Jaipur, The installation of new government at the Centre has not only generated wide expectations among millions of people across the country, but has alsoshifted the focus on major economic challenges which must be faced with a renewed vigour so as to bring a paradigm shift benefiting the common people and improving the rate of growth.
Delivering a lecture on “Economic Challenges Before New Government” with these views at the Institute of Development Studies (IDS) here today, eminent economist Prof. Vijay Shankar Vyas outlined the foremost challenges and suggested meaningful strategies to confront them with the emphasis on revival of growth. At the same time, the new government must dispel the impression of “policy paralysis”, said Prof. Vyas.
Prof. Vyas, who is also Professor Emeritus at IDS, delivered the lecture on the occasion of ” Development dialogue series”,started by the Institute of development Studies,Jaipur.He earlier held the prestigious positions of Member of the Prime Minister’s Economic Advisory Council and Deputy Chairman of the Rajasthan State Planning Board during the previous regimes in both the Centre and the State.
Prof. Vyas pointed out that the three major challenges before the government in New Delhi were deceleration of rate of growth, high inflation and slow growth in employment. From the average growth of 8.8% per year during 2005-06 to 2008-09, there has beena progressive decline in rate of growth. This year it is estimated to touch 4.5 to 4.7 percent.
Slackening of growth is not because of any substantial decline in savings or investment, said Prof. Vyas. Savings have declined from 34% of GDP in 2010-11 to 31% in 2013-14, while investment has come down from36.8% to 34.7% during the same period. There is a perceptible fall in the productivity of capital, he added.
Looking to the sectoral growth one finds that major cause is the sharp decline in the growth of Industry, from 9.2% in 2010-11 to 2.7% in 2013-14. As regards inflation, the Wholesale Price Index (WPI) inflation had a median rate of 9% for nearly four year and the inflation in primary food articles has remained at the level of 8 to 9%, mainly due to high cereal and vegetable prices.
Throwing light on the persisting problem of unemployment, the noted economist said the main issue related to “disguised unemployment.” Eighty three per cent of the labour force is in informal sector, while a large chunk in the organized sector is also “informal”.
In public policies, the major concentration is on the growth of unemployment in organized sector, said Prof. Vyas, while pointing out that the relationship between growth in output and growth in employment (i.e. employment elasticity) was very weak, and becoming weaker. For the period 1993 to 2004, employment elasticity was 0.29, and it came down to 0.04 during the period 2004-2005.
Significantly, the unemployment problem is most serious among the urban youth and especially among educated urban youth. While the overall unemployment rate in 2011-12 was 5.6%, it was 14.8% in the age group15 to 24 (13. 8% in the rural area and 18.1% in urban areas). Similarly, 11.9% of educated youth (secondary and above) were unemployed in the rural areas, the proportion was 16.5% in urban areas.
Suggesting the short-term measures to revive growth, Prof. Vyas said the new government should concentrate on revival of industry and in particular concentrate on improving public sector, especially, coal, energy and transport.
Among the short-term measures to contain inflation, the significant steps would be the release of food stocks and paying particular attention to strengthen supply chainfor perishable goods. “Do not lower the interest rates till inflation target is achieved. In other words, bring down the Consumer Price Index to 8% by January 2015. Also, resist exacerbating the subsidy regime,” said Prof. Vyas.
Recommending short-term measures to improve employment situation, Prof. Vyas said strong links must be forged between industry and skill imparting institutions and a greater attention must be paid to small and medium industries.
In a significant observation, Prof. Vyas affirmed that the new government at the Centre could show immediate results in the critical areas of economy by “picking low-lying fruits”. In addition to this strategy, the impression about “policy paralysis” must be dispelled by laying emphasis on new models and patterns of economic revival, he said.
Kalyan Singh Kothari, Media Consultant
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