All’s not well, yet | india | Hindustan Times
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All’s not well, yet

There will be fewer jobs all around. So why withdraw fiscal stimulus packages? N Chandra Mohan elaborates.

india Updated: Dec 17, 2009 20:42 IST

With signs of economic revival around the world, including India, speculation is rife regarding the withdrawal of fiscal stimulus packages. India’s industrial production and exports are beginning to recover but the bad news is that joblessness is still stalking the economy.

What then is the warrant for rolling back stimulus measures? Although there is a buzz regarding hirings in the IT sector, the economy lost as many as 131,000 jobs during April-June 2009.

Encouraged by the surge in industrial production and visible signs of improvement in exports since September, policymakers have been airing their views on when to withdraw fiscal stimulus measures. But does the government have any basis to reliably gauge — besides the five-yearly surveys done by the National Sample Survey Organisation — whether unemployment rates have come down or are somewhat entrenched in the system, impervious to the revival in GDP growth? The latest official unemployment estimate is 8.02 per cent on a daily status basis in 2005-06. There are indeed grounds to be sceptical whether the labour market situation has since then improved if one extrapolates from recent trends to derive more up-to-date economy-wide estimates.

A disturbing trend of India’s economic performance is a deceleration in employment growth to 1.8 per cent per annum from 1993-94 to 2006-07 from 2.6 per cent between 1983-1993-94 although annual GDP growth accelerated to 6.3 per cent from 5 per cent over this period. This picture is unlikely to alter even if growth soon shifts to a higher 8 to 9 per cent trajectory. The above numbers imply a decline in employment per unit of GDP growth or employment elasticity to 0.28 from 1993-94 to 2006-07 from 0.52 over the years 1983-1993-94.

Applying this elasticity to the likely GDP growth of 6 to 6.5 per cent in 2009-10 to project the generation of employment provides an average of 7.7 million jobs this year. In other words, there will be 2.3 million fewer jobs this year due to the sharp fall in overall GDP growth.

The number of unemployed this year is 37.3 million out of a labour force of 465.3 million on a daily status basis, if one uses the labour force projections of the Planning Commission for the Eleventh Plan (2007-2012). The rate of unemployment is 8 per cent which is not low to take a view on rolling back stimulus packages soon. Disturbingly, however, this rate appears entrenched as it was similar to unemployment rates of 8.4 per cent and 7.8 per cent when growth hit 9.7 per cent in 2006-07 and 9 per cent in 2007-08.

Perhaps the only consolation is that the estimated rate of unemployment in India is less severe than in the advanced economies like the US where it hit a high of 10.2 per cent or the Euro zone in which it is around 9.7 per cent. But it is worse than China’s urban rates of 4.3 per cent or Mexico’s 6.4 per cent or South Korea’s 3.6 per cent. India’s unemployment, however, is similar to those in Russia and Brazil.

The upshot is that our policy makers must factor in whether joblessness has improved on the ground before deciding to withdraw stimulus measures. Recovering industrial or GDP numbers doubtless, are important yardsticks. But what is the point in rolling them back if growth is jobless in nature? The situation on agricultural employment is not very bullish either. Persisting with Keynesian pump-priming is, therefore, imperative. Otherwise, the economy will suffer from withdrawal symptoms of a different sort.

N. Chandra Mohan is a Professor of Economics and International Business at the IILM Institute for Higher Education

The views expressed by the author are personal