The central and state governments are caught in an unenviable position where they need to combat the effects of slowdown on incomes and jobs and simultaneously increase revenue collection to keep the economy running.
The current slowdown in the Indian as well as global economies can be linked to a multitude of factors that are in play, that sometimes pull in different directions.
Ironically, one of the factors contributing to the current crisis is the inexorable influx of technology and innovation into almost every sphere of life.
By their very nature, technology and innovation lead to increase in efficiency and productivity, sometimes exponentially, in almost every sector that they touch.
But what is not being realised is that while this enhances the profitability of entities adopting technology and innovation, there is a downside that causes decrease in earning opportunities, especially for the vulnerable sections of the population with lower skills and abilities. And invariably, this contributes to an increase in income inequality.
This is detrimental to all societies, but more so for developing economies like ours, since our strength lies in numbers not in abilities.
So while we are at the precise point in time when we should be able to reap the rewards of the “Demographic Dividend”, we are faced with an unpleasant surprise where the majority of new entrants in to the earning stage of their lives find themselves without suitable opportunities, contributing to what is now being called a “Demographic Time Bomb”.
Instead of having a surge in consumption and subsequent growth of the economy, we are confronted with a situation where even existing jobs are being eaten away by automation, Artificial Intelligence and Machine Learning.
A harsh example of this is the very recent laying off of 540 people in the customer support division of Zomato – this despite their aggressive growth where they are hiring more delivery agents.
And as we know, it is only a matter of time before even the delivery agent is replaced by drones or fully automated bots.
This is just the beginning and it is inevitable that we will be seeing much more of this in the coming days.
A recent IBM survey found that more than 120 million workers globally will need retraining in the next three years due to artificial intelligence’s impact on jobs.
While this is alarming in itself, it does not factor the ability of the workers, many of them in their middle ages, to learn new skills.
Though this shift in focus towards AI, ML and automation will lead to an increase in the requirement for highly skilled engineers and AI/ML specialists – the question is how many such jobs will be created?
Secondly, given that the majority of graduates being churned out today are unemployable, can they even aspire for these positions?
The situation is practically the same in almost all sectors of our economy.
Already the agriculture sector is in deep crisis due to which the government has had to resort to direct cash payments to help them survive.
What no one is talking about yet is the fact that despite this massive infusion by both the central government as well as state governments such as in Odisha – more than Rs.13,500 crores as of June 2019, there has been a drop in the growth of FMCG products across the board, signalling a deep rooted malaise.
In any case, these attempts to prime the economy through injection of cash in the hands of consumers need a massive amount of funds – something that the government doesn’t have.
Attempts to raise revenue are resulting in an almost immediate adverse reaction, sometimes necessitating their withdrawal – the recent surcharge on FPI announced in the budget in July and withdrawn in August is an example.
Which is probably why the finance ministry was left with no option but to appropriate a massive Rs.1,76,051 crore from the RBI, including a sum of ₹52,637 crore from its contingency reserve built over the last several years.
Conventional wisdom would suggest that when faced with complex problems, experts are consulted and their advice taken.
Unfortunately, in today’s scenario, the pace of change in the economy – both national as well as global, has left almost everyone baffled.
This is probably why we are seeing policies being announced and then subsequently being withdrawn or watered down, many a times leaving the government red faced.
Given the extent of the problem, and the fact that the global economy too is in dire straits, any attempt to find solutions to survive this slowdown – structural, cyclical or a combination of both, needs to take a multi-disciplinary approach and try to factor in all possible influences before taking policy decisions and thereby avoid potentially undesired outcomes.
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