Indian economy: On a wing and a prayer
As the Indian economy stumbled and showed all signs of a protracted slowdown over the last 12-18 months, the frequent “confidence building” statements of government officials reminded one of the proverbial ostrich that buries its head in sand to avoid danger. It finally took the precipitous fall of the rupee and stock indices over last 10 days and the subsequent statement made by Prime Minister to the Parliament to register the fact that the government has belatedly acknowledged the problem at hand.
The biggest dampener is the poor state of job creation. Most human resources professionals claim that this is the worst market for job-seekers since the time economic reforms were initiated in 1991
As the Indian economy stumbled and showed all signs of a protracted slowdown over the last 12-18 months, the frequent “confidence building” statements of government officials reminded one of the proverbial ostrich that buries its head in sand to avoid danger. It finally took the precipitous fall of the rupee and stock indices over last 10 days and the subsequent statement made byPrime Minister to the Parliament to register the fact that the government has belatedly acknowledged the problem at hand.
There are a number of reasons to hit the panic button. A weak currency, a high Current Account Deficit (CAD), a declining Gross Domestic Product (GDP) growth rate, future welfare outflows on account of the Food Security Bill (FSB) and an overall policy impasse whereby the next generation reforms have come to a standstill.
There are other areas of concern. The biggest dampener is the poor state of job creation. Most human resources professionals claim that this is the worst market for job-seekers, since the time economic reforms were initiated in 1991. During any slowdown in last 20 years, there were at least a couple of sectors that were creating jobs. Between 1995 and 2008, Telecommunications and Information Technology (IT) related areas created a large pool of employment with good salaries. This had a multiplier effect on other sectors.
But currently, none of the engines of job creation are firing. In fact, in few of the sectors there has been a net reduction in workforce. As per a recent report, the steel industry reduced its workforce by 10%, from 1.8 lakhs to 1.6 lakhs in the last 5 years.
Another sector that is badly hit is the automotive sector. Indian players and foreign entrants had invested for rapid expansion of capacity, in anticipation of demand generation by a growing economy. While most auto segments have seen a declining demand trend over the last 4-5 quarters, the effect on the workforce has been demotivating. But the set of people getting hit most by this slowdown are the fresh graduates. As per recent statistics, between 2007 and 2013, the number of engineering graduates has increased from around 5.5 lakhs to 17.5 lakhs. Whereas 50% of the graduating class of 2007 could have been absorbed by the IT/ITES sector, at this point even 20 % absorption would be a tall order. Policy makers have to ensure an environment where the rate of job creation is not incommensurate with the number ofnew entrants into the job market. If this continues for a few more years, we will be left with a generation of college educated vagabonds.
The other worrying aspect is the possibility that Indian economy might not get back to the high growth rates of the previous decade, even if there is an improvement in the global scenario. The problems in the US seem to be easing and Japan has displayed intent to push for growth under Prime Minister Shinzo Abe. China has also performed better than expectations, in spite of perceptible challenges of credit availability to its domestic businesses and frequent predictions of a collapse by experts.
If the European nations also turn a corner over next few years, we may be headed for a more benign global economic climate. But there is a danger that India might not gain a lot from this improvement because of what some experts call the “middle-income trap”. As per this theory, in its journey of economic development, it is easier for a nation to move from low income to middle income standards after which the growth plateaus and the economy stagnates at those levels for long term.
Currently, the Indian economy is showing clear signs of falling into this trap. Reduced foreign investments, low manufacturing base, lack of export focus and poor labour conditions indicate that we are staring at a harder future than predicted. If adequate measures are not taken to improve the current state, in future, we might be looking back at a missed decade and a lost generation.
