Two Decades of Economic Transformations

In the backdrop of a global economic crisis in 2008, India achieved an unprecedented economic growth rate of 8% per year from 2004 to 2014. This remarkable feat, unmatched in subsequent years, was characterized by a unique combination of factors that propelled the nation forward and reshaped its economic landscape. A pivotal aspect of this golden decade was the creation of 7.5 million new non-agricultural jobs annually between 2004-5 and 2011-12, resulting in a staggering 52 million new jobs over seven years. This robust job creation not only kept youth and total unemployment rates low but also facilitated a historic exodus of over five million individuals from agriculture each year. This departure marked a significant shift, as the absolute numbers in agriculture, which had been on an upward trajectory since 1973-4, finally began to decline after 2004-5, with the trend continuing, albeit at a slower pace, until 2019.

Critics often point to inflation as a dark cloud over this period of growth. However, the surge in non-farm job creation tightened the rural labor market, leading to increased open market wages in real terms. This effect was complemented by the introduction of initiatives like MGNREGA and rising Minimum Support Prices (MSP), creating a ratchet effect that saw real wages in urban areas rise despite inflation. The superior record on real wages during this period is a testament to the success of these policies, with poverty levels witnessing a significant decline as real wages rose. As a result of non-farm job creation and the subsequent rise in real wages, real private final consumption expenditure saw a substantial increase during 2004-12. This surge in consumer spending contributed to a marked improvement in poverty reduction. Notably, the absolute number of poor individuals, as measured by the Tendulkar poverty line, experienced an unprecedented decline of nearly 20 million per year from 2004-5 to 2011-12. This achievement, akin to China's transformative economic strides, was the first of its kind since 1973-4, reflecting the magnitude of the positive impact.

In contrast, the recent economic scenario presents a sharp departure from this golden era. Open unemployment rates for the educated, which had been on a declining trend from 2004-5 to 2011-12, have witnessed an alarming increase under the current regime. Youth unemployment, in particular, has more than doubled, signaling a concerning trend that demands attention.

As we reflect on the lessons from India's golden decade, it becomes clear that a combination of strategic job creation, real wage growth, and targeted poverty reduction measures can pave the way for sustainable economic development. Understanding the factors that led to this unprecedented growth serves as a valuable guide for shaping future policies and endeavors, with the hope of reigniting India's economic potential and ensuring a more inclusive and prosperous future. In the annals of India's economic history, the last eight years have presented a stark departure from the unprecedented achievements witnessed in the preceding decade. The alarming downturn is evident across various key indicators, revealing a troubling narrative of dwindling opportunities and rising inequality.

Firstly, the most glaring shift is observed in job creation. The number of non-agricultural jobs, once burgeoning at 7.5 million per annum, has plummeted to a mere 2.9 million between 2013 and 2019. This precipitous decline raises serious concerns about the economic vibrancy that once propelled the nation forward. The manufacturing sector, despite the ambitious 'Make in India' initiative, has witnessed a disheartening contraction. Since 2013, total manufacturing jobs have fallen in absolute terms, with unorganized manufacturing particularly affected. The aftermath of demonetization in 2016 dealt a severe blow, leading to a decline in the contribution of manufacturing to GDP from 17% in 2015 to 13%, only recovering to 17% in 2022-23. This underscores the challenges faced by the sector and the need for strategic interventions.

The onslaught of the COVID-19 pandemic has further exacerbated the job crisis. The post-COVID K-shaped recovery has deepened the divide between organized and unorganized sectors, with the former gaining market share at the expense of the latter. This fundamental shift is a key driver of the escalating inequality that has become a defining feature of the current economic landscape.

Open unemployment, a critical parameter reflecting economic health, has witnessed a sharp spike from 2.2% in 2012 to a staggering 6.1% in 2017-18. This surge, reaching a 45-year high, can be traced back to the tumultuous year following demonetization. The Periodic Labour Force Survey of 2017-18 paints a grim picture, underlining the severity of the jobs crisis. The youth, once the demographic dividend, has borne the brunt of this economic downturn. Youth unemployment, in the age bracket of 15-29 years, has doubled or tripled between 2012 and 2019 and 2021. This disturbing trend, exacerbated by economic and health mismanagement during the COVID-19 pandemic, paints a grim picture for the future workforce.

Real wage growth, a barometer of economic well-being, has witnessed a sharp deceleration. Inflation, persistently surpassing the RBI's upper bound of 6%, has led to a paradoxical scenario where real wages have, in fact, fallen. This erosion of purchasing power has far-reaching implications for the standard of living for a significant portion of the population. The repercussions of these economic challenges are perhaps most acutely felt in the surge in poverty numbers. The World Bank, in a sobering report in September 2022, highlighted a distressing reality: during 2020, poverty, defined as living on less than $2.15 per person per day, increased by a staggering 70 million. Even more alarming is the fact that 80% of this increase, amounting to 56 million individuals, emanated from India. This revelation underscores the urgent need for a comprehensive and inclusive economic revival.