Do subsidies and safety nets take focus away from generating jobs?

Source– The post is based on the article “Do subsidies and safety nets take focus away from generating jobs?” published in “The Hindu” on 8th September 2023.

Syllabus: GS3- Inclusive growth

News– With five States going to the polls at the end of the year, political parties have been announcing several promises, largely to address concerns of price rise of essentials.

What is the effectiveness of electoral?

It appears to be a mixed scenario. In Chhattisgarh, certain promises like the Old Pension Scheme cater to a small segment of the population and may not be advisable. Reintroducing the OPS would worsen inequality.

In Madhya Pradesh, nearly 13% of the overall expenses go towards OPS, but it benefits less than 2% of people who were in government jobs. So, it essentially transfers wealth from the poor to the affluent.

However, others, like reducing the cost of gas cylinders, appear to be reasonable.

A recent ‘Data Point’ in The Hindu revealed that 25% of those who benefited from the Ujjwala Scheme, either didn’t request a refill or only requested one.

This is significant in the context of providing ₹1,500 per month to women. There is a need to take into account specific target groups when discussing this populism.

Why do political parties make election promises?

It’s crucial to consider the broader context of our political economy and society. The economic experts don’t have a definitive solution for unemployment.

So, in the absence of a definitive solution, temporary measures are used. Electoral promises can be likened to temporary measures. They become necessary when we lack more fundamental solutions to address the underlying issue.

Field of economics has fallen short in serving societies on a larger scale. This problem isn’t unique to India. Jobless growth is a widespread issue in nearly every country today.

The focus on productivity, especially since the rise of the neoliberal consensus, has primarily benefited a small segment of the population.

There exists a portion of the population that doesn’t benefit from growth. It necessitated the implementation of populist measures to include them. Yet, some measures may be driven by political considerations.

Should GDP growth be the only focus area for economists?

GDP growth remains important. If we look at India’s growth trajectory over the years, it’s clear that during periods of high GDP growth, poverty has reduced.

GDP growth had a positive impact in the initial 10-12 years after liberalisation. It has ceased to be effective since then.

What is the way forward for inclusive growth?

Traditional manufacturing sectors like car production, steel manufacturing, and semiconductor chip production, which used to be associated with job creation, no longer generate substantial employment. The reason is automation.

There is a need to invest in mining for the energy transition. India has barely tapped into its extensive mineral resources. Mining can generate local jobs, including opportunities for historically marginalised castes.

Developing economies are undergoing two important transitions that need to be considered. One is a structural transition that often keeps them stuck in the middle-income category due to difficulties in pushing industrialization.

The second is a significant energy transition with substantial implications for employment.

There is a need to ensure the stability of prices for agricultural products. India has witnessed recent increases in the prices of tomatoes, yet farmers lack a guarantee of a consistent minimum price.

Government should seriously consider technological interventions aimed at transforming agricultural output into higher-value products. This represents a long-term solution to the issue.