Where’s The V-Shaped Recovery?

Synopsis: Govt should recognize the evidence of distress and job loss in India. V-shaped recovery is still far away.

Introduction

According to the government, India’s economy is bright and strong since headline GDP grew 20% in the recent quarter after falling 24% in the same quarter last year.

However, it is important to evaluate the true health of a nation’s economy through its peoples’ incomes and livelihoods, rather than shallow indicators like stock market indices or startup unicorns.

Why it’s said that there is no economic recovery?

Record number seeking employment under MGNREGA: Around 64 million are families employed under MGNREGA. It is more than ten times the total number of people employed by all the companies listed on India’s stock exchanges combined. We should remember that citizens utilize MGNREGA only when the situation is extremely dire and there are no other alternative sources of income. Currently, 18 million families are dependent on MGNREGA, roughly the same number in August last year. Clearly, there is no economic recovery, ‘V’ or otherwise, for these millions of families.

So, while stock markets are booming to all-time highs, a record number of Indians are seeking employment from MGNREGA for a bare minimum income.

Manufacturing, construction and services in bad shape: Manufacturing, services and construction are the real economic activities that generate good quality jobs and incomes for the vast majority of people. However, these are not in good state. Latest CSO data shows that manufacturing activity in June 2021 is at the same level as four years ago in 2017, construction activity is at the level of five years ago in 2016, and trade/transport services activity is at the level of six years ago in 2015 (at constant prices).

Lack of consumption: When people do not have sufficient incomes, it affects their consumption too. This is evidenced in the fact that private consumption in the June 2021 quarter is at the same level as in 2017.

Fixed Capital formation is lagging: When private consumption is weak, businesses refrain from undertaking new projects and investment falls. This is seen in fixed capital formation being stuck at 2017 levels.

Finally, it is argued that easy money from the United States is finding its way to other countries, pushing up asset prices and financial market valuations. Neither does this help improve livelihoods for the vast majority of people, nor will this last long. It is thus futile to showcase foreign flows or stock market indicators as a sign of the robustness of India’s economy.

What is the way forward?

Even before Covid hit, India’s textile and leather goods production, the sectors that create the greatest number of jobs, was lower than back in 2014-15. Covid has only made it acutely worse.

Promote labor intensive sectors: Government needs to support such labour-intensive sectors to increase employment.

Export growth: The lone bright spot in the economy is exports growth, which if sustained can create jobs.

Source: This post is based on the article “Where’s The V-Shaped Recovery?” published in Times of India on 9th Sep 2021.