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GDP growth slowdown along with unemployment: Reasons

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GDP growth slowdown along with unemployment

Context of GDP growth slowdown along with unemployment:

The Indian economy in the year 2018-19 is estimated to slow down to 6.8 percent, lower than the original estimate of 7 percent and 7.2 percent recorded in 2017-18.

The unemployment rate in the country rose to a 45-year high of 6.1% in 2017-18.


  • Recently, released GDP data showed the growth rate for January-March 2019 slipping to 5.8 percent compared to last year.
  • This is the lowest growth rate in 20 quarters and puts India behind China after almost two years.
  • The Centre confirmed that joblessness in the country stood at 6.1 percent of the total labor force during 2017-18, the highest in 45 years.

Temporary Factors of GDP slowdown:

  1. Liquidity crunch affecting consumer expenditure, including discretionary spending.
  2. Stress in the NBFC sector affecting consumption finance
  3. Sluggish growth in the agriculture, forestry, and fishing sector (2.9% growth), the mining sector (1.3% growth) and in manufacturing (6.9%).
  4. The economy is struggling with rural distress, unremunerative farm incomes, stagnating exports, and a jobs crisis.

Structural problems:

  • Overhaul of labor and land policies and a manufacturing push, ‘Make in India’, did not show up a good start.
  • The misadventures such as demonetization and the poorly designed rollout of the Goods and Services Tax (GST) regime.
  • The decrepit public banking system and the problems of the financial sector received little policy attention.
  • Even the insolvency and bankruptcy reform, after rolling out rather gradually and tentatively is already in danger of getting diluted.
  • Few organized sector jobs because industries prefer capital-intensive production despite the economy’s relative abundance of low-wage labor.

Measures to revive the GDP:

  • Public provision of toilets, cooking gas connections and dwellings or Mahatma Gandhi National Rural Employment Guarantee Act wage jobs and income supplement schemes are sources of relief.
  • They can help the poor survive only with meagre resources for subsistence.
  • Reducing poverty needs economic growth for sustainable livelihoods only the redistributive taxation policies alone cannot remove the poverty
  • It requires to capture access to income-enhancing skills, education, health and job opportunities and flow of trickle-down effect
  • However, With many seekers per job opening, labour has low bargaining power relative to employers.
  • If production were less capital-intensive, more organised sector jobs would be created. Plus, labour’s bargaining power would improve.
  • Take small firms, For the role they play in job creation, smaller firms ought to be incentivised with easy credit and taxation norms.
  • The GST may lead to more formalisation of the economy is by putting bigger companies at a competitive advantage over smaller ones.

Way forward:

  • Successive governments in recent years have only ended up deepening this structural weakness by yielding to the constant clamour by industry lobbies for lower cost of capital.
  • The economy’s structural problems cannot be resolved with the sort of political balm they demand well-crafted economic remedies.
  • For instance, ‘Make in India’ strategy was a step in the right direction, and needs to be revived. Done right, it can absorb the slack from the farms.
  • No evolution of the policy paradigm will be possible if the crisis of credibility in the collection, estimation, and presentation of official statistics such as unemployment and GDP are not addressed properly.
Source: The hindu, Indian Express

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