best, a sign of K-shaped recovery. It ignores the fact that urban consumer confidence, as reported by the RBI, has been in the pessimistic zone for the last seven years. Income Tax Statistics too suggests that the Indian growth has been K-shaped during the last few years.

We now know that the MSMEs have been suffering for a long time, on account of our policy choices. They have received a new name, i.e., Mittelstand and it states that "deregulation is a vital contribution" for them to expand. While mentioning that the responsibility for action is at the state or local government level, the Mittelstands gain from bullet train and semi-conduction projects.

Solutions for Agriculture and Food Management

As for the farming community, the survey recognises the contribution that the sector makes to the Indian economy and identifies the problems the community faces in raising productivity and thereby their earnings. It outlines access to credit and high-quality inputs, crop diversification, cooperatives and FPOs, digitalisation, the role of financial derivates, etc. as solutions.

It does not address the following question: How would the farmer raise the required capital?

We know the farming community is dependent on PM-KISANpayment that has been stagnant since its inception, 81.35 crore people need free foodgrains, and the farming community cannot afford to pay for crop insurance, fertilisers and other inputs.

Green Energy needs land and water: Solution is in Mission LiFE

On the other hand, the survey talks about the need for a greater amount of land required for green energy transition. It states the following:

"Expanding renewable energy and clean fuels will increase demand for land and water. Most renewables are land-intensive and demand the highest land use requirements among the different energy sources."

It does not address the question of how are we going to make this land and water available.

How would it impact the availability of land and water for agriculture?

It does, however, talk about the Indian ethos emphasising "a harmonious relationship with nature, offering sustainable solutions to problems plaguing market societies".

It discusses the impact of meat production on food-feed competition and the need to shift towards multi-generational households without discussing the fact that we are one of the major global meat exporters and continue to give permission to high-rise buildings for residential and commercial purposes without an iota of concern of their impact on environment and people.

The survey does, however, mention Mission LiFE to be a solution - the mission contains a "non-exhaustive list of 75 LiFE Actions, for adoption by individuals to live more sustainably."

Green finance and climate change

The survey discusses green finance, climate change, and green transition and quality of life without discussing the problem of urban congestion and its impact on quality of life and people's productivity and the strategy required for decongesting our cities. Gatishakti too does not find as many mentions as in last year's survey. It is hard to believe that we can solve the climate change problem without solving the urban congestion problem.

Employment: Who is truly responsible?

Coming to one of the most important challenges that we face, i.e., employment, the Survey lauds the government's effort in generating employment. It states that we need to create only 78.5 lakh jobs per year for the next 12 years to solve our employment problem and it believes that existing PLI schemes, agro-processing and care economy can create these jobs.

Since the youth (15-29 years) workforce participation level is still about 40% and the quality of employment in many sectors is at best pathetic, the suggested solutions are likely to be of limited value. If we do not recognise the problem in its entirety, it is unlikely that we can solve that problem.

At this stage, I am quoting the survey extensively to highlight the economic thinking underlying the chapter.

"To sum up, the employment situation in India has experienced a positive transformation over the last decade, with notable achievements in formalisation, skill development, entrepreneurship, industry diversification, and inclusive growth. These trends and the country's commitment to technological advancement and infrastructure development have positioned India as a dynamic and resilient player in the global job market. The Government is striving to nurture the foundations of employment creation by creating an ecosystem of ease of doing business, lower logistical costs, meaningful skill development, and easy credit for entrepreneurship. This approach may take some time to bear results, but with steadfast efforts and good intentions, it will facilitate sustainable employment creation for everyone inthe country.

"Nevertheless, there remain long-existing challenges of formalising a burgeoning workforce, facilitating job creation in sectors which can absorb workers shifting from agriculture, and ensuring social security benefits for those in regular wage/salaried employment (as per PLFS2022-23, 53 per cent of regular wage/salaried employees are not eligible for any social security benefit). The state governments can grease the wheels of hiring by businesses by easing the compliance burden andreforming laws on land, etc., to suit the priorities of development.

"Finally, jobs are created in the private sector. India's corporate sector has never had it so good as now, with profitability at a 15-year high in FY24. Profits had quadrupled between FY20 and FY23. Businesses are sometimes reluctant to make investments citing lack of demand visibility. This could be due to external factors and internal factors such as weak employment growth and income growth. To that extent, the lack of demand visibility is an endogenous factor. Privileging capital over labour is inimical to long-term corporate growth prospects. Businesses have an obligation to themselves to strike the right balance between deployment of capital and deployment of labour. As important, capital and labour shares of income have to be fair. In their fascination for AI and fear of erosion of competitiveness, businesses have to bear in mind their responsibility for employment generation and the consequent impact on social stability.

"With respect to skilling too, it is a priority that lends itself to market-based solutions. There is a skill-seeker who benefits economically from better skills; there is a skill-provider who earns fee income for imparting it and there are employers who benefit from a skilled and productive workforce. Therefore, it is a challenge that the market can solve and to the extent that regulatory hurdles (including, for example, land availability for setting up skilling facilities) stand in the way of the market solving this problem, that is the responsibility of the Governments – union and states – to remove them."

The long chapter conclusion suggests that our economic leadership either does not see the problem that exists or does not want the central government to be held accountable at any time for the most important challenge that the country is faced with. 

The economic survey suggests that our growth potential, in the medium term, is just 7% and that too it depends on many non-controllable factors.

They are:

"increased geo-economic fragmentation, a global push for self-reliance, looming climate change, rise of technology as the biggest strategic differentiator and limited policy space for countries across the world."

It lists the following six areas as the growth strategy for Amrit Kaal,

·         Firstly, there must be a deliberate focus on boosting private investment.

·         Secondly, the growth and expansion of India's Mittelstand (MSMEs) is a strategic priority.

·         Thirdly, the potential of agriculture as an engine of future growth must be recognised and policy impediments removed.

·         Fourthly, there is a need to secure the financing of green transition in India.

·         Fifthly, the education-employment gap must be bridged.

·         And finally, focused building of state capacity and capability is required for sustaining and accelerating India’s progress.

The survey, of course, credits the government and the RBI for managing inflation, financial stability, and maintaining the fiscal balance. We do know that RBI and the government have done well. But fiscal consolidation has come at a cost. Indian MSMEs and households still need to rebuild their ability to consume and invest. Fiscal consolidation is the least preferred strategy at this stage.

In summary, my assessment is that the Economic Survey has not invested the required effort to find solutions to the most complex problems that we face. In line with the government's view, it expects the responsibility for our progress and development to be with us. The central government has a limited role is what it emphasises, even when it raises and manages a larger share of resources, can borrow to the extent required and has an upper hand in allocating resources to the states.