Context

Although the impact of Omicron is less on the economy, the loss of GDP in the last two years is high. Also note that the pre-Covid year FY20 had a low base with 4 per cent growth of GDP. Therefore, the need to focus on higher growth in the forthcoming budget and in the medium term, that is, beyond India@75, is obvious.

Challenges in creating quantity and quality of jobs in the economy

• Unemployment rate is high in both rural and urban areas;
• Decline in work participation rates, particularly for women;
• Recovery in employment is still below the levels of the pre-Covid period.
• 85 per cent of the workforce is still in informal sector.
• Lack of skill: Less than 5 per cent of India’s workforce has formal skill training.
• Need for structural change: Manufacturing and services need structural change.
• Focus on MSME sector is needed for higher employment.

Policies needed to achieve higher economic growth and jobs

1] Capital expenditure and infrastructure

• The government outlined an infrastructure project pipeline worth more than Rs 102 lakh crore and asset monetisation pipeline of Rs 6 lakh crore to be implemented in the medium term.
• Continuing focus on infrastructure and capex by the government is important as it is a key driver for the “future of India”.

2] Focus on export growth

• It is well known that rise in exports is one of the main engines of growth and also important for employment creation.
• Export growth in India has increased and is expected to reach $400 billion by the end of FY22.
• One worrying aspect of India’s export performance is the failure in expanding the share of labour intensive products in the export basket.
• Protectionist trade policy: However, one problem in recent years is that India’s trade policy has become more protectionist by increasing import tariffs.
• Join RCEP: India should also join the Regional Comprehensive Economic Partnership (RCEP) for integrating our industries with the value chains in Asia.

3] Manufacturing and service sector growth

• The share of manufacturing in GDP and employment has hardly increased over time.
• Production Linked Incentive (PLI) schemes can improve performance.
• However, more efforts are required to improve the manufacturing sector.
•  Similarly, there are a lot of opportunities for India in the service sector.
• Brand and customer centricity are important here.
• India can also think of more business in the service sector.
• Growing startups including unicorns in manufacturing and services is part of this effort.

4] Banking reforms

• Banking reforms are important as bank credit growth is a key indicator of economic growth.
• Low credit-to-gdp ration in India: Credit to GDP ratio in India is only around 55 per cent compared to 100 per cent and 150 per cent in many other countries.
• Credit should flow to all categories of economic agents like firms, households etc.
•  The bad bank, a key initiative of the last budget, is yet to take shape.
• The role of fintech companies in the financial sector has increased significantly.
• They may not be able to replace banks although they are competing on payments.
• The banks also have to focus now on ESG (environment, social and governance) while giving credit.
• Big technology and digital push is also needed for banks.

5] Deal with K-shaped recovery

• The K-shaped recovery of the economy is still continuing.
• The policies have to focus on giving a push to the MSME sector, increasing investment in agriculture and rural infrastructure, a social sector push including bridging divides in health and education, social protection measures like foodgrain distribution, cash transfers, MGNREGA in rural areas, urban employment guarantee schemes etc.
• This will also create demand for the economy.

Conclusion

In the near term, fiscal policy has to play an important role in achieving the objectives of growth and jobs by expanding fiscal space while the fiscal deficit can be stabilised in the medium term. Increase in private investment may take some more time.

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