By Categories: Economy

We are in the midst of an unprecedented and atypical global adverse shock. While all attention must focus right now on overcoming the health crisis, we must take stock of our economic prospects this decade. This article is not about India’s underlying unconstrained potential. It is about how much of it may be realistically fulfilled over the 2020s.

[wptelegram-join-channel link=”” text=”Join @upsctree on Telegram”]

India has seen a digital revolution in public services and its payments system is one of the fastest in the world. The goods and services tax, though some hiccups remain, has been implemented, and so also the bankruptcy code. With what has been termed ‘the new welfarism’, access to basic amenities such as bank accounts, cooking gas, toilets and electricity has improved. While these improvements are critical because the end goal of a policy is to raise the well-being of people, it is doubtful if they would translate into measurable economic growth soon, as with the early impact of the internet or electricity.

To begin with, we need to minimize the social and economic cost of the pandemic itself. The key to influence citizen’s expectations and behaviour is the credibility of public policy. Super-spreader events such as election rallies or religious gatherings not only increase the risk of covid’s spread, but also erode policy credibility and the effectiveness of other social restrictions. Similar is the case with India’s vaccination drive, which is the cornerstone of victory against the pandemic. Flip-flops in terms of pricing, procurement and distribution do not help garner public trust.

Productivity improvements form the backbone of rising prosperity. Non-tradable sectors include healthcare and education, where production and consumption largely take place locally. While there is room for tele-healthcare, this sector, by the very nature of its services, will remain largely non-tradable.

Not only that, India’s healthcare capacity remains low, with just 133 beds per 100,000, coupled with a shortage of healthcare staff, but its distribution is also highly uneven across states. Bihar, Jharkhand, Odisha and West Bengal have the fewest beds on this matrix.

The other key service sector, education, has been disrupted enormously by the pandemic. Technology in this sector has leap-frogged in terms of online delivery, which now makes it a tradable sector. However, we have neither an institutional set-up yet, nor household affordability for it, resulting in unequal access to education. Although the National Education Policy has been announced, delivering on its promise will require sustained attention to its implementation and consensus building with states. Education and healthcare systems that lower existing inequalities are critical for a healthy and skilled workforce, and thus for median productivity levels.

The implementation of new farm laws has been deferred and the same may be the case with revised labour laws. In contrast, there seems to be a move towards restricting labour mobility within the country, with some states enacting quotas for local recruitment.

Reforms in sectors mentioned above will take time before they show up in Indian productivity gains.

Another issue is unequal regional development. Maharashtra, Tamil Nadu, Karnataka and Gujarat account for 38% of India’s output (and 54% of manufacturing), with just over 10% of India’s population. Restrictions on labour mobility would further encourage a pandemic-forced move towards capital-intensive production in prosperous states and make job creation tougher in a young labour surplus country.

India needs millions of productive non-farm jobs, and not merely more self-employment and low-skilled services where the potential to raise productivity, and hence real incomes, is minimal. And for that, India needs its unicorn startups to turn into sustainable big businesses since it is the big business that creates jobs, spurs innovation and rewards talent and work. While we have a flourishing startup ecosystem, sustaining expansion and creating large-scale jobs takes time and isn’t yet guaranteed.

Growth is notoriously hard to predict. As a big mis-forecast by the economist Rosenstein Rodan for 1961 to 1976  shows, forecasting an upside due to good luck by way of a sudden change in the implementation of an economic-policy regime is not possible. Or, for that matter, forecasting a severe stroke of bad luck, such as a natural or man-made catastrophe.

All said, barring dramatic changes in luck, and with a global move towards trade protectionism, a pandemic-induced loss of productive capacity and employment, constrained fiscal capacity along with the possibility of higher taxes and inflation, and the anaemic state of the banking sector, a key growth enabler, India is unlikely to improve on its growth performance of the past decade.


Share is Caring, Choose Your Platform!

Recent Posts