Archives: Publication

First unlike Americans opting out of the workforce is not an option for most Indians. The existence of the vast informal sector offers refuge to employees pushed out of wage employment. Second this employment of last resort should not be taken to imply a robust recovery.

Even as vaccinations soar and the US economy reignites of the 52 economists surveyed earlier this month by the Wall Street Journal 22 predict a fundamental shift in how Americans view work. The labour force participation may never rebound. So what is the Indian experience? Are we also looking at a different normal?

Along with shuttering businesses trains and schools data collection has also paused. Nonetheless diverse sources of data while incomplete in themselves allow us to develop a shadowy picture of the recovery.

These data suggest that the Indian employment challenge is quite different from the one faced by the US. Voluntary withdrawal especially for women in the US does not characterise India’s employment scene. The Indian experience suggests a strong desire to resume work even when jobs are elusive.

The National Data Innovation Centre (NDIC) at the National Council of Applied Economic Research (NCAER) has been collecting data on households in the Delhi NCR region. Several stylised observations comparing the same individuals over time and taking into account the seasonal nature of employment as well as education place of residence and social background are noteworthy.

One the Delhi Metropolitan Area Survey (DMAS) indicates a sharp drop in seasonally adjusted employment immediately following the first lockdown in April-June 2020. The employment rate for men aged 21-59 fell from a pre-pandemic high of 88% to 63% in April-June 2020.

Women’s employment rates declined from 33% to 23%. While these numbers only reflect the Delhi NCR region the Periodic Labour Force Survey (PLFS) conducted nationwide has also shown a sharp decline in worker population ratio for men aged 15 and above from 67% to 57% and for women from 19.6% to 15.5%. The DMAS data are based on a different questionnaire design than PLFS so the absolute levels are not comparable. But both present a similar picture.

Two once phased reopening began in June 2020 employment began to recover sharply. By Q4 2020 employment had almost returned to nearly pre-pandemic levels – 83% for men and 32% for women. Similar results are shown by Centre for Monitoring Indian Economy (CMIE) data that find employment rates were only about 4% lower in December 2020 than the prior year.

Stalled at U-Turn

Three the second wave of Covid-19 in March 2021 did not lead to the sharp employment contraction visible during the first round of lockdowns. During April-June 2021 employment rates in the DMAS sample fell to 78% for men and 28% for women. This is only about half the drop experienced during the first lockdown in 2020. By September most of this loss had been recouped and male employment was 81% while women were 33%. The CMIE data also show that after a drop in April- June 2021 by September 2021 the employment rate returned to Q1 2021 levels.

Other indications however suggest that this recovery is fragile. The DMAS data show that much of this recovery rests on self-employment in agriculture or petty business. Whether in salaried jobs or casual labour wage employment has declined substantially – falling from 46% pre-Covid to 36% in July-September 2021 for men and from 13% to 9% for women. Self-employment in agriculture or small business increased from 36% to 41% for men and from 21% to 24% for women.

On average incomes in informal self-employment have always been lower than those for individuals in salaried work. So while self employment has offered some support to workers losing wage work this may not fully cushion against the income shock.

NCAER’s December 2020 NDIC’s Delhi NCR Coronavirus Telephone Survey 4 (DCVTS-4) found that 9% of the respondent households could no longer rely on their pre-pandemic primary source of income. These households seem the most vulnerable with 29% reporting experiencing hunger instead of 12% among households that could continue their pre- pandemic activities. Other data including those from an Azim Premji University survey in Rajasthan and Karnataka in February 2020 and August-September 2020 showing a startling increase in households reporting zero income confirm this concern.

Employment recovery is most sluggish in urban areas. Before the pandemic the Delhi NCR study found 81% employment among urban men which has dropped to 69% in July-September 2021 while rural male employment is at its pre-pandemic level. Similarly work participation for men whose households belong to the top one-fifth of economic status before the pandemic has fully recovered from the employment loss they experienced during the initial lockdown. Those in the fourth quintile are close behind. The bottom three quintiles have yet to recoup their employment losses.

Unlocking is Key

These observations highlight two things. First unlike Americans opting out of the workforce is not an option for most Indians. The existence of the vast informal sector offers refuge to employees pushed out of wage employment. Second this employment of last resort should not be taken to imply a robust recovery. Hence restoring opportunities for salaried work and increasing wage employment in the construction and manufacturing sectors deserve particular attention.

The strong policy emphasis on expanding vaccination coverage may help offices factories and schools reopen fully bringing back salaried jobs. Also if the announced infrastructure push is successful particularly if it begins with labour-intensive urban infrastructure projects that may enhance opportunities for urban casual labourers.

The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com

RBI (not GoI) announcing a push towards CAC – widely seen as increasing the vulnerability of emerging market economies to global macroeconomic shocks – on the day the Global Hunger Index (GHI) showed India slip three ranks to fall below Pakistan Bangladesh and Nepal marks a seismic shift in India’s macroeconomic policies.

India is on the cusp of a fundamental shift [toward capital account convertibility] with increased market integration in the offing and freer non-resident access to debt on the table’ said RBI Deputy Governor T Rabi Sankar speaking at the Fifth Foreign Exchange Dealers’ Association of India Annual Day last Thursday. With that one sentence he resurrected a debate that had long been laid to rest even by the most ardent fan of capital account…

Read more at:
https://economictimes.indiatimes.com/opinion/et-commentary/full-capital-account-convertibility-will-merits-outweigh-the-risks/articleshow/87168347.cms

Challenges abound in reducing dependence on coal and oil but the greater use of gas in our energy mix could ease the way.

Ironically the coal crisis has forced the Indian government to ramp up domestic production and imports of coal the dirtiest fossil fuel while the world focuses on net-zero carbon emissions by 2050. This irony reflects the reality that power generation and hence our economy is heavily dependent on coal followed by petroleum.

Power generation is the main source of carbon emissions. Estimates based on data from the International Renewable Energy Agency (IRENA) indicate that non-renewable fossil fuels account for 70% of the current (2020) generation capacity of 4523038 MW followed by hydro/marine power at 11% solar and wind power at 6% each nuclear power at 5% and bio- energy at 2% (bit.ly/3G2mWbh).

The big question is how do we move from such heavy dependence on fossil fuels to a net-zero carbon emission situation where the share of fossil fuels is virtually eliminated and how long will it take us to get there?

A recent Council for Energy Environment and Water (CEEW) report has highlighted many formidable challenges to India’s transformation from a fossil-fuel-dependent economy to one based on renewable energy. First there is the technological managerial and regulatory capacity to manage this revolutionary transformation. Then there is the major constraint of finance. The transformation will involve massive high-cost high-risk long-gestation investments. There is little fiscal space for large public investment in renewables while private investment in renewables at scale is just starting.

The willingness of developed countries especially the US to make available adequate low- cost finance and required technologies remains uncertain. India has negotiated hard to tie up access to such financing and technologies. The results are still awaited.

Another major constraint is access to land. The CEEW estimates that creating renewable power generation capacity for a net-zero economy could require between 4% to 6% of India’s land mass. Managing the political economy of the transformation is yet another challenge. Tapering off of fossil-fuel- based power generation and closure of coal mines oil wells and thermal or oil-based power plants will be resisted by the owners of these assets as well as thousands of workers employed at these establishments. If the cost of power based on renewables turns out to be higher than fossil-fuel-based power even consumers will resist the transformation. Breakthrough technologies in carbon capture and storage (CCS) and hydrogen-based power could radically reduce the cost of power based on renewables. A few Indian conglomerates are also investing in renewable power and these technologies. However the commercialization of these technologies at scale is still a work-in-progress.

The CEEW report has also explored the implications of a number of alternative net-zero scenarios. Whichever scenario plays out it is quite clear that emissions will be rising for the next 30 to 50 years. A two-pronged strategy of accelerating renewable power generation and radically changing the composition of the fossil-fuel basket in favour of gas could significantly reduce that period of transition.

Carbon dioxide and other emissions from gas are only a small fraction of emissions from oil and especially coal. Global gas supplies have grown dramatically following the shale revolution driven by hydraulic fracturing and horizontal drilling technologies. International Energy Agency projections indicate that gas will overtake coal as the second largest energy source after oil within this decade. Despite these developments the share of gas in primary energy supply and power generation have been stuck at only 5-6% in India. The country is ranked 29th in global production at a little over 1 trillion MMcf per year and 14th in global consumption at around 2 trillion MMcf per year. Why has the shale gas revolution passed India by?

A recent collection of papers edited by Vikram Mehta The Next Stop (Harper Collins India 2021) addresses this question and other aspects of the gas market in India and abroad. Though India may have gas reserves of over 100 MMcf only about 40% of this is in accessible terrain and would be depleted within a couple of decades. Given the high risks and costs of gas exploration and extraction expected returns are low. These are further compromised by a completely distorted administrative pricing and taxation system combined with a regulatory nightmare of multiple overlapping systems. Hence neither public investment by GAIL nor private investment has been forthcoming.

However other than development of our neglected domestic gas distribution system energy investments should be entirely directed towards development of renewables. India’s future gas requirements should be largely met through imports. This would largely be foreign exchange costs would be neutral since gas imports would mostly replace imports of oil and coal. With planned pipelines from Central Asia having floundered thanks to Pakistan our gas imports are still mostly from West Asia especially Qatar. But the global market for gas is being radically transformed.

Australia may soon displace Qatar as the largest liquified natural gas (LNG) exporter and may itself be replaced by the US in the future thanks to the shale revolution. US suppliers are also undermining the rigid traditional long-term gas contracts with flexible market-based contracts. This diversification of supply sources and the emergence of active spot and futures markets is transforming the global gas market. Two recent technological developments enabling liquefaction and re-gasification of LNG on board ships will further disrupt the market and reduce costs. India therefore has a great opportunity to exploit these developments and strike excellent gas import deals.

The author would like to thank Rohit Sanyal Nag for his help. These are the author’s personal views.

Sudipto Mundle is a distinguished fellow at the National Council of Applied Economic Research

In the latest Global Innovation India India’s rank is 46. The good news is that she has climbed 2 spots over the previous year’s standing and the performance is labelled as above expectations against the yardstick of the level of development. The bad news is that Asian countries like Malaysia Vietnam Thailand or the newly formed East European countries like Bulgaria Estonia Slovenia and Hungary scored above India. Not surprisingly it is often mentioned that Indian entrepreneurs lack innovation culture and they have not been able to produce copious innovation in technology vis-à-vis their counterparts in other countries. Indian entrepreneurs are well-known for their culture of strict adherence to and alignment with accepted standards and conventional practices. However one often hears that Indian firms are less inclined to exercising their minds with unconventional out-of-the-box ideas to try novel experiments. At a micro level nevertheless Indian entrepreneurs function effectively in implementing quick fixes commonly called “jugaad” which serve as low-cost innovative workarounds or solutions to problems.

Independently motivated inventors and entrepreneurs sometimes make major inventions or breakthrough innovations. By contrast organizations are known to make innovations incrementally by adding features and functionalities to a basic entity. Each individual step in this process is crucial in itself and together they have a cumulative force. If the individuals participating in such innovative ventures possess sufficient educational training domain knowledge and work experience then the contemplated innovations may have a fairly predictable rate of success. To this end large business organizations such as Procter & Gamble Microsoft Intel Lucent Google Boeing and a number of others maintain distributed R&D divisions where engineers scientists mathematicians statisticians economists and software developers work together in globally dispersed teams to give birth to innovative products and services.

An important question arises in this regard as to whether the current system of education in the country is responsible for the dearth of technological innovation in the Indian industry. It is widely believed that higher education is a sine qua non for the advanced knowledge required to make major technological breakthroughs or to come up with innovative solutions to important technological problems. The engineering and technological education offered in most colleges and universities in India is only adequate to meet the needs of incremental innovations that are commonly carried out in product and service development projects. Moreover many Indian firms in the IT sector with their low-cost technical workforce work on outsourced contracts with foreign firms that dictate the terms and conditions of innovation in their products or services for their domestic or the international market. Unfortunately there are only a limited number of Indian firms that undertake large-scale R&D work for the development of novel products and services involving collaboration among experts in multiple disciplines. This is indeed one of the primary reasons why there has been less success in the domain of incremental innovation in India.

In the area of breakthrough innovation India has performed rather poorly. Curriculum-based education in engineering and technological fields offered in most Indian colleges and universities lacks a sound footing in innovation. Students who acquire a large corpus of formal knowledge are trained to think in rather conventional ways which impede unorthodox approaches that stem from intrinsic creative urges of individuals. From a theoretical angle the formal education received in Indian colleges and universities is by and large on a par with that offered in many advanced Western countries. But many of these institutes’ labs are not well equipped. Moreover the apprentice system that is common in European countries (Germany for example) is missing in the Indian educational system. Thus movement from bookish educational course work to the practical world of production takes place only when students join the job market. As a result students are not trained during the undergraduate for out-of-the-box thinking based on actual work experience. In sum there is a critical need for radical changes to instill creative thinking into the minds of the Indian students.

Most of the Indian Technical Institutes (ITIs) function with outdated instruments and stale course work. The knowledge gained from attending those institutes are of limited use in the modern world. While the government is spending a considerable sum of money in skilling people by these ITIs the proper skilling is only possible if their course work and instruments are upgraded. This would need heavy investments. The question is who will foot the bill? Currently the economy is down and the private as well as the government are short of funds for training the workforce.

In India fundamental research which is a key factor for breakthrough innovation is funded primarily by the state. It follows a much hierarchical top-down approach that does not facilitate the kind of free thinking that is absolutely essential for making innovations. In addition it requires rigorous training during higher studies that is largely missing from the Indian educational system.

Professor Sanjib Pohit National Council of Applied Economic Research (NCAER) Professor Jaideep Ghosh Shiv Nadar University (SNU)

The authors are Professors at National Council of Applied Economic Research and Shiv Nadir University respectively. Views are personal.