CEA: Reforms to Improve Economic Growth by Increasing Employment

"The Indian Government creating an opportunity out of the Covid pandemic crisis to improve the labour-intensive economic," said Chief Economic Advisor (CEA) Krishnamurthy Subramanian, on Monday.

He expressed it as a move from joblessness which raised during pandemic. He said "reforms being undertaken by the Narendra Modi government would benefit the silent majority, but the ‘status-quoist minority’ is more vocal." Addressing a Confederation of Indian Industry event, Subramanian said, “The agricultural changes, micro, small and medium enterprise (MSME) definitional changes, production-linked intensive (PLI) scheme, labour reforms are all an attempt to change the macroeconomic configuration of the economy towards those sectors which are more employment-intensive, especially agriculture and manufacturing. This is important because sustained growth can only happen through robust job creation, not through jobless growth."

He emphasized that "Jobless growth episodes peter out, while growth accompanied by job creation puts money in the hands of people. This creates demand for products and services, and eventually leads to sustained growth; A lot of economic growth has not been that labour-intensive in the past 50 years, said Subramanian." Also, he said that "For sustained growth to happen, demand must be created. In countries that have grown at 5 per cent for a decade, they have seen increase in wages and employment. People had disposable income and that is how growth was sustained,"

Subramanian explained "that the Covid-19 pandemic is different from the earlier crises. The earlier crisis reflected an overheating of the economy and consequently high current account deficit (CAD) and inflation, the current crisis is about underheating of the economy and consequently current account surplus. The economy may have this surplus in 2020-21, even if the remaining three quarters do not repeat the $19.8-billion excess amount in current balance in the first quarter."

Pointing out the relevant statistics he supported his statement and said: "CAD was around 6 per cent of gross domestic product during the taper tantrum crisis and inflation was in double digits. Once this difference was understood, reforms were specifically designed to target agriculture and manufacturing to create sustained growth."

The effects of pandemic lockdown on economic growth is the short-term aspect of the event. The more considerable aspect is to realize the medium- and long-term effects of the crisis on economic development.

"We don't want the pandemic to create a permanent impact on the economy. By converting crisis into opportunity, we want to push the economy. Reforms were felt necessary to keep the potential economic growth rate high," stated Subramanian.

CEA added "labour- intensive, along with other reforms, would increase formalization of the economy. This would enable growth and build resilience. For instance, 41 labour laws have been condensed into four; the number of Sections reduced 60 per cent; and the number of minimum wages curtailed to 40, from over 2,200." He continued: "You can see the compliance easing that has happened. You have been given the flexibility to cater to demand conditions, the fear of hiring (even if demand goes down) has been removed. You can focus on hiring more people in the formal sector - this creates significant demand in the economy."

He said "the recently introduced PLI scheme and change in the definition of MSMEs are a manifestation of the idea that there are jobs in the MSME sector, which have aged, but not grown."