Quality public investment a challenge

By: |
October 21, 2020 4:10 AM

The values of vocational training are to be inculcated on an immediate basis in the pedagogy to enhance the worth of these candidates in the emerging segments of the economy.

Q2 GDP growth, indian economy, economic growth, economic recovery, recession, RBI, reserve bankQ2 GDP is estimated to have substantially narrowed contraction to a single digit.

Despite admitting that 2020 is to witness the worst recessionary conditions in the world economy, it came as a pleasant surprise to find that the global GDP for the current fiscal year has been estimated by IMF at (-) 4.4% — 0.8% more as compared to the projected level of GDP four months ago. To give credence to these estimates, it is seen that the advanced economies have been projected to have their GDPs to grow by (-) 5.8%, which is a clear 2.3% more compared to June estimates.

The emerging and developing economies are projected to grow by (-) 1.7%, which is a drop by 0.9% from the earlier estimates. As this category includes China, slated to grow by 1.9% in the current year — a clear 0.9% more than what was estimated in June — it is apparent that other emerging and developing economies are to de-grow by a larger extent than what was projected earlier.

IMF has projected a bleak scenario for India, estimated to grow by (-) 10.3% and this is lower by 5.8% as projected in June. Recently, RBI estimates have projected India’s GDP in FY21 to de-grow by a lower rate at 9.1% to emphasise the benefits of January-March, the post- lockdown period.

One major factor accounting for the differential trend of GDP estimates for the advanced and emerging and developing economies is the ability to spend funds for social sectors (health, education, water supply and sanitation, digital infra) and to undertake investment for building infrastructure (roads, railways, ports, airports, irrigation, oil and gas transportation) to create income opportunities.

It is acknowledged that the fiscal space available for the two economic categories widely varies. The public debt as a percentage of GDP for the advanced economies may reach 125-132% of GDP but the repayment is counted at a very low and even at negative interest rate, while the same for emerging economies on an average pegged at 65-80% of GDP would make repayment calculated at a much higher interest rate difficult to bear.

A strong case nevertheless has been made for enhancing public investment. Studies have shown that 1% rise in high quality public investment generates confidence in the economy to promote private investment by 10% and contributes a 2.7% rise in GDP.

Public investment also helps employment to grow by 1.2%, both in traditional and new emerging sectors. The rate of unemployment in advanced countries pegged at 3.5-5% is higher in the emerging economies especially after the Covid-19 pandemic. The public investment in roads, railways, ports and housing (affordable housing and rented accommodation for the migrant workers) in India has a good employment potential. However, the new normal scenario has made us conscious of the fact that fresh jobs in the traditional areas (retail, construction, textile, food processing) would be shrinking unless combined with digital literacy.
There may be a perceptible shift of jobs to e-commerce, which would require a new set of learning. There is an urgent need for training and skilling for the innumerable numbers of youth entering the job market every year in India and to prepare them to become employable in the emerging segments.

The values of vocational training are to be inculcated on an immediate basis in the pedagogy to enhance the worth of these candidates in the emerging segments of the economy.

Simultaneously it would be imperative to make digital familiarities as a necessary ingredient for learning and that would require substantial investment in widening the internet facilities available away from the cities and in rural areas. Easy availability of personal computers with network facilities would make digital learning affordable and open up new vistas of learning. Appropriate training and skilling would enable Indian youths to shake off the scourge of unemployment and underemployment and contribute effectively towards economic growth of the country.

Meanwhile the latest data on IIP indicates that de-growth in Manufacturing sector has come down from (-) 11.6% in July’20 to (-) 8.6 per cent in August.

Mining and Quarrying and Electricity generation also brought down their degrowth in August’20 as compared to the previous month. The sales of passenger cars, two wheelers, Tractors have gone up as a mark of rising rural demandand more demand for owned cars as against public transport due to post Covid scenario and this is reflected in higher growth of Indices for manufacturing of motor vehicles and trailers in August’20 compared to the previous month.In fact, the manufacture of other transport equipment has turned positive for the month. The infra and construction goods segment is yet to get back to a positive growth, (-)2.3 per cent growth in August’20 due to lack of investment in infra which has affected the capital goods segment as well (degrowth of (-) 15.4 per cent in August’20). Consumer Durables segment that declined by 23 per cent in July’20 has clocked a degrowth of 10.3 per cent in August’20 and Intermediate goods clocked a degrowth of 6.8 per cent in August’20 against a decline of 11.7 per cent in July’20.

The author is Former DG, Institute of Steel Growth and Development

(Views expressed are personal)

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