The International Monetary Fund (IMF) released its second World Economic Outlook (WEO). The IMO publishes the report twice a year, in April and October, and also offers “updates” to it on a regular basis. The WEO reports are important because they are based on a broad range of assumptions regarding a variety of variables, such as the worldwide price of crude oil, and they serve as a standard against which all economies may be measured.
The main message was that the global economic recovery had slowed somewhat, owing to supply interruptions caused by the epidemic. But the IMF was most worried about rising inequality across states, not simply the marginal headline statistics for global growth.
“A key source of worry is the worrisome disparity in economic prospects across nations. The advanced economy group’s aggregate production is predicted to return to its pre-pandemic trend path in 2022, and then surpass it by 0.9 percent in 2024. In 2024, however, aggregate production for emerging market and developing economies (excluding China) is likely to remain 5.5 percent below the pre-pandemic prediction, resulting in a bigger setback to increases in their living standards,” it noted.
Large gaps in vaccination availability, as well as variations in policy support, are two major causes of economic inequality.
However, the most significant message from the WEO this time is that job growth is expected to lag behind the rebound in production.
“Global employment remains below pre-pandemic levels, reflecting a mix of negative output gaps, worker fears of on-the-job infection in contact-intensive occupations, childcare constraints, labour demand changes as automation picks up in some sectors, replacement income through furlough schemes or unemployment benefits helping to cushion income losses, and frictions in job searches and matching,” according to the IMF.
What’s especially concerning about this overarching pattern is that the gap between production and employment recovery is expected to be worse in emerging markets and developing countries than in established ones. Furthermore, young and low-skilled employees are more likely to be in poorer shape than prime-age and high-skilled workers.
In terms of GDP, India’s growth rate has not been changed for the worse. Several high-frequency indicators, in addition to the IMF, have shown that India’s economic recovery is gaining traction.
However, the IMF’s employment projections are crucial for India, since the recovery in unemployment lags after the increase in production (or GDP).
To begin with, data from the Centre for Monitoring Indian Economy (CMIE) shows that the overall number of employed individuals in the Indian economy was 394 million in May-August 2021, down 11 million from May-August 2019. To put these figures in context, the number of employed individuals in May-August 2016 was 408 million. In other words, India was already suffering from a severe labour shortage before the Covid crisis, and it only became worse thereafter.
As a result, forecasts of an employment recovery that lags behind production recovery might leave broad swaths of the population out of GDP growth and its benefits. Inadequate employment levels will impede India’s development pace by lowering total demand.
There are various causes for this. For starters, as previously said, India was already experiencing a tremendous unemployment issue. Additional difficulties are raised by labour economists such as Santosh Mehrotra, Visiting Professor at the Centre for Development Studies at the University of Bath (UK).
“The first thing to realise is that India is going through a K-shaped recovery. As a result, various industries are rebounding at drastically different speeds. This is true not just between the organised and unorganised sectors, but also within the organised sector, according to Mehrotra. He said that other industries, such as IT services, have been mostly impacted by Covid, while the e-commerce business is doing “brilliantly.” However, many contact-based businesses, which have the potential to generate a large number of new employment, are not seeing the same rebound. Similarly, public companies have fared significantly better than unlisted companies in their recovery.
The majority of India’s employment is in the informal or unorganised sectors, which is a major source of concern (Table 2). “A worker without a documented contract, paid leave, health benefits, or social security” is characterised as a “informal worker.” Firms that are registered are classified as part of the organised sector. In most cases, it is believed that formal employment would be provided by organised sector businesses.
As a result, a sluggish recovery in the informal/unorganized sectors means that the economy’s potential to generate new employment or resuscitate existing ones is hampered.
IMF Chief Economist Gita Gopinath noted that the number of individuals taking use of the Mahatma Gandhi National Rural Employment Guarantee Act provisions was still 50-60 percent more than it was before the epidemic. This shows that the informal economy is lagging behind some of the more visible sectors in terms of recovery.
Table 3 shows a thorough breakdown based on the 2019 study ‘Measuring Informal Economy in India’ (S V Ramana Murthy, National Statistical Office). It demonstrates two points. One, the proportion of various economic sectors in total Gross Value Added (GVA or a measure of overall output from the supply side just as GDP is from the demand side). Two, the proportion of the unorganised sector. At the national level, the informal/unorganized sector accounts for more than half of total GVA, and it is considerably greater in certain sectors, particularly those that generate a large number of low-skilled employment, such as construction and commerce, repair, lodging, and food services. This is one of the reasons why India is more susceptible.
Source: The Indian Express