There has been some traction on resolving the twin balance sheet problem and the GDP is clocking 8% growth. But, the NPA problem still looms and rising GDP has not created jobs.
Prime minister Narendra Modi could well lead his party to another win in the 2019 general elections. But if the BJP is back in power, it won’t be because Indians are feeling better off today than they were in May 2014. They are not, really. The multitude of welfare and support schemes notwithstanding, at least two large sections of society—farmers and the youth—must feel less financially secure. Agriculture has slowed considerably to sub-3% under the NDA from 3.1% and 4.3% under UPA-1 and UPA-2, respectively, and bumper harvests have seen output prices crash. It is not just farmers, though; not too many others would say ‘achhe din’ are here. This is despite the fact that India’s macro-fundamentals today are much stronger, and not shaky as they were back in mid-2013. Moreover, while the over-leverage by banks and companies hasn’t been fully overcome, they are undoubtedly in better shape.
But, while the twin balance sheet problem is being resolved, there are not enough jobs going to keep people gainfully employed. It may not be as bad as CMIE makes it out to be; CMIE says there are eight million jobs less today than there were in December, 2016. But it is also unlikely to be as good as the Ghosh & Ghosh claim that 5.2 million jobs were created in 2016-17 and another 6.2 million in 2017-18. That this data has been revised downward several times, on one occasion by 90%, makes it clear that extrapolating from EPFO and ESI subscriptions is simply not a good enough way to estimate employment. Most of the ‘new jobs’ are probably new subscribers having come into the EPFO fold as the result of increasing formalisation of the economy. Indeed, had so many jobs been created, consumption would not have slowed the way it has; car sales have been virtually flat in 2018-19 while two-wheeler sales have seen a modest increase.
So, the truth probably lies somewhere in between. But that is bad news because there are a million people looking for jobs every month. Not only have large companies reined in hiring, the organised sector today prefers to hire temporary workers. One can’t blame them. They want to keep a check on costs, which is becoming difficult given the bargaining power with the unions. Also, rising wage bills make it harder for exporters to compete in the global market. Companies may have been willing to take on permanent workers had the government made it easier for an enterprise to hire and fire, but labour laws remain rigid. Proposals that would have allowed companies with employees up to 300 to shut down without permission and would have disallowed outsiders from becoming office bearers of trade unions in the organised sector haven’t become law.
To be sure, one reason there are fewer jobs on offer is because weak corporate balance sheets have limited capital expenditure by the private sector in the last five years. Reliance Industries may have spent close to `2.5 lakh crore on the telecom rollout, creating thousands of jobs, but business houses like the Tatas and Birlas have invested through acquisitions where new workers were not needed. In fact, there would have been some shrinkage in the manufacturing workforce thanks to increasing automation. Also, over the past ten years or so, India has attracted less FDI in manufacturing than in services. But even easing the rules for areas such as defence has had little impact. Make-in-India remains grounded. The government is nowhere close to achieving its unrealistic target of a 25% share of GDP for the manufacturing sector—it is now 16.7%. The loss of traction in Indian industry is all too visible with growth plunging from 6.3% in November 2017-October 2018 to an average of 1.5% in the three months to January 2019. The January industrial production of 1.7% is the lowest since July 2017 save for the 0.3% in November 2018. Credit to industry grew at just 4% or lower in the 12 months to November 2018.
It is the IT and e-commerce sectors that continue to throw up high-end opportunities for engineers, computer scientists and marketing professionals. The e-commerce sector has created jobs at the lower end too—there are many more delivery boys driving around these days. But, seen from the perspective of the pool of people waiting to be hired, this is the proverbial drop in the ocean. Had the government not been so stubborn about easing the rules for multi-brand retail and instead adopted the very benign approach towards the space that it has for e-commerce, the job markets may have been buzzing because a lot more FDI would have found its way into India.
Not only would more professionals have been absorbed, a workforce dominated by people not so skilled, too, would have found more work. In fact, thousands of idle construction workers could have made a living for themselves had the government eased the FDI rules for real estate and also sorted out the mess in the sector by forcing defaulting promoters to sell out and auctioning the incomplete projects to solvent builders. The Awas Yojanas will do their bit but it won’t be enough.
The headline GDP data simply doesn’t square with much of the high frequency data. The economy may be clocking 8% but this could be an impact of benign commodity prices or belt tightening—including limited hiring—which are driving up profitability. So, rising GDP may not always throw up more job opportunities. Creating these will be a challenge for whichever party comes to power.