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'According to CMIE data, employment in manufacturing saw a reduction from 51 million in the country in 2016 to 27 million in 2021.
'That is, it has halved in just 5 years.
'At the same time, the national lockdown resulted in reverse migration to rural areas, and an increase in the number of workers in agriculture.
'It also means joblessness has increased in agriculture because there are too many workers; the number of workers went up from 200 million to 232 million.'
Will the RBI's sudden decision to increase the repo rate hike bring down inflation?
Will it increase employment?
Will it increase demand in the market?
Will the lending cycle start?
"This government, much as it likes to get the economy going, has proven itself incapable of ensuring a stable and comprehensive recovery," human development economist Professor Santosh Mehrotra, Visiting Professor, Centre for Development, University of Bath, UK, and Research Fellow at the IZA Institute of Labour Economics, Germany, tells Rediff.com's Shobha Warrier.
The concluding segment of a two-part interview:
There was no investment happening as there was no demand in the market. What kind of impact will a rate hike have on the economy when unemployment and inflation are very high?
The point is, low interest rates were not leading to any particular increase in private investment.
But real interest rates were negative for the last few years. When I say negative, what does it mean?
It means, when you borrow Rs 10, you not only pay no real interest, you return to them Rs 8! Why? Because inflation is higher than the interest rate.
The biggest problem the country is facing now is unemployment, and it has reached record high. And people are suffering...
But the government doesn't believe so.
Do you think the government is still in denial mode?
Of course, they are in denial mode.
Both the FM and the PM keep denying the reality about unemployment and falling worker participation rate, at a time when the share of the working age population in the total population has been rising (this is the demographic dividend that we keep talking about), both in Parliament and outside Parliament.
When the government is in denial mode, how will any corrections happen?
I do not believe any corrections will happen. Because this government, much as it likes to get the economy going, has proven itself incapable of ensuring a stable and comprehensive recovery.
There has been a recovery in the organised sector in the last 6-8 months, but it has been a selective recovery.
However, the unorganised sector was suffering before covid, and continues to suffer.
And they are doing precious little for the unorganised sector, and the MSMEs.
Then, the share of manufacturing in GDP, which was 17% of GDP, for 25 years after 1992, fell after 2016.
It was 15% before covid, and it fell from 15% to 12% post-covid. It has barely risen back to 13%.
It means the share of manufacturing to GDP is still 4% less than what this government inherited in 2014!
This is despite Make in India!
I will give you one example. The leather and the footwear industry is a big contributor in both the organised and unorganised sectors.
It was a big contributor to the exports too. That has fallen thanks to this government's cow slaughter ban.
Kanpur and Agra were among the country's biggest centres of the leather industry.
After the ban, they collapsed completely there.
Some also moved out to other cities. And joblessness increased in those sectors in Kanpur and Agra.
All this happened across the country wherever the BJP had its government.
So, who is responsible for the share of manufacturing to GDP falling?
And more people went back to their villages in 2021 too! So, the real wages have fallen further.
When there is no private investment happening because there is no demand, why is there an increase in interest rate?
Yes, when you don't want to borrow, why are the banks raising the interest rate?
Can you push someone to the bank saying, please borrow?
If there is little demand, then why will people borrow?
When capacity utilisation in industry is still 72%, why wilAccording to CMIE data, employment in manufacturing saw a reduction from 51 million in the country in 2016 to 27 million in 2021.
That is, it has halved in just 5 years.
At the same time, the national lockdown resulted in reverse migration to rural areas, and an increase in the number of workers in agriculture by 30 million between 2019 and 2020, which is a reversal of nearly all the reduction in number of workers in agriculture that had been taking place between 2005 and 2019.
It also means joblessness has increased in agriculture because there are too many workers; the number of workers went up from 200 million to 232 million.l industry borrow?
Why is the demand not picking up? What is the solution?
Yes, investment demand and consumption demand are not rising.
The solution to increase demand is, the government should cut fuel taxes first: Especially, petrol, diesel and gas prices.
This will have a knock-on effect on inflation.
Next, the government needs to increase public spending and for that, the money has to come from somewhere.
Today, they have decided to squeeze the middle class and the poor by taxing petrol, diesel and gas.
Have wealth tax?
This is the government that eliminated wealth tax in 2015. So, I don't expect them to suddenly bring the wealth tax back.
However, there are at least two other things they can do.
One is, when it eliminated the wealth tax, it put a surcharge of 2% on the super-rich people, those who were earning more than one crore per annum.
In covid times, when they had to increase spending, who was preventing the government from imposing yet another super surcharge on the personal income tax of the super-rich?
They didn't do it. But they can still do it.
In the 2019 Budget, they had raised the threshold of personal income tax weeks before the elections, and the result of that was, it eliminated 75% of personal income tax players.
Corporate income tax was cut from 30% to 25% in the middle of 2019.
Why can't they impose a covid surcharge on corporate income tax now?
They can do all these and mobilise resources and spend more, and that is the solution.
Feature Presentation: Aslam Hunani/Rediff.com