Manmohan speaks

Manmohan speaks

India is at a crucial phase in its demographic evolution, getting economic policy right is imperative

Former Prime Minister Manmohan Singh recently characterised the current phase of tepid economic growth as a “jobless” one. Some of these developments are predictable consequences of the ill-advised demonetisation decision. However, there are long-term patterns in the job market which are more worrisome. This concern will get amplified during a phase of prolonged slowdown in economic growth.
The belated release of the Period Labour Force Survey, or jobs data, revealed a disturbing trend. It’s not so much open unemployment of 6.1%, a steady decline in working age population in the job market is a bigger challenge. In 2017-18, a little less than half the working age population was in the job market – noticeably lower than the proportion during the previous survey (2011-12). There may be valid explanations such as young people spending a longer time in formal education. But there is evidence to suggest such explanations don’t tell the entire story.

India’s struggle to foster an environment where quality jobs are created happens to coincide with its period of demographic dividend. It is therefore absolutely essential to get the economy right to ensure that we don’t end up with a demographic nightmare – whose possibility, however, Prime Minister Narendra Modi appeared to concede in his Independence Day speech last month when he expressed concern about a “population explosion”. Finance minister Nirmala Sitharaman deserves credit for her willingness to engage industry and other stakeholders over the last few weeks. The outcome, however, should be a holistic approach to removing growth bottlenecks and making India globally competitive, rather than a Band Aid approach to sectoral issues.

To illustrate, frontloading recapitalisation of banks and their mergers have potential benefits. But by themselves they are inadequate. The governance structure of public sector banks is broken. Unless that is fixed, the financial sector will continue to misallocate funds on a large scale. India is at a critical juncture in its demographic transition. To convert this moment into an opportunity we need serious and sustained economic reforms. If the current slowdown is manmade, recovery and durable economic growth can also be fashioned by committed reformers. But as benefits of reforms come with a phase lag this must be done forthwith, within the next couple of years at most, if BJP wants to reap electoral benefits by the time the next Lok Sabha elections come round in 2024.