Arjun Kumar, Ritika Gupta and Nikhil Jacob

Setting the tone for deliberations over the Budget 2021 and what it should ideally offer to heal the ailing Indian Economy, Prof Santosh Mehrotra, voiced concerns over the mismanagement of the pandemic and the economy by the incumbent government. A decorated academician and former Professor at the Jawaharlal Nehru University, Prof Mehrotra’s observations and suggestions were backed by hard data drawn from his research and writings.

Speaking at the special lecture based on the topic, ‘Labour, Employment and Pandemic: Policy Suggestions and Way Forward for Budget 2021’ organized by IMPRI Impact and Policy Research Institute, New Delhi, Prof Mehrotra postulated four essential features that must be included in the Budget 2021.

He opened his lecture whilst drawing attention towards the rapidly closing window of India’s demographic dividend which according to him will end latest by 2040. “We are already two-thirds into this period and hence do not have a single year to lose”, warns Prof Mehrotra. He recalls how in the year 1979 both India and China had the same level of per capita income but thereafter, China rode the wave of its demographic dividend to achieve a growth rate of 10%. To emulate the China success there is a need to create jobs for all the young people entering the working-age and achieve a 9-10% growth rate. However, this has happened very rarely and achieving this is the big challenge, adds Prof Mehrotra.

Prof Mehrotra cites a few unemployment statistics to point out that the unemployment rates have been the highest in recent times and that going into the ill-planned lockdown, India already had about 280 million unemployed people in addition to the 205 million in agriculture. He draws attention to the falling growth rates due to a series of policy mistakes by the incumbent govt, causing the economy to shrink quarter by quarter since late 2016 for 9 quarters before 2020.

Prof Mehrotra laments that it is during this bleak period that the pandemic made landfall and further exasperated the unemployment levels and shut down the economy. Commenting on the mishandling of India’s economy, Prof Mehrotra cites the ill-prepared and sudden imposition of a stringent nationwide lockdown as directly responsible for contracting the country’s economy greater than any other G-20 country in FY 21. The fiscal stimulus put in place was not sufficient to revive the economy. The schemes introduced were about half the size of those put in place in 2008/09 when the impact on the economy was much lesser, adds Prof Mehrotra.  

To tackle the current situation, revive India’s growth story and cash in on the rapidly closing demographic dividend window, Prof Mehrotra postulated four essential features that must be included in the Budget 2021. He suggested that the FRBM Act must be relaxed and there should be an increased expenditure in infrastructure which will create jobs in the construction sector as well as crowd in private investment.

He maintained that India should aim towards investing 2.5 % of its GDP on health in the next three years if it aspires to immunize 60-65 % of the population and achieve herd immunity. He adds that there should be an urban employment guarantee program that will be substitutive of MGNREGA. Prof Mehrotra lays the most emphasis on the need for a Minimum income guarantee of Rs 500 per month to the poor households.

He adds that this could be done as a substitute to the PM-KISAN scheme where the benefits would be extended not just to the owner cultivators but also the tenant farmers, landless labourers and the rural and urban poor. The beneficiaries should be identified using the SECC data. This will cost the exchequer only about 10000 crores more than the expenditure on PM KISAN, estimates Prof Mehrotra.

Reflecting upon the lecture, chair for the session, Prof Dev Nathan of IIHD, dwelled upon the issues in the Political economy. He highlighted that there has been a continuation in the policy of placing the responsibility on the rural economy for providing a social security net during economic downturns. No relief is provided for the bottom level while on the other hand the hyper-scale sector and the oligopolies are exempted from paying taxes and given relief packages. This will lead to unequal growth, warns Prof Dev Nathan.

Prof Sarthi Acharya, Managing Editor of IJLE, highlighted the structural inefficiencies that existed in the economy since the 1990’s that exasperated the effects of the pandemic. He batted for long term Industrial and agricultural policies that will make the sector more efficient and competitive. Prof Acharya said that there should be more investment and focus on SME’s, value-added exports and human capital. He also mooted the need for restarting the 5-year planning model which was corroborated by Prof Mehrotra.

Dr Amrita Pillai, Research Fellow at NIPFP, focussed on some practical measures that could be dolled out in the Budget 2021. Adding that the MSME’s are the 2nd largest employers with around 11.4 crore employees, she said that there should be a focus on strengthening this sector to create more non-farm jobs. Dr Pillai suggested that the government should consider conducting the 5th MSME survey to understand where the sector stands after the effects of demonetization, GST implementation and COVID-19.

She also voiced out for the need of a direct support scheme, package for first time MSME borrowers, a credit backstop facility to encourage entrepreneurship which could be managed by SIDBI, an extension of the ECGLS scheme and the creation of a commission to review and rationalize compliance requirements for MSME. Dr Pillai remarked that due to the recent amendments in labour laws by several states, women are discouraged to join the workforce. To rectify this there should be a special relief package for women-led MSME’s, added Dr Pillai.

Prof Utpal De, Prof at North-Eastern Hill University and moderator for the session, agreed to the broad points raised by Prof Mehrotra and raised concern about the lack of market sentiment after 2016, where due to rising uncertainty, private investments have been falling. Prof Indira Hirway spoke very briefly and stated that there should be a larger focus on the political economy questions and the gender aspects of the effects of COVID-19.

Prof Abdul Wadud and Prof Elias Hossain, of Rajshahi University, Bangladesh appraised the situation in Bangladesh post the pandemic and how the country’s economy has been more resilient than the Indian economy. Prof Wadud added that he hopes the growth rate to bounce back to 8% or more in less than 2 years.

Dr Arjun Kumar, Director at IMPRI, raised several pertinent issues regarding the size of the budget that would be needed to tide over the current turbulent situation, the issue of widening digital divide, the delay in notifying the National Employment Policy, need for other sources of revenue like a green bond or a wealth tax, the role of the tech economy and about the impediments in reviving the manufacturing sector of India.

In his closing remarks, Prof Dev Nathan reiterated the need for an Industrial Policy which has been long due. While drawing a parallel with Pinochet’s Chile, he also cautioned about market fundamentalism that is creeping in the Indian economy where the big businesses are raking in the profits and the working class is left to fend with what they get in the market.

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Picture Courtesy: The Indian Express