Post pandemic economic growth and development
Keynesian economics will work in the post-pandemic era as it did in the 1930s.
“Economic growth is not an end in itself and has to enhance the lives people lead and the freedoms that they enjoy,” said the veteran economist Amartya Sen.
The ongoing pandemic has raised fears of unemployment, inflation, business pessimism and lower levels of GDP in months to come. The repo rate has been reduced to 4% and the reverse repo rate reduced to 3.35%. The government announced the collateral-free automation loan scheme of ₹ 3 lakh crore for giving stimulus to the MSME sector. The government also announced ₹20 thousand crore subordinate debt for stressed MSMEs estimated to be around 200000 units. For achieving the vision of Atmanirbhar Bharat, a self-reliant India and for providing financial stability to the MSME sector the above measures were announced. Availability of skilled labour and production of competitive products to facilitate import substitution is the need of the hour.
The reverse migration of labour has risen concerns of a shortage of labour to the MSME sector. The traditional growth economists perceive that there will be disguised unemployment in the agricultural sector. This disguisedly unemployed labour will find a better opportunity to earn more than subsistence wage in the industrial (MSME) sector in the city. If we take into account the current stimulus provided by the government to the MSME sector, this sector will be able to provide better wages and incentives to attract labour back to the cities. But here again, there will be two basic requirements – one that the MSME sector should be prepared to use labour-intensive technology and that the private sector should invest in upgrading the skills of migrant workers.
There are lessons that we should take from the Great Depression of the 1930s. The invisible hand of the market will certainly not be a solution for the post-pandemic endeavours. We cannot and should not expect automatic adjustments between demand and supply. The Keynesian economics will work in the post-pandemic era as it did in the 1930s. A Big Push is required in the public expenditures in both Social overhead capital and Directly productive activities. This will help in reducing unemployment in the economy and through the multiplier effect increase the velocity of circulation of money. The government needs to identify leading industrial sectors and provide tax concessions and subsidies to them. The development of these leading industries - iron and steel, cement, automobile, mining to name few, will generate external economies and will further help in the development of social overhead capital. A deliberate attempt by the government to make more investment and correct deficits brings in the relevance of Lerner’s Functional Finance in this time of COVID-19 crisis.
Keynes in his book General Theory of Employment, Interest and Money,1936 writes, “Most, probably, of our decisions to do something positive, the full consequences of which will be drawn out over many days to come, can only be taken as the result of Animal Spirits – a spontaneous urge to action rather than inaction.” This means that even if the economic conditions are not conducive, if animal spirits are activated, increase in profits, income, consumption and investments can occur. Higher levels of confidence and optimism should be aroused amongst businessmen, investors, buyers, brokers and consumers at large.
Lastly, discussions on economic growth would remain incomplete without taking into consideration the labour which works in the informal sector. What is alarming, in today's event of a pandemic crisis is that nothing has been said or done for such labour which constitute about 70% of our workforce. No incentives have been announced either by the government or the private sector to attract this labour back to the cities. There could be more public expenditure in the backward areas of Bihar and Uttar Pradesh which will absorb a certain percentage of this labour in the villages itself and stop them from coming to cities. This may also resolve various other economic problems in cities like overpopulation, increase in slums, the prospect of crime, lack of planned access to clean water and sanitation systems, lack of education and unemployment. This will also help in restoring the regional imbalance between various states in India.
Asema Siddiqui is a faculty for Economics, at Maharashtra College Of Arts, Science and Commerce, Mumbai.
The views presented are the author's personal. Indie Journal does not necessarily agree with them.