Economy for employability in the aftermath of corona

Before I start a humble request to everyone reading it, please maintain the social distancing and abide by the lockdown measures. We are seeing the best of mankind coming together, let us everyone contribute by breaking the chain of spread.  

On 22nd of March 2020, India was brought to a standstill on appeal of our honorable Prime Minister to observe Janta curfew in a battle against the invisible enemy COVID 19 or more popularly known as coronavirus but, the battle had just begun for us. China reported to the World Health Organization (WHO) of a cluster of pneumonia patients in Wuhan on 31st December 2019. As the number of infected increased exponentially over the next two weeks Chinese authorities took to putting a lockdown on Wuhan starting 23rd of January 2020 to contain the spread of the virus. Evidently, the lockdown was no soon enough to contain as patients in Italy started to show similar symptoms by the end of January. As the coronavirus made it's spread the policymakers made it to the existing measures of social distancing disrupting the contagion. As the number of deaths increased through Italy and Spain and cases reported from different parts of the world WHO finally declared it a pandemic. Policymakers across different countries were presented now with a situation of adapting to extreme lockdown measures adopted by China which had brought the crisis under control. It is the most cost-effective window of opportunity that most countries had. Indian policymakers took to it a day after the Janta curfew when the country went to lockdown allowing only essential services to run.

The properties of the virus have been unpredictable and so is the rate of infection and immunity. Preventing contagion through distancing has made economies stalled, interrupted the supply chain, and halted production. In the article understanding the economic shock of the coronavirus by Phillip Carlson, Martin Reeves, and Paul Swartz they have emphasized understanding shock geometry rather than the actual impact numbers. The idea is to plot the actual growth compared to the pre-crisis growth trend and observe the deviation. Depending on the deviation observed they have classified it to V, U, and L shaped respectively. A V-shaped comes with a shallow or a deep path while the U shaped has a deep drop to allow new path opportunities. The L shape is considered to be the most pernicious with capital input, labour input and productivity getting damaged. The Greek economy during the 2008 global recession showed similar behavior. The authors have predicted the possibility of both V and U shapes. The probabilities of attaining the shapes depend on the policy-making in these unforeseen circumstances and the extent of break in the global supply chain. It is early to predict a global recession but the economies fear of massive job loss over the next quarters and any unchecked ripple effects might push the global economy to a prolonged recession. Economist intelligent unit (EIU) has predicted a negative 6% growth for Western Europe and negative 2% growth for the USA; however, the Indian economy is predicted to have a non-negative growth rate. The rate of growth expected by a developed economy would be different from the rate of growth India needs which is made worse by the growth patterns India saw before it was hit by the pandemic.

India has been growing at an average rate of over 6% for the past decade until the quarter end of Dec’19. Many economists, however, argue that the real growth has slowed down after the incumbent government declared demonetization of 500 and 1000 rupees in November 2016 post which the real growth rate has been at an average of about 4%. The difference has come about due to the impact on the informal economy due to the demonetization. Many economists believe that India has a big informal economy that cannot be accounted for as a black economy and an impact on the informal economy is bound to have an impact on the growth rate. The policy regime saw fast changes that were directed at ease of doing business in India however the economy which is yet to be translated to on-ground reality. Indian system of governance is now making criminalization of economic offenders but on the other hand, it have not been able to recover the damage such offenders have done to the economy which is hurting the business sentiments. The direct impact started to be felt when the auto industry started to show a sharp decline from the second quarter of Aug 2019. With the sharp rise in inflation country was heading towards a state of stagflation.

With the slowing economy, the expected tax revenue collections fall below the budgeted values and the government was forced to receive a 1.76 lakh Cr. dividend from the RBI which is aimed at balancing the revenue shortfall. To improve private investment the government induced corporate tax cut. Many economists including former finance minister P Chidambaram believe that the push in demand-side would improve the supply side however the vice versa might not necessarily be.

The slower growth in the economy converts to an increase in the rate of unemployment. India is seeing one of the highest rates of unemployment in the past 45 years. According to the survey conducted by PLFS, the unemployment rate is 6.1% in India with the rural unemployment rate at 5.3% and 7.8% in Urban. India has a higher number of vulnerable employments and underemployed as compared to wage employment. The employment engagement of an economy within a country has a huge impact on the social behavior of the people. The rate of unemployment has risen fast which translates to accelerated social unrest and greater student movements. India has seen one of the biggest student participation in an attempt to nullify the citizenship amendment bill.

Before the 2019 election thirteen senior economists including former reserve bank of India governor Raghuram Rajan, IMF chief Gita Gopinath came forward to outline an economic growth strategy for India. They have emphasized on how India has attained a vicious cycle of a shortage of skilled manpower for the employers while the count for the job seekers increases. Owing to the cost and inflexibilities that employers have to offer to permanent workers they prefer contractual arrangements and where they have lower will to develop on skill development of employees. Owing to the job security the government job offers itself as one of the most aspired employment opportunities which raises the bar for clearing such exams. This, in turn, creates a process where young people are sitting at home filling forms and preparing for such exams during their 20s while many employers seek right candidate.

India is currently planning for a phased exit from the twenty one day lockdown in coordination of centre and state which is justified given the difference in extent of spread and preventive measure requirements. Once the lockdown eases out, the nation would be presented with a twofold problem of cleaning out the remaining strains of coronavirus by ensuring quarantining the existing patients while sweeping for any transmitted infections and boosting the economy. This is a crucial step as any new instances of spread might have dire consequences on the country. While we need to save lives we need to ensure that people have a place to go back to for earning their livelihood. There is a unanimous view among the economists of pumping in money by the government an expected amount equivalent to 5-6% of the GDP needs to be infused to give the necessary stimulus to help create a healthy economy. The government released an initial package of 1.72 lakh Cr equivalent to 1% of what is expected. It also needs to focus on how the money is infused as it is vital to reach the right segment to prop up the growth curve. The two segments that India need to focus right now is the bottom of the pyramid segment and MSME that is involved in production of goods and the highest employer in the country. The Jan Dhan account opened by the Indian government will serve an excellent medium for direct benefit transfer (DBT). The larger industries have the capability to pull in funds to meet the supply side as the demand side increases. If India is able to create a steep growth curve through a well driven economy it will be able to attract private investment as along the growth curve it offers more than normal profit. RBI has already stepped in making relief to businesses but it is inadequate considering the gravity of the situation. South Indian chamber of commerce and industry (SICCI) believes that under the present scenario the banks should lend out 3 month salary of employees that could be escrowed directly to companies account at minimal lending rates of 3%. These short term loans can help the companies be in business and capital infusion which would improve the customer demand. As India opens up for business it will face the hurdle of an inconsistent supply chain. The global economy had created trans-boundary supply chain which would be disrupted at the moment. The government needs to facilitate a quarantined approach to facilitate shipments of goods in and out of the boundary in association with industries.

India went ahead with the strong step of lockdown which might eventually help us keeping our growth non negative and now presents us with a unique opportunity to strengthen our position as a global economy. Western world has accused China for suppressing of facts that could have saved the world from the disaster. China became the world manufacturing hub owing to cheap labour force and policies favouring an export driven economy. This led Chinas way to a world power through strong flow of fund and technology transfer. The labour costs have gone up as China led the path to development. The companies started looking for alternatives for dependence on China the urge for which deepens as the coronavirus escaped the Chinese boundaries and led havoc on the world. India can present itself as the viable option for the global manufacturing hub. Ambitious initiatives like Make in India, Start up India by our honourable Prime Minister aims at removing the barriers to creating favourable policies for such growth economies. However the sentiment and transmission of such policies have rarely trickled down the line to small business. India has a lot to do in terms of land reforms and labour laws to make it suitable for companies to function easily. Once the growth curve takes its course India needs to focus on its long term goals of education, skill development and health care.

According to statisticstimes.com the population in the young workforce i.e. people above the age of 20 and people below the age of 40 is 31.93 % of the total population in India. This number is expected to rise to 32.76% in 2020 as per UN projections. India has the largest workforce and capitalizing in this workforce is very essential. However, there is a huge mismatch between the skill set that is required to be employable and what the aspiring professionals are carrying. India needs to focus on education and skill development in the long term. India started the skill India mission to help improve the skill set of the youth through government-aided projects. The model was designed to access the demand of the market and imparting training to meet the demand. It is observed that we are not able to meet the demand of the industry with this model as the industry demand changes and the modules are not designed to keep pace with the demand. The skill development can be passed on to the small scale industries where they can be incentivized for the number of new recruits they train. It will help the industry and the workforce to keep pace with the need of the market. The aim of the model should be to reduce the number of vulnerable employment and improve employability. This reduces the rapid labour movement within this segment of employees which eventually leads to long term remunerative planning. The increasing number of underemployment is getting converted to higher number of start ups that India has registered. Despite the increase in the number of start ups product development has not risen in the economy. India established itself as the top destination for Information technology systems outsourcing during the 1980s. A significant number of the founders and cofounders of start ups registered are ex-employees of Information technology (IT) industry; India is yet to see product development in the area of Information technology. Technology hubs like Silicon Valley are seeing a lot of work in the area of machine learning and artificial intelligence (AI) and India has the potential for product development in this area. An eminent need of the hour is to focus on research and development. The country has one of the lowest spending in R&D. If India needs to build a fast growing economy at a consistent growth rate of over 8% growth rate it has to focus highly on R&D. This opens up job opportunities for brilliant minds within the country and helps in talent retention. India observes a huge spending on recurring infrastructure projects which can be cut short. Such projects need to focus on high accountability to reduce reconstruction. A higher focus on R&D will trickle down to better product development which will drive the move to improve the scenario of underemployment in India.

This is easier said than done. In the advent of the financial losses due to the lockdown companies are putting a hold or cancelling B school placements. The placement drive for the engineering colleges which is due in months is bound to be impacted. Despite the non negative growth projections we have a long journey ahead. It will be driven by concerted efforts from policy makers, financial institutions, and business community at large.