Arvind Subramaniam’s has been a refreshing appointment to the chief economic adviser position. He has raised the intellectual level of the Economic Survey reports as well as the style of presentation. The latest Survey is in the same spirit of inquiry, with lots of hypotheses, conjectures along with data. It has been much remarked upon since it came out. People have noticed the slightly downbeat tone for the GDP-growth forecast. The inflation outlook is the best we have had for many years. But the Survey is right to warn about the economic costs of knee-jerk populism displayed in the cancellation of farmers’ debts. It is time someone stood up for fiscal responsibility. There are larger issues which need to be raised in light of the current mood—which is less triumphalist on the economic front than was the case early last year, when India was being hailed as the fastest-growing economy in the world. The government chose to experiment with one shock and another long-run revolution.
The shock was demonetisation. It had to be a surprise. It was going to cause an upheaval. It was going to be criticised. But it seems to have had no political backlash as far as the BJP is concerned. That said, there are two issues which the Survey has rightly addressed. One is the impact on GDP growth. As of now (and the data will, no doubt, be revised), the impact was the drop of upto 1% in the GDP-growth rate in the last quarter of FY17 from what was previously expected. That was not only predictable (and was predicted by me, among others), but also much lower than what the worst critics foretold. After all, by converting old cash into demand deposits, total money supply is unchanged.
So, there was no monetary shock as such. The cost was due to the delay in emission of the new currency. This was pure administrative inefficiency, for which there was no excuse. The second problem was that the reasons given for the policy shock were confused. The idea that the liabilities of RBI would be reduced due to the non-return of old currency could not be a principal reason. To believe that hoarders would suffer the loss of their cash hoardings was to assume that they would not behave rationally and take defensive action. There are still claims being made on the size of the non-return, but to make that an objective is to lose the sight of other advantages of demonetisation.
But those are old issues. The implementation of GST seems to be causing some short-term friction. We will not see the full size of this effect till much later. But if any of this cost is due to bad implementation, it should signal to the prime minister, as I argued in the issue of new currency, that the civil service we have is not fit for the purpose of radical reform. As far as one can see, only Nandan Nilekani has been able to deliver a radical reform without a hitch. That shows the advantage of inducting private sector talent if you need serious reform to be implemented. The Survey does not address the question everyone is asking. Why are no jobs being created? The question has deep and widespread ramifications for the running of the economy. Crudely put, if the economy has been growing at the rate of around 6-7%, to say that jobs are not being created sounds highly unlikely. It is an identity.
The growth rate is the sum of growth of employment plus the growth of productivity. To say job growth is zero is to argue that productivity growth in India is 5-6% per annum. Not likely. Let us face it. Data are lousy when it comes to employment. I also find the index of industrial production, with its high month to month volatility, incredible in the bad sense of the term. When the GDP data were recently revised, the crux of the revision was information on MSME companies. If this is so, then we need much better data on the movements of gross value added in these companies, on a monthly or quarterly basis. But then, we need to follow through the employment consequences of this sector.
It may be that jobs are defined as those in the formal sector. In the informal sector, especially in the e-businesses, employment is often like self-employment. A person gets hired as and when needed, for a specific period of time, but without any wages/hours contract. This is known in the UK as the gig economy. There has always been a large casual employment economy in India, with jobs given on a daily basis. This may be spreading to better paid jobs as well. We may need to look not for job creation but for earning opportunities, whether as employees, or as self-employed or as casual contract labourers. May be there are earning opportunities being created, but no one calls them jobs.