No Jobs, Low GDP: Why India’s Domestic Policies Aren’t Holding Up

India’s GDP is expected to decelerate this year, first time since the financial crisis hit world markets in 2007.

While world GDP soars, India remains unmoored with rising unemployment cutting into our GDP.

(Photo: Reuters)

While world GDP soars, India remains unmoored with rising unemployment cutting into our GDP. Ruchir Sharma, Chief Global Strategist at Morgan Stanley Investment Management, wrote in Times of India about how India stands out as a "sore thumb" in the global jobs picture.

He says, unlike the 45 economies that the Organisation of Economic and Cooperation and Development (OECD) tracks, India's GDP is expected to decelerate in 2017, first time since the financial crisis hit the world markets in 2007.

On Exports Sector

While even emerging economies have seen a marked improvement in the job sector after grappling with recession, there isn’t adequate data to assess the rate of employment in India. Amidst poor data and a flurry of articles on job loss, India is lagging even in the exports sector.

“One theory points finger at India’s high real or inflation-adjusted interest rates, but real rates have risen in most countries this year, as inflation has unexpectedly declined everywhere; so this can’t explain why India is different now,” Sharma wrote in TOI.

Sharma says deflecting currency does not solve the mystery behind low exports because "trade is more sensitive to changes in demand than to exchange rate movements".

On Domestic Policy Experiments

Sharma analyses why India, which used to be at par with the other developing economies, has suddenly become a victim of its sloppy domestic policies. He says demonetisation and GST have not only complicated the economic structure of the country, but has also impaired local businesses, including that of exporters.

The subsequent rise in imports to meet demands have widened the deficit in foreign trade.

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On Slow Job Growth

Sharma points out that not only in the GDP growth rate, India is heedless on the job front too, with no signs of matching up to the global recovery trends. He calls technology and "premature deindustrialisation" as reasons for India’s job crisis.

On Why India Can't Compete with China in Manufacturing

In manufacturing, which Sharma says is "always the most important path to mass employment", India faces a hard time competing with China – further hindering its position in the global market. While Vietnam, Bangladesh and Cambodia have done well on the manufacturing front by taking up share from China in low-end market share, India still needs to fumble its way through.

Sharma concludes by suggesting some reforms to establish a stance for India in the global manufacturing sector – simplifying labour laws, cutting down on corporate taxes to match other East Asian countries, and working towards an improved transportation network.

But firstly, he says, to be in sync with the global recovery, India needs to think twice before coming up with more unique policy experiments.