The Hindu Editorial Analysis- 3rd January 2025 | Current Affairs & Hindu Analysis: Daily, Weekly & Monthly - UPSC PDF Download

Remembering the impactful legacy of wise leadership

Why in News?

Introduction

The passing of Manmohan Singh should be an occasion for evaluating the lasting legacy of the work initiated in the 1991 economic reforms, by him as the Finance Minister, and his team of high-calibre economists, Ministers and professionals (Montek Singh Ahluwalia, C. Rangarajan, P. Chidambaram, Shankar Acharya, and many others), and continued during his term as Prime Minister.

Appropriate macroeconomic policies

• Savings Rate Increase: The savings rate had been increasing since the early 1980s due to the demographic dividend.
• Savings/GDP Ratio: By 2003-04, the savings rate reached 23% of GDP.
• Investment/GDP Ratio: Investment stood at 24% of GDP by 2003-04.
• Macroeconomic Policies: Effective policies boosted investment to GDP from 24% to 38% in six years.
• Highest Ever Achieved: This period marked the highest investment rates for India, approaching Chinese levels.
• GDP Growth: This led to an average growth of 8.5% per annum from 2004-05 to 2008-09.
• Export Growth: Export growth of 15%-18% per annum was sustained by stable real effective exchange rates.

GDP Growth During 2004-2014

• Global economic crisis: Despite the 2008-09 crisis, GDP growth temporarily dipped but recovered quickly.
• 2009-14 GDP growth:. well-designed fiscal/monetary stimulus led to 7.5% annual growth during this period.
• Overall growth (2004-14): The average growth rate of 7.8% per annum was unprecedented in India’s history.

Growth Across Sectors

• Unorganised and organised sectors: Growth was seen in both sectors.
• Sustained aggregate demand: All growth engines—public and private investment, final consumption, exports, and government spending—were active.
• Non-Farm job growth: Non-farm jobs grew at an unprecedented rate of 7.5 million per annum.
• Sector-Specific job growth:Construction Jobs: Grew from 26 million in 2004 to 51 million in 2012. Manufacturing jobs: Increased by 8 million, particularly in labour-intensive sectors, from 52 million to 60 million. Modern services jobs: Growth in sectors like telecom, car sales, banking, insurance, airlines, railways, and health and education.
• Structural Change: The economy experienced significant structural change, building momentum after decades.

Agricultural Employment Shift

• Pre-2004-05 trend: Non-farm job growth was so slow that the absolute number of agricultural workers never fell, despite migration from farms to non-farm jobs.
• Post-2004 change: After 2004, for the first time in post-independence India, the absolute number of agricultural workers decreased as non-farm job growth accelerated.
• Tightened Rural labour market: The rural labour market tightened from 2004 to 2014, aided by the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) in 2005, which established the government as a last-resort employer.

Rise in Real Wages

• Wage growth: The combination of new non-farm jobs and a tighter rural labour market led to an increase in real wages, which continued to rise until 2015.
• Casual and regular work: Real wage growth was observed in both casual wage work and regular/salaried employment.

Impact on Private Consumption and Poverty Reduction

• Private consumption growth: As real wages increased, private final consumption expenditure also rose, particularly for basic consumer goods.
• Poverty reduction: For the first time in India’s history, the absolute number of people living in poverty decreased.
• Pre-2004-05: While the incidence of poverty declined from 1973-74, the absolute number of poor people remained high due to population growth.
• 2004-05 to 2011-12: Between these years, 138 million people rose above the poverty line, a remarkable achievement comparable to China’s progress.

Policy-induced shocks

Growth Rate: Averaged 5.8% p.a. over the last 10 years.

Policy-Induced Shocks: Three major policy-induced shocks contributed to this decline.

• Demonetisation: Harmed the unorganised sector and agriculture, leading to widespread closures of Micro, Small, and Medium Enterprises (MSMEs).
• Goods and Services Tax (GST):. poorly designed and implemented GST shock that MSMEs and the unorganised sector were unprepared for, causing GDP growth rates to decline for nine quarters.
• Strict Lockdown: An unnecessary national lockdown during the COVID-19 pandemic resulted in a 5.8% contraction of the Indian economy in FY21, while the global economy contracted by only 3.1%.

Unemployment Crisis

• Unemployment Increase: Overall unemployment rose from 2.2% in 2011-12 to a 45-year high of 6.1% in 2017-18, according to NSSO data.
• Jobless Numbers: The number of jobless individuals tripled, increasing from one crore in 2011-12 to three crore in 2017-18. This number continued to rise by at least 70 lakh by 2022.
• Job Growth:2004-2013: Jobs grew by 75 lakh per year in industry and services. 2013-2019: Job growth dropped to 29 lakh per year, a 61% decrease despite a 10% population increase.
• Youth Unemployment: Youth unemployment doubled, increasing from 6% in 2011-12 to 11% in 2022-23.
• Graduate and Postgraduate Unemployment: The unemployment rate for graduates and postgraduates is around 33%, with one in three individuals unable to find a job.
• Impact on Skilled Workers: Skilled workers, such as engineers and doctoral degree holders, are taking on low-skilled jobs, such as railway peon positions.

Reversal of Structural Change

• Decline in Agricultural Workers (2004-2019): Between 2004-05 and 2017-18, the number of agricultural workers decreased by 6.7 crore.
• Reverse Migration (2020-2024): This decline was fully reversed between 2020 and 2024, with eight crore workers returning to agriculture.
• Unprecedented Reverse Migration: This level of reverse migration is historically unprecedented, with no similar occurrence in world history.

Manufacturing and Job Losses

• Impact on Manufacturing: The manufacturing sector, especially in the unorganised segments, experienced significant job losses.
• ‘Make in India’ Failure: The ‘Make in India’ initiative did not produce the expected outcomes in job creation.
• Share of Manufacturing in the Economy: The share of manufacturing in the economy declined from a consistent 17% of GVA for the previous 25 years to an all-time low of 13% in 2022.
• Impact on Employment: Job creation in manufacturing was minimal, with initiatives like assembling iPhones using imported parts from China generating limited employment.
• Reviving Labour-Intensive Industries: Industries that traditionally generate jobs, such as garments, textiles, furniture, leather goods, and processed food, experienced job and export losses.
• Manufacturing Jobs Decline: The number of workers in manufacturing decreased from 600 lakh in 2012 to 567 lakh by 2019 (pre-COVID). By 2022, it had barely increased to 629 lakh, despite the ‘Make in India’ initiative.

Distress and unpaid work

• Merchandise Exports Growth: Merchandise exports grew from $77 billion in 2004 to $323 billion in 2014.
• Export Growth Between 2014-2022: Exports grew to $454 billion by 2022, an increase of only one-and-a-half times compared to the previous period.
• Impact on Jobs: With reduced production for global markets, there were fewer job opportunities.
• Wage Growth and Employment Shifts:Regular Salaried Workers: The share of regular salaried workers in total employment decreased from 23.8% in 2019 to 20.9%. Unpaid Family Workers: The number of unpaid family workers, which had decreased from 11.1 crore in 2004 to 8.5 crore in 2012 and further reduced by 2017 to 6.2 crore, rose sharply to 10.4 crore by 2023.
• Distress Driven Work: The increase in unpaid family workers reflects distress-driven work, where family members, mainly children and women, are compelled to work to support the family without pay. This trend makes the unemployment rate appear better than it is, which is misleading.
• Rising Gold Loans: There is a daily increase in gold-based loans and defaults on these loans.

Conclusion

The earlier achievements are now under serious threat due to these reversals. There are legitimate concerns about whether India will realize its demographic dividend before 2040. The increasing inequality and limited aggregate demand might hinder the prospects of India becoming ‘Viksit Bharat’.