Growth matters but income levels matter more

Context: India needs a sharp revival of demand for which higher per capita incomes are necessary.

Macro-economic concerns amidst pandemic

• Precarious growth scenario: According to provisional estimates of annual national income 2020-21-
• Agriculture sector continued its growth: By registering a growth rate of 4.3% in 2020-21.
• Manufacturing sector continued its subdued growth performance: On account of production interruptions due to localised lockdowns.
• Contraction in job-intensive sectors: Contraction in trade (-18.2%), construction (-8.6%), mining (-8.5%) and manufacturing (-7.2%) is a matter of concern as these sectors account for bulk of low-skilled jobs.
• Below par growth: GDP at Constant (2011-12) Prices in Q4 of 2020-21 is showing a growth of 1.6%.
• Rising unemployment rate: According to data released by the Centre for Monitoring Indian Economy (CMIE), in May 2021, India’s labour participation rate is at 40 per cent, but the unemployment rate shot up to 11.9%.
• Employment rate fell to 35.3% in May 2021 from 36.8% in April 2021.
• Job losses: Over 15 million jobs were lost in May 2021.
• High informality: Job losses bring out high informality and vulnerability of labour in India as of 22.7 million total jobs lost during April-May, 17.2 million were of daily wage earners.
• Low business confidence: Business confidence index (BCI), from the survey by the industry body FICCI, plummeted to 51.5 (May 2021) from 74.2 (February 2021) in the previous round.
• Manufacturing Purchasing Managers’ Index (PMI) slipped to a 10-month low, indicating that the manufacturing sector is showing signs of strain with growth projections being revised lower.
• Issues associated with pandemic policy responses:  Policy responses have been to rely on credit easing, focusing more on supply-side measures, with more and more guarantees by the government.
• There has been less direct action by the government to support the vulnerable. This policy stance is unlikely to prop up growth as - 
• These supply-side measures unlikely to boost spending or net demand in the economy.
• Large parts of all stimulus packages announced till now would work only in the medium term, including those in the external sector, infrastructure, manufacturing sector and agriculture.
• Use of credit backstops as the main plank of policy has limits as this could result in poor growth performance if private investments do not pick up.
• Credit easing approach would take a longer time to multiply incomes as lending involves a lender’s discretion and borrower’s obligation.

Way forward: Need for impetus towards a sharp revival in overall demand - 

• Short term measures: Demand side policy interventions with accelerated vaccination program.
• Long term focus shall be on sustainable high growth: As high sustained growth is essential for achieving higher income levels. Bangladesh seems to be doing this without much fanfare.
• Leverage external demand prospects: Driving on growth and demand recovery in advanced countries, India’s exports touched $32 billion in May 2021, 67% higher than in May 2020 and 8% more than in May 2019.