There are broadly two ways of dealing with uncomfortable questions. One, go into outright denial and if possible shoot the messenger or discredit the message. Second, the ideal way, engage in a debate that would flesh out the issues and probably open up room to spin an alternative interpretation.
Also Read | Anil Padmanabhan’s earlier columns
More often than not, in the last two years the United Progressive Alliance (UPA), which has undoubtedly been under a lot of political pressure, has tended to react defensively to contentious issues. Last week it doled out some more of the same, when it sought to dismiss the first, politically uncomfortable, conclusions—of jobless growth—on employment data released by the National Sample Survey Office (NSSO). Some of its officials claimed, as reported by the Hindustan Times on 29 June, that the data collection methodology was faulty.
Though unfortunate, there is a merit in this line of argument. What it does is reduce a debate to rhetorical claims, creating an either/or situation, which in a macroeconomic context such as employment, particularly for a developing country such as India, is simply not possible. An exercise in name-calling will soon lose momentum and the issue would be buried in due course.
Mint has, recognizing the need to create an appropriate space for exchanges, launched a debate on the entire jobs controversy on 1 July. In due course, I am sure, academic bigwigs will weigh in with their point of view and readers would presumably obtain a better understanding of the underlying issues and also hopefully provoke the appropriate policy response from the government.
For those who came in late, NSSO released its data based on its quinquennial survey for the period 2004-05 to 2009-10. It showed that the worker to population ratio (the widely accepted measure for aggregate employment) had actually declined compared with the previous five-year period ending 2004-05. (The latest data is part of the 66th round survey conducted between July 2009 and June 2010. NSSO conducts surveys on several such issues, including employment and unemployment.)
The key point was that these five years—which overlapped with a record period of economic growth—saw substantially fewer jobs being created compared with the previous five years. While officials (and self-styled supporters of this point of view) may quibble on the actual numbers and the causes, there is no denying the basic fact that employment generation was nowhere near the desired level of over 50 million projected by the government in its 11th Plan.
That is the crux of the problem and also the political economy of the uncomfortable revelation. Taking forward the observations of Mint’s editor published in his column on Saturday that the UPA is guilty for not pressing ahead with serious reforms, there is a strong case for very focused reforms of the factor markets—namely labour, land and non-tradables such as electricity.
Not only are all of them politically tough to implement, they are also on the concurrent list, which means under the purview of the states as well as the Centre. As a result, like in the case of the introduction of a single goods and services tax (GST), any factor market reforms would need a commitment from both the Centre and the states; at the moment, given the trust deficit between the two sides, GST’s prospects look bleak. It actually provides the Planning Commission an opportunity to seize the moment, reinvent itself and operate as a trusted intermediary between the Centre and the states to push for such desirable reform.
Given the country’s present socio-economic circumstances, this is no longer an option but a necessity. Without factor market reforms, issues of land acquisition will continue to remain contentious; similarly for labour markets and electricity; what it also does is to raise the cost of production making Indian industry that much less competitive—given the massive liberalization on the external trade sector, it only makes them that much more vulnerable. Without inclusive growth that allows more people to participate, there is the potential of social implosion.
To take the economy—which is just a few years away from topping $2 trillion—to the next level and make the growth process more inclusive, factor market reforms are an imperative. The NSSO data release, therefore, should actually be used as a launch pad for the second-generation reforms.
Much of the debate on reforms, as Pranab Bardhan, professor of economics at the University of California, Berkeley, pointed out and available on the university’s website, has tended to be taken up with tariffs, fiscal deficit and the balance of payments. “Reform would have been more popular if it were equally and simultaneously concerned with reform in the appalling governance structure in the delivery of basic social and infrastructure services to the poor in large parts of the country (in education, health, drinking water, irrigation, etc.).”
Seen from this perspective, jobless growth may not be such a bad thing, if viewed as an opportunity to initiate second-generation reforms. Unfortunately, the temptation to submit to name-calling and burying the core issue is equally compelling and politically safe. What will the the UPA choose?
Anil Padmanabhan is a deputy managing editor of Mint and writes every week on the intersection of politics and economics. Comments are welcome at firstname.lastname@example.org