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The Hindu Editorial Analysis | PDF Download

Date: 21 February 2019

 

The employment test

  •  The labour force may have actually shrunk while the Modi government has been in office
  • Attuned as we have become to political grandstanding on the purpose of democracy, we may not have imagined that something so prosaic as statistics can alter our perception of how it is actually working for us.
  • The emergence over the past few months of data on employment, speaking precisely the lack of it, cannot but have an influence on our assessment. They paint a picture of an economy that is widely out of line with the government’s pronouncements on its performance. These have generally avoided any reference to employment, except to say that there is a lack of reliable data on it, for the rectification of which the government itself has done very little.
  • Arun Jaitley, Finance Minister for the greater part of this government’s tenure, has claimed that it has coincided with a degree of macroeconomic stability that has not been surpassed. Perhaps he had in mind the combination of falling inflation and declining Budget deficits since 2014. However, while this has indeed transpired, it is important to note that these trends had commenced even before. Moreover, after repeatedly expressing a commitment to fiscal consolidation, the government did not hesitate to swerve from the path of rectitude to finance an income support programme for farmers in an election year.

Silence on jobs

  • But of greater significance is the fact that neither he nor the Prime Minister has had anything to say about employment. In this the BJP is not unique. Employment does not usually figure in the public discourse orchestrated by political parties, either at the Centre or in the States. This must change, for steady employment is the citizen’s aspiration, to realise which she elects representatives. Governments in India must therefore be routinely subjected to an employment test which gauges their success in generating and sustaining high employment. In his election campaign in 2014 Narendra Modi had announced that he would generate jobs. Employment data from government sources (Labour Bureau) for about half a decade up to 2015 and from the independent agency Centre for Monitoring Indian Economy (CMIE) for the period since give us a reasonably good idea of the progress made with respect to employment. When supplemented with other information, these sources also suggest to us the proximate factors responsible for that history. The evidence they provide tell two stories.
  •  First, the Modi government has had next to no success in generating employment, notwithstanding its promises at election time. A development that may require some effort to understand fully, but which nevertheless it is important for the citizen to do, is that the labour force may actually have shrunk while it has been in office. The labour force is the sum of the employed and those unemployed who are seeking employment. A shrinking of the labour force is most unusual in an economy with a growing population, and thus a growing working age cohort.

 

The Demonetisation Effect

  • While this decline had already emerged in 2015, it became pronounced after demonetisation in 2016. We owe to CMIE, a private Indian body, both this finding and the articulation of the precise mechanism at work. A section of those hitherto willing to work may have simply dropped out of an already challenged labour market. This possibility is recognized in macroeconomics as the ‘discouragedworker effect’ and has been observed in Western economies. The loss of skill that can accompany being unemployed even temporarily, and the consequent loss of long-run output for the economy, is the basis of the argument that public policy must respond with alacrity to growing unemployment. No such sensibility has infused the government, which appears not to have noticed the decline in the labour force itself, a development that occurred very early in its tenure. It has instead congratulated itself on having delivered macroeconomic stability. We are now able to see that whatever may have been the acclaimed beneficial impact of demonetisation in terms of raising direct tax compliance, it has caused demoralisation among a section of the already unemployed who may have given up all hope of finding employment.
  • The second of the two histories referred to, seen in the reports of one of the government’s agencies, is that of a rising unemployment rate from 2011 onwards. This point has political significance as we stay poised for the general election. This is that while the Modi government may have run amok with the demonetization, India’s unemployment challenge predates this episode and evidently runs deeper.
  • Labour Bureau data show that the unemployment rate almost doubled between 2011 and 2015. It is surprising that the government’s own reports did not flag this. The economic, as opposed to the political, message is that the recent history of unemployment has been impervious to the political formation governing India.
  • If we are to more than just wring our hands at the existent unemployment, an understanding of what underlies it is necessary. Actually, no more than standard macroeconomic analysis is needed in this regard. Both output growth and employment are under normal circumstances associated with capital formation.
  • Capital formation as a share of output has been declining since 2011-12. Unlike consumption expenditure, capital expenditure is unique in expanding both the supply and demand sides of the economy. Despite the declining capital formation, neither United Progressive Alliance (UPA) II nor National Democratic Alliance II considered it necessary to respond to it by stepping up public investment, the obvious thing to do in the prevailing circumstances.
  • The clue to this inertia may be found in the political economy. For UPA II the success of its first term in office must have looked like the perfect opportunity to expand its political base by legislating rights and reciting the mantra “inclusive growth”. Then came Narendra Modi, who somewhat incongruously for an avowedly nationalist politician, embraced the dogma of the Washington Consensus. Popular in the 1990s after the collapse of the Soviet Union, it extolled small government and asserted the capacity of the market mechanism to deliver an optimal outcome. There was in this scheme of things no place for any involuntary unemployment. So, whatever may have been the calculation of the two political formations, employment generation just took a back seat in their respective programmes.
  • Cost of failure?
  • We have adopted representative democracy as our form of government because we cannot in isolation achieve the outcomes we desire even when they are exclusive to us. Employment is one example of this. Though it manifests itself as jobs for individuals, it is determined by macroeconomic factors which individuals cannot influence on their own.
  • The Great Depression in the 20th century and the Great Recession in the 21st, both which have originated in the U.S. but quickly spread across the world, testify to this helplessness of individuals in the face of market forces.
  • In a democracy, it is left to elected representatives whether to pursue macroeconomic policies conducive to the generation of employment. India’s political parties have for close to a decade now failed to so, either wilfully or out of neglect. However, when elected to govern, they are given a chance to create the conditions that enable Indians to lead flourishing lives, which includes being meaningfully employed during their working age. India’s political parties must pass ‘the employment test’. When they fail they must vacate the stage.

More symbolic than punitive

  •  India’s trade-related action will encourage informal trade and propel Pakistan to look for markets beyond South Asia
  • India’s decision to withdraw the Most Favoured Nation (MFN) status to Pakistan means that India will not treat Pakistan on an equal footing in trade as is expected of fellow members of the World Trade Organisation. The move comes after the attack on a Central Reserve Police Force convoy in Pulwama, Jammu and Kashmir.

 

 JUST A DENT

  • It does not strictly fall under the ‘beggar-thy-policy’, often used in international trade through which one country tries to resolve its economic problems by means that worsen the economic problems of its neighbours or trade partners. The moot point therefore is the sensitivity of the impact of the MFN status on Pakistan in terms of its trade with India. It can only be a pressure tactic and do little unless stringent actions are taken to stop informal trade that has been going on between the two countries for long.
  • Besides China, India and Pakistan are the two largest economies in the South Asian region. Being dominant constituents of the South Asian Association for Regional Cooperation, both countries have immense potential for intra-regional trade.
  • Trade now takes place using three channels: the official route; the illegal (informal) route, through smuggling along porous India-Pakistan land borders and also Afghanistan, which may not be accounted for in the national income; and lastly, through mainly Dubai and Singapore, which have free ports and accommodate legal agents of traders from India and Pakistan.
  • Informal trade generally takes place due to restrictions on import of specific items on grounds of health and religious beliefs; ‘high tariff barriers or transportation costs, making it cost effective to smuggle goods in the country; imposition of nontariff measures (NTMs)’; weaknesses in the ‘rules of origin’ resulting in ‘trade routed through a third country; leakages in transit trade; and distortions in domestic policies such as the absence of or relatively low indirect taxes, creating an incentive to transport items illegally to neighbouring countries.
  • Traders carry out informal trade between Pakistan and India through the exchange of goods at the border as well as through the personal baggage scheme’ through “green channel” facilities at international airports or railway stations. ‘Informal trade has also taken place through Afghanistan where goods are exported officially from India and later smuggled into Pakistan. Indian-made goods smuggled into Pakistan include cosmetics, liquor, stainless steel utensils, ayurvedic medicines, videotapes/CDs, confectionery/cashew nuts, tea, coffee, live animals and spices’.
  • Trade data
  • From 2011-12 to 2017-18, India’s formal trade with Pakistan increased from $1.94 billion to $2.41 billion. Of this, the share of exports stands at almost 80% and has been fairly stable over the years (Ministry of Commerce and Industry, India).
  • In 2012-13, informal trade between India and Pakistan — estimated in a study (ICRIER, N. Taneja and S. Bimal, 2016) — was $4.71 billion, which was double when compared to formal trade. India’s informal export share to Pakistan was again much higher at $4 billion while its import share was low at $0.71 billion.
  • After the Pulwama attack, the follow-up measure to raise tariff duty on imports to 200% can again be trivial. So would be the NTMs, if increased, as India’s imports from Pakistan are reasonably low at $0.488 billion. Besides, imports from Pakistan grew at a lower rate (1.04%) compared to exports (1.32%) per annum from 2011-12 to 2017-18. Major exports from India that would hard hit would be cotton (not carded or combed) valued at $0.273 billion, p-Xylene ($0.082 billion), polypropylene ($0.063 billion) and single yarn ($0.088 billion). Pakistan’s loss from major exports to India would be much less — from dates ($0.113 billion), portland cement ($0.078 billion), other petroleum oil ($0.055 billion) and light oils and preparations ($0.028 billion).
  • Thus Pakistan is an important export destination for India but not vice-a-versa. This is despite the fact that Pakistan imposes a large number of NTMs (143) on Indian exports, the major ones being export related measures (25.2%); technical barriers to trade (24.5%); and sanitary and phytosanitary measures (22.4%). These are ‘concentrated on agriculture, plants, and food-related products and operate as bans that shut competitors out of its market. Pakistan’s NTMs are blunt instruments; it is difficult to use them to provide targeted protection to the strategic industries. In contrast, India’s NTMs are soft barriers which operate as delays or bureaucratic hurdles rather than bans. Pakistan’s NTMs focus on general categories of goods whereas India’s NTMs are on particular industries and trading partners. The widely used NTMs India uses include defence procurement procedure, preference to domestically manufactured electronic goods in government procurement’ and a ban on goods largely manufactured within the country.
  • The sense is that Pakistan may not face an exacerbating situation with India withdrawing the MFN status and raising the import duty. Informal trade may proliferate, which might not be in India’s interest and an appropriate strategy is required to bring it to a halt.
  • Also, under the South Asia Free Trade Area Agreement (SAFTA) 2004, Pakistan’s share in external trade is less than 10%, while India’s share is more than 70%. Such steps may propel Pakistan to look for new markets beyond SAFTA, corroborated by the recent meeting held with Saudi Arabia and growing prospects of trade through a third country, mainly via Dubai.

The private sector in public health

  •  It can provide services and capital
  • The healthcare panel at the recent India Conference hosted by students of the Harvard Kennedy School and the Harvard Business School discussed the role of the private sector in augmenting public healthcare services. Goal 3 of the UN Sustainable Development Goals (SDG) is to “ensure healthy lives and promote well-being for all at all ages”. India has a mammoth role in helping the world attain SDG-3 as global health indicators cannot improve without India making giant strides. In providing healthcare, the Indian government has led the way, as it should, given that India is a welfare state.
  • Over the past decade, courtesy changing demographics and lifestyles, India has been witnessing shifting disease prevalence in terms of the largest causes of morbidity and mortality. This requires that we give our health delivery system a re-look. The Harvard panel dove in to how the private sector can be leveraged for this purpose. The precondition is to create an ecosystem where partnerships between the private and the public sector can thrive. This must start with trust and stated common objectives. Once the ecosystem is more conducive, complementarities need to be identified.
  • While one may not foresee a great presence of the private sector in providing primary healthcare services, areas such as ambulance services and value-based care delivery can be promoted through this sector. Ayushman Bharat seeks to improve the network of the government’s first-pointof-contact health centres. For higher levels of services, the private sector can be incorporated by creating linkages between public health infrastructure and private providers through a hub-and-spokes model.
  • Besides services, the private sector is also a source of capital. A legally mandated way to provide this is through Corporate Social Responsibility. Companies above a certain annual turnover (₹1,000 crore), net worth (₹500 crores) or annual net profits (₹5 crore) have to earmark 2% of their net profits of the past three years to CSR projects, which may include healthcare projects.
  • CSR has not yet reached its full potential. However, it is encouraging to see the merging of initiatives. This is seen in the government directing companies, albeit public sector ones, to the focus districts of the Aspirational Districts programme, which was started in 2018 to improve governance and service delivery across six sectors including health and nutrition.
  • At the end of the day the lesson was clear: as India strives to ensure availability, affordability and accessibility to quality healthcare for its people, both private and public stakeholders need to come together
  • The HAL Tejas is an Indian singleengine, multirole light fighter designed by the Aeronautical Development Agency (ADA) and Hindustan Aeronautics Limited (HAL) for the Indian Air Force and Indian Navy. It came from the Light Combat Aircraft (LCA) programme, which began in the 1980s to replace India's ageing MiG-21 fighters. In 2003, the LCA was officially named "Tejas"
  • The Tejas is the second supersonic fighter developed by Hindustan Aeronautics Limited (HAL) after the HAL HF-24 Marut.