Reverse migration to villages has set economy back by 15 years, says JNU professor

India risks losing benefits of the demographic dividend by not creating enough jobs for new entrants, warns Professor Mehrotra.

Santosh K Mehrotra, Professor of Economics at the Centre for Informal Sector & Labour Studies at Jawaharlal Nehru University and author of the recently launched book Reviving Jobs: An Agenda For Growth said the current reverse migration has set the country back by 15 years, and stressed that the economic stimulus package announced by the government is minuscule compared to the package rolled-out by then Manmohan Singh government during the 2008 crisis.

How prolonged will be the economic impact of this extended lockdown and do you see the workers who left the cities returning anytime soon?

I see a long​ economic and migrant worker​ impact​​. I don't see them streaming back in a hurry. The trauma has been far too great. There are many reasons why they left — poor living conditions here, overnight loss of livelihood, no social security and so on. They will not return in a hurry and relates to your larger question on the revival of the economy; for the first time in decades, India’s economy will contract in FY21, and revive in the latter half of FY22 (as RBI has admitted). Also, we were in an economic crisis even before the pandemic started.

But before we get there, you need to appreciate the contrasting economic situation prevailing in the last quarter of 2019 before the pandemic, and the pre-2008 crisis situation. Before 2008, all engines of growth were firing.

Our investment-to-GDP ratio was at an all time. GDP growth was 8-9% per annum and because of that the job growth was very rapid. We had five million unskilled workers leaving agriculture for the first time in Indian history because non-agri jobs were growing.

Is the stimulus announced by Finance Minister Nirmala Sitharaman strong enough to bring the economy back on track?

A straightforward answer is no. But before I answer this we need to see what happened between 2012 and 2018. Until 2012, nearly 7.5 million non-agriculture jobs were being created per year, but thereafter there was a slight economic slowdown, but still the average GDP growth over 2004-14 was 8% per annum.

There were two years of droughts in 2014-2015. The slowdown also accelerated after 2014 because of misplaced economic policies. The rate of non-agricultural jobs was reduced to 2.9 million per annum.

Now, this was happening at a time when young entrants into the labour force were increasing. Until 2012 the number of new entrants in the job market was only 2 million per annum (as youth were entering school in much larger numbers than before). Thereafter the number looking for work increased to roughly 5 million per annum. These young people were getting better educated and no longer wanted to be tied down to agricultural jobs. The result was open unemployment. And that is how we came to our 45-year high in open unemployment rate in 2018.

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The state of the economy and joblessness continued to worsen through 2019 because the growth rate slowed. We entered 2020 with seven quarters of systematic decline in growth rate, investment rate and exports.

So, every engine of growth had stopped firing; government revenue growth slowed, the real fiscal deficit in 2018-19 was 5.68% of GDP for the central government (as revealed by CAG) when the government was claiming it was 3.4%. By early 2019, the government did not have the fiscal space left any longer to actually jump start the economy if a shock was to happen. Given that coronavirus (COVID-19) is an unprecedented exogenous shock delivered to a slowing economy, we were hoping that the government would take a slightly different view than it has taken, and significantly increase public expenditure.

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Now going back to the 2008 crisis, the fiscal space existed then because the economy had been growing until then. In the post 2008 global economic crisis, the fiscal stimulus size by the government and mind you, fiscal stimulus alone, was 4% of the GDP (supplemented by monetary policy actions). And the fiscal package announced post-COVID is less than 1% of the GDP, although the economic and jobs crisis is much deeper than in 2008.

Can this stimulus package provide jobs, say in next six months or a year from now?

No because this stimulus is heavily dependent on banks extending loans. Why do I, as an entrepreneur, borrow from the bank when I know demand is already extremely low in the economy, both domestically and internationally? This is a global economic crisis of much worse than the 2008 one. So why am I going to borrow to invest? Some borrowing for working capital will take place. The government has taken supply side action without taking demand side action. If you don't put money into the hands of people, then you are not going to see a revival of demand. The total unemployed went from about 30 million in 2018 to 122 million in April 2020. This is unprecedented in Indian history. Some jobs would come back post-lockdown. But how many of them will come back depends on the quality of the stimulus...

In your book you have observed that the demographic dividend kicked in from the 1980s and it will end by 2040. We just have 20 years left to cash it. How does this pandemic and the economic fall out impact on this dividend?

Yes, we are running a very, very serious risk of frittering away this dividend. Realising the demographic dividend requires job growth at a rate faster than the number of entrants into the labour force. If new entrants into the labour force, who are better educated, are entering at a rate of more than 5 million per annum, you have to create at least 5 million non-agricultural jobs.

Secondly, you need to create enough jobs to employ the currently unemployed, which has risen sharply. Third, in 2018 we had 205 million people working in agriculture. From 2004-05 until 2018 the absolute number of workers in agriculture was falling, because non-agri jobs were growing fast. Which means the process of structural transformation of redirecting the workforce from agriculture to construction/industry/services was underway.

But post-2012 we have been seeing a decline in jobs in manufacturing for the first time in India’s history. If we are to realise the demographic dividend we need a shift of jobs from the agriculture sector to manufacturing. Reverse migration, that we are seeing today, has increased workers in agriculture by 5.2 mn in a few weeks. It means that we have gone back by 15 years.