Former chief economic advisor and world bank chief economist, Kaushik Basu, says there is nothing to doubt it and India is now justifiably in a bright spot. This meant there is potential for the economy to do well and to take advantage of the so called demographic dividend. The question therefore is that whether the policy makers are doing enough to cash-in on this advantage. The answer is a certain no. There are issues with macro-economic fundamentals. That apart not adequate jobs are being created, particularly among the youth.

Basu points out one inherent weakness in the Indian economy — steady erosion of savings and investment rates in recent years. Basu is of the view savings and investment rates peaked to 38 to 39 per cent of gross domestic product during UPA regime led by Manmohan Singh. This gave India a high growth rate of about 9 per cent on a consistent basis in the first decade of this century. High savings rate particularly that of domestic household savings ensured that the investment too was correspondingly high resulting in lower incremental capital output ratio.

Unfortunately, both savings and investment rates have been falling particularly during the Modi era and had dropped to a low of 28 or 29 per cent during Covid years. But now there is a slight pick-up with the revival of the economy, which is welcome. However, Basu points out that it is now hovering around 30 per cent, so also investment rate, which is not good enough for the economy. Huge investments are needed particularly in labour intensive industries to ensure that large scale employment is generated in the country. Somehow that is not happening. Underemployment through the so called self-employment is on the rise as well. This is not good news for India with sizeable proportion of population below 35 years. CMIE data indicate unemployment, which had moderated to 5-6 per cent, is now on the rise again. Latest data shows that it is now around 10 per cent.

What is more worrying, according to Kaushik Basu, is that unemployment in the age-group of 15-22 yrs is as high as 22 per cent. Unemployment in 15-22 yrs age group in the middle-east too had such high numbers. This should immediately ring alarm bells. As the saying goes idle mind is devils workshop. In armed forces all over the world, soldiers are never allowed to be idle and they are always provided some job right from the time they get up in the morning to ensure they remained disciplined.

Fissiparous tendencies arise when the youth are not engaged. In this context stress on job creation is very important to ensure health of the economy and society. Step up of funding in infrastructure is critical for stepping up employment and the government is doing its part by increasing public expenditure year after year. Finance minister Nirmala Sitharaman stepped up public expenditure in this year’s budget to a little over Rs 10 lakh crore from Rs 7.5 lakh crore in 2022-23. This is a welcome development. Private investment too is picking up. But there is need to do more in promoting labour-intensive industries like leather, textiles, food processing and so on. Also these industries have to be spread all over the country, particularly in smaller towns and cities, so that rural distress is overcome. Promoting electronics manufacture is a welcome development as it does create jobs, but these industries are usually established in and around big cities as it required skilled and highly skilled manpower. To deal with rural distress, there is also need to promote skill development. Skill mapping will help to focus on area specific skill development. These are work in progress.

Foreign direct investment flow is improving. With advanced nations adopting China plus one policy, there is a tilt towards India in foreign investment flows. But with interest rates going up especially in advanced economies like United States, there is a possibility of outflow from emerging economies. Though it is happening in some emerging economies, the outflow from India is not that significant at the moment as many industrialists from advanced economies see the Indian economy as an opportunity. But with unstable geo-political situation, this trend may get reversed in no time. So there is need to guard against it.

One step that needed to be urgently pursued in the country is increase in savings and investment rates back to 38 to 39 per cent of GDP. This will ensure that macro-economic fundamentals remain strong, besides tackling problem of unemployment through inclusive growth. India always had 5 to 6 per cent unemployment rate and that is a manageable level. What has to be taken note of is that unemployment among the youth that too around 20-22 per cent can be disturbing. Government is needed to be mindful of this problem so that India remain a vibrant economy. (IPA Service)