Economics is indeed a strange discipline. Sample this. “A larger fall in imports than in exports contributed substantially to growth in GDP in the fourth quarter of the financial year.” So a fall in both exports and imports contributes to growth as long as net exports are positive!
Baffling it may be, but most economists like myself have accepted this quasi-mystical statement — without blinking an eyelid — as part explanation for GDP growth at a healthy 7.5% during January to March 2015.
Today public and policy attention is being hijacked by numbers spewed out by a statistical establishment that is fast losing its credibility on account of too many revisions of and internal inconsistencies in data. Surely the more important and simpler question is how this growth, at whatever rate, affects employment generation.
I am distressed to report that question is simply lost in ongoing debates on GDP numbers. Employment, unfortunately, still does not seem to figure as a priority for our policy makers. This lack of attention to employment in a country that boasts of the youngest population in the world is simply incomprehensible.
Extensive commentary on the latest GDP growth numbers has been unable to clear prevailing confusion on whether the economy is in its recovery phase or not. Combined with the fact that growth momentum was visibly weaker in the second half of 2014-15 compared to the first six months, it can be reasonably argued that overall economic weakness is persisting — prompting RBI to revise its growth target for 2015-16 downward from 7.8% to 7.6% in the second bimonthly policy statement issued yesterday.
Thus, the economy needs a strong stimulus to be given by a combined dose of fiscal expansion and monetary easing. Thankfully, latest data show that as much as 9.1% of total annual expenditure has been spent in a single month of April 2015.
This demonstrates a welcome resolve to hike public capital expenditure, reflecting an improvement in governance across the board but specially in ministries such as surface transport which accounted for a major chunk of the expenditure in April. Moreover, this has been supplemented by further monetary easing with RBI announcing a 25 basis points cut in the repo rate yesterday. This combined stimulus is most welcome.
The need for sustained stimulus is evident when one looks in some detail at both consumption and investment data. Consumption continues to display continued weakness especially in rural demand. Here again CSO data seems at variance with trends from other sources.
Normally, growth in private final consumption expenditure (PFCE) is closely correlated with growth in corporate income and sales. This is not surprising as both are two sides of the same coin. This correlation has curiously snapped during the last financial year with CSO data showing a rising trend in PFCE, in contrast to corporate sales that have plunged. This is inexplicable. Imports have not covered this supply-demand gap as they have pretty much collapsed.
The investment scene is somewhat better. CMIE data shows new project announcements are rising, projects abandoned are declining and projects under implementation are just beginning to perk up. The major fly in the ointment is the sharply declining rate of growth of credit off-take by corporates from commercial banks, which has plunged to below 4%. Investment, thus, is a mixed picture. It will hopefully improve if public capital expenditure is sustained.
Therefore, it’s not surprising that we get very mixed signals about the state of the Indian economy. Corporate pessimism exists simultaneously with official effervescence which, let us admit, sometimes verges on the irrational.
Real estate suffers from anaemic demand and sluggish growth. Exports have declined for five months continuously and core sector growth remains weak. The best one can say is that there are signs of recovery, which need to be nurtured and reinforced. They certainly do not warrant any complacency.
The ordinary Indian is left numbed by the numbers game. He is expectedly more interested in news on job opportunities. And that unfortunately is not yet positive. Worse, real wages are flat in cities and declining in rural India.
Rising employment opportunities are the only sure guarantor of a better life and higher welfare for ordinary people or Modi’s neo-middle class. Employment signifies inclusion through empowerment and not entitlements. To expand employment as rapidly as possible must surely be this government’s topmost priority.
In this context it is ironical that for a country faced with a very serious demographic challenge, credible official data on employment are still produced by NSSO, which releases its ‘thin’ and ‘thick’ rounds once in two and five years respectively. The annual labour data produced by the labour bureau is, from all accounts, quite worthless.
As pointed out in India Labour Report of the Institute of Human Development, the quality of unemployment does not correspond to ground realities because ‘self-employed’ is used as a residual category to include all those who are unemployed or underemployed. Regular and credible data on employment is a critical policy input. Should Niti Aayog not be charged with producing credible labour market data, if not also a plan for maximizing employment in India?