Investment pick up only fix for jobs crisis

Investment pick up only fix for jobs crisis

Mumbai-based data firm Centre for Monitoring Indian Economy (CMIE) said December 2018 unemployment, at 7.4%, was the highest in 27 months. Through January to December 2018, India lost 11 million jobs, instead of adding new jobs. Nearly 84% of jobs lost were in rural areas. Labour participation, the percentage of working-age (15-59 years) population seeking work, has fallen steadily, from 45% in December 2016 to 42.5% last month. Labour participation can go down for good reasons (youth stay back longer in education) and bad (sustained failure to find work can make people stop looking).

Several factors contribute to the problem. Shockwaves of the November 2016 demonetisation, which sucked out 86% of cash from the economy overnight, continue to roll through the economy. It crippled the country’s vast informal sector immediately, and hit the desire and ability of businesses to get projects up and running. CMIE data shows a sharp fall in project completions after ‘notebandi’. In December 2016, projects were getting finished at a clip of 1.7% for every four quarters; two years later, this is down to 1.1%.

Investor sentiments have also been scarred. The botched introduction of the goods and services tax regime (continuing to be tweaked 18 months after kick-off), lack of clarity in tax and investment policies (the angel tax has become a running sore, ecommerce policies shape-shift at periodic intervals) and the fragility of lenders, reflected in high non-performing assets of the banks and the collapse of Infrastructure Leasing & Financial Services, have added to the jitters. In two years from December 2016, new investment starts are down a sharp 30%. The good news is that national income statistics have finally begun to show a robust uptick in gross fixed capital formation.