Realities of Unemployment and Inflation Issues
Rahul Ghandy has attributed the root cause for the “Breach of Parliament Security” to “Unemployment and Inflation” issues – Be Rozgari aur Mehangai. Undeniably, the Congress Party is bent upon using the two issues to gain votes of the unemployed youth and the middle class.
However, what are the realities? Is the present Modi-led NDA government solely responsible and accountable for the current unemployment and inflation? Factually, the responsibility and accountability rests with both the Central and State Governments.
Let me at the outset highlight that the two issues are on account of failure of successive governments to squarely address and resolve the key strategic challenge, that is, demographic transitions to include population explosion and illegal alien migrations. Undeniably, India’s land bearing capacities and natural resources are finite only.
Add to them, experts views highlighting four categories of unemployment to include structural, frictional, seasonal, and cyclical. Through expansionary monetary policy by rising public spending, it may be possible to combat seasonal and cyclical unemployment.
Many other causes are responsible for inflation. The key factor that needs to be considered is the population growth of the period of 1995-2003 contributing to the “Youth Bulge” today. Yet another cause is poor educational attainment or inadequate vocational skills. Add to it, poor productivity in the agriculture sector and the dearth of alternatives for agricultural employees. Furthermore, low investments in the manufacturing sector and inadequate infrastructural development. Finally, legal difficulties, insufficient government backing, and weak market, financial, and infrastructure ties to small firms render operations unprofitable due to the cost and compliance overruns. Not to be left out is the 24x365 elections, governance extravaganza and profligacy.
Of course, the policies of the government since the early 1990s to cater to the needs of the “Industrial Revolution” and “Technology Age” Revolutions are squarely responsible for the current crisis situations that are likely to continue in future. Not to be overlooked is the excessive obsession with “Command Economy and License Raj” from 1947 to 1990 that stunted growth – Hindu Growth Rate.
So why do young, educated Indians have poor job skills? One reason is that India has a limited number of quality institutes in spite of growth in the number of higher education providers. In retrospect, the classical British inherited educational curriculum was designed to develop “Babu Class” at the undergraduate level in colleges which is woefully inadequate to cater to the needs of Technology Age requirements. After all, one can see the “Kids” operating the “Mobile Phones” with ease – technology savvy. Similarly younger generations of rural women too are technology savvy. Therefore, what is needed today is to abandon excessive focus on “Arts” syllabi not only at Undergraduate level but also Secondary Education levels. It is imperative to make dramatic changes in the “Quality of Education” and “Skill Development” appropriate to the current and emerging economic environment of “Technology Age”.
Since the passage of 42nd Amendment Act of 1976, education in India is a Concurrent List subject that both the central government and the state governments have responsibility for enacting and implementing education policy. The central board and most of the state boards uniformly follow the "10+2" pattern of education.
Be that as it may, let me highlight at the outset that statistical data can only act as a guide. The data of unemployment rate since 1991 with rate of change in brackets (Red numbers represent increase over the previous Year) indicated includes: 1991 - 6.737; 1992 - 6.815 (0.08); 1993 - 6.798 (-0.02); 1994 - 6.83 (0.03); 1995 - 7.014 (0.18); 1996 - 7.181 (0.17); 1997 - 7.279 (0.1); 1998 - 7.487 (0.21); 1999 - 7.709 (0.22); 2000 - 7.77 (0.06); 2001 - 7.957 (0.19); 2002 - 8.102 (0.15); 2003 – 8.36 (0.26); 2004 - 8.531 (0.17); 2005 - 8.7 (0.17); 2006 – 8.625 (-0.07); 2007 - 8.536 (-0.09); 2006 – 8.354 (-0.18); 2007 - 8.384 (0.03); 2008 - 8.319 (-0.06); 2009 - 8.168 (-0.15); 2012 - 8.095 (-0.07); 2013 - 8.037 (-0.06); 2014 - 7.981 (-0.06); 2015 - 7.915 (-0.07); 2016 - 7.842 (-0.07); 2017 - 7.733 (-0.11); 2018 -7.65 (-0.08); 2019 - 6.51 (-1.14); 2020 - 10.195 (3.69); 2021 - 7.713 (-2.48); and 2022 -7.33 (-0.38).
The unemployment rate till 1994 was below 7.00. From 1995-2001, the rate was below 8.00. In 2014, the unemployment rate decreased to below 8.00 that remained till 2019. Due to Covid-19, there was a dramatic increase in the unemployment rate to above 10.00. Subsequently, it has fallen below 8.00. Ipso facto, the unemployment rate doubled during Covid-19 in the year 2020 that particularly affected young graduates.
According to the Centre for Monitoring Indian Economy (CMIE) report as of March 2023, unemployment rate stood at 8.11%. In urban areas, the unemployment rate was 7.93%, while in rural areas it was slightly lower at 7.44%. Additionally, the latest Periodical Labor Force Survey indicates a positive shift in urban areas, revealing a one percent decrease in the unemployment rate for individuals aged 15 and above, standing at 6.6 percent in April-June 2023 compared to the previous year’s 7.6 percent.
The average unemployment by age groups in September-October 2022, as per data of unemployment in the public domain, includes: 15 to 19 years – 52.5%; 20 to 24 years – 44.5%; and 25 to 29 years – 12.9%. Young Indians (aged 15-24 years) constitute nearly a fifth of India’s total population, according to the country’s 2011 Census. By 2020, they are over a third of the country’s population.
The Union Ministry of Skill Development and Entrepreneurship says 4.69% of India’s total workforce is formally skilled, as against 52% in the United States, 68% in the United Kingdom, 75% in Germany, 80% in Japan and 96% in South Korea. In retrospect, major cause for high unemployment rates is the lack of skills required for jobs that are available, though educated.
The 2023 State-wise unemployment rate includes: Haryana 37.4; Rajasthan 28.5; Bihar 19.1; Jharkhand 18; Jammu and Kashmir 14.8; Tripura 14.3; Sikkim 13.6; Goa 9.9; Andhra Pradesh 7.7; Himachal Pradesh 7.6; Assam 4.7; Chhattisgarh 3.4; Madhya Pradesh 3.2; Maharashtra 3.1; Karnataka 2.5; Gujarat 2.3; and Odisha 0.9. Haryana, Rajasthan, Bihar, Jharkhand, Jammu & Kashmir are the states with the highest unemployment rates.
The World Bank recently estimated that India needs to create 8.1 million jobs a year to maintain its employment rate, which has been declining. Removing structural bottlenecks to the manufacturing sector is a key to promoting job creation in more productive and better-paid activities, according to an OECD report on economic outlook released in May 2019. After all, the manufacturing sector could prove to be a large employer that provides decent income opportunities.
Also, adoption of high-tech agriculture to produce high yields 24x365 – Green Houses – and rapid modernization of the food processing sector could increase export potential, control domestic seasonal inflation rate variations, improve employment elasticity-to-growth and investment in it. With a rise in per capita income, domestic demand for processed food would also rise, making the sector a viable option for pushing manufacturing growth and employment.
Hardly ever debated are the social transformations particularly sweeping the rural areas as one of the causes of inflation? Due to “Freebies” no more women want to work, In particular, young ladies educationally qualified up to 10th standard no more work in the agriculture fields. They want government jobs, particularly those with basic IT skills. Most of them go to nearby cities and towns and work as “Sales Girls” or “Receptionists” or other jobs. On record in employment exchanges, they register themselves. Similarly, even young men want government jobs. Otherwise, they become “real Estate” brokers.
The example of Telangana should be an eye-opener for analysts. Even in the past two decades, the workers in real estate are mostly from Bihar, Jharkhand, Rajasthan and UP. Today in my neighboring area, under construction Telangana Institute of Medical Sciences, 90% of labor is from Bihar, Jharkhand, Rajasthan and UP. One can also see ladies from far off states like the North East working in private hospitals and hotels. If so, the state of unemployment in Telangana should be ZERO. Similarly, the status in Karnataka and Tamil Nadu.
Next, Inflation - Mehangai - is a significant issue of concern. Inflation affects the cost of living of the middle class and BPL families. It influences the interest rates paid on savings and mortgage rates but also has a bearing on levels of state pensions and benefits received.
Be that as it may, inflation is a measure of the rate at which prices of goods and services increase in an economy. It can have many causes, but they can be broken down into two main categories: demand-pull and cost-push.
Demand-pull inflation occurs when demand for goods and services increases, leading producers to raise prices to maximize profits. More jobs and higher wages increase household incomes and lead to a rise in consumer spending, further increasing aggregate demand and the scope for firms to increase the prices of their goods and services. When this happens across a large number of businesses and sectors, this leads to an increase in inflation.
Cost-push inflation occurs when producers raise prices because their costs have gone up. Some other causes of inflation include: Increase in money supply; Devaluation; Rising wages; Monetary and fiscal policies; Increase in the price of raw materials; Increase in taxes; Decline in productivity; Increase in public spending; Hoarding; Tax reductions; and Price rise in international markets.
As per experts, long-lasting episodes of high inflation are often the result of lax monetary policy. If the money supply grows too big relative to the size of an economy, the unit value of the currency diminishes; in other words, its purchasing power falls and prices rise. Pressures on the supply or demand side of the economy can also be inflationary. Supply shocks that disrupt production, such as natural disasters, or raise production costs, such as high oil prices, can reduce overall supply and lead to “cost-push” inflation, in which the impetus for price increases comes from a disruption to supply. For example, the sharp rise in food and fuel prices resulted in inflation of 2008. Conversely, demand shocks, such as a stock market rally, or expansionary policies, such as when a central bank lowers interest rates or a government raises spending, can temporarily boost overall demand and economic growth. If, however, this increase in demand exceeds an economy’s production capacity, the resulting strain on resources is reflected in “demand-pull” inflation. Policymakers must find the right balance between boosting demand and growth when needed without over stimulating the economy and causing inflation.
Expectations also play a key role in determining inflation. If people or firms anticipate higher prices, they build these expectations into wage negotiations and contractual price adjustments (such as automatic rent increases). This behavior partly determines the next period’s inflation; once the contracts are exercised and wages or prices rise as agreed, expectations become self-fulfilling. And to the extent that people base their expectations on the recent past, inflation would follow similar patterns over time, resulting in inflation inertia.
There are two indices that are used to measure inflation — the consumer price index (CPI) and the wholesale price index (WPI). These two measures of inflation on a monthly basis taking into account different approaches to calculate the change in prices of goods and services. The CPI analyzes the retail inflation of goods and services in the economy across 260 commodities. The CPI-based retail inflation considers the change in prices at which the consumers buy goods. The WPI analyzes the inflation of only goods across 697 commodities. The WPI-based wholesale inflation considers the change in prices at which consumers buy goods at a wholesale price or in bulk from factory, mandis, etc.
The CPI is virtually dependent on the Monsoon vagaries. In 2023, the monsoon hit five-year low due to El Nino, affecting agricultural production in the Kharif season. Annual retail price inflation went up to 5.55% in November 2023, the first increase in four months, from 4.87% in October and compared to market expectations of 5.7%. Food inflation went up to 8.7%, the highest in three months, from 6.61% in October 2023.
Prices rose the most for spices (21.6%), pulses (20.2%), vegetables (17.7%), namely onions and tomatoes, fruit (11%) and cereals (10.3%) while cost for oils and fats went down 15%. Meanwhile, a slowdown was seen in prices for pan, tobacco, and intoxicants (3.81% vs. 3.87%), clothing and footwear (3.9% vs. 4.31%), housing (3.55% vs. 3.8%), and miscellaneous (4.38% vs. 4.4%). Additionally, fuel and light costs fell by 0.77% after a 0.39% drop in October. However, the economic prospects have improved the Rabi season prospects due to rains.
Be that as it may, the review of the data of annual inflation rates since 1991 provides a balanced perspective that includes: 2022 - 6.70% (1.57%); 2021 - 5.13% (-1.49%); 2020 - 6.62% (2.89%); 2019 - 3.73% (-0.21%); 2018 - 3.94% (0.61%); 2017 - 3.33% (-1.62%); 2016 - 4.95% (0.04%); 2015 - 4.91% (-1.76%); 2014 - 6.67% (-3.35%); 2013 - 10.02% (0.54%); 2012 - 9.48% (0.57%); 2011 - 8.91% (-3.08%); 2010 - 11.99% (1.11%); 2009 -10.88% (2.53%); 2008 - 8.35% (1.98%); 2007 - 6.37% (0.58%); 2006 - 5.80% (1.55%); 2005 - 4.25% (0.48%); 2004 - 3.77% (-0.04%); 2003 - 3.81% (-0.49%); 2002 - 4.30% (0.52%); 2001 – 3.78% (-0.23%); 2000 - 4.01% (-0.66%); 1999 - 4.67% (-8.56%); 1998 - 13.23% (6.07%); 1997 - 7.16% (-1.81%); 1996 - 8.98% (-1.25%); 1995 - 10.22% (-0.02%); 1994 - 10.25% (3.92%); 1993 - 6.33% (-5.46%); 1992 - 11.79% (-2.08%); and 1991 - 13.87% (4.90%).
The statistics show the inflation rate in India from 1991. In October 2023, the inflation rate was around 6.61% compared to the previous year. When the BJP came to power in 2014, the inflation rate was around 6.67%. During the Congress Party regime from 2004 to 2014, the highest inflation rate was 11.99% in 2010. During the 10-year Congress Party rule, the inflation rates were more than 8.00% during 6-years with the lowest in 2004 at 3.77% when the BJP-led alliance handed over power. Most importantly, the acceptable annual average inflation rate needs to be below 6%.
As per SBI Chairman Dinesh Kumar Khara, the Indian economy is in a golden phase and FMCG data showing a positive trend and practically all sectors firing, which is a very positive sign.”
In sum, the issues of “Unemployment and Inflation” are fluid, dynamic and complex. Both the Central and State Governments are equally responsible and accountable for “Unemployment and Inflation.” None of the previous regimes can also absolve themselves from the current situations. After the set back to “Mass Sterilization Program” of Sanjay Ghandy, all political parties without exception have failed to counter the key strategic challenge of population explosion’ beyond the finite land-bearing capacity.
So, merely politicizing “Unemployment and Inflation” issues to garner votes to win elections cannot fool “We the People” anymore. If the issues are genuine, then measures to alleviate the crisis situation must form part of “Pre Poll Promises”; not merely announcing freebies.
0 Comments