UPSC MAINS 2020: The link between jobs, farming and climate

The link between jobs, farming and climate

Topic : The link between jobs, farming and climate

Topic in Syllabus: General Studies Paper 3: Indian Economy

The link between jobs, farming and climate

Context:

According to NITI Aayog, the current economic slowdown is the worst economic slowdown that India has faced since independence. Moreover, the slowdown has been witnessed in consumption in the Indian economy. From many decades, consumption has been the major driver of growth in the Indian economy. Income stagnation has been the cause of consumption slowdown.

the great indian slowdown

Reasons for Income Stagnation

Unemployment

Unemployment is the only feature of the economy that answers positively to the query of whether it is in crisis today.

  • Periodic Labour Force Survey report 2017-18 – Points a dramatic rise in the unemployment rate since 2011-12.
    1. Apart from the category of ‘Urban Females’, the unemployment estimate shows that it is the highest in the 45 years since 1972-73.
    2. Even for ‘Urban Females’, it is double what it was in 2011-1
    3. For ‘Rural Males’, it is four times the average for the 40 years up to 2011-12.
  • These figures should convince us of the existence of a grave situation with respect to employment in the country.
  • Government’s responses to the slowing growth – Announced a range of measures, the most prominent of them being the reduction in the corporate tax rate.
  • The tax cut is meant to be a remedy for stagnant corporate investment.
  • But if the level of corporate investment reflects some underlying reality, it is only by tackling the latter that we can get to the root of the problem.
  • A large part of corporate sales is driven by rural demand.
  • The government does not hear their voices, as they are less organised than some other sections of the corporate world.
  • The rural picture matters not only because the largest numbers are located there but also because of their low incomes.
  • This means that the future growth of demand for much of industrial production is likely to come from there.

Agriculture Crisis

  • In the nine years since 2008-2009, rural income has recorded zero or negative growth.
  • Unstable agricultural production first lowers the demand for agricultural labour and, subsequently, its supply, showing up in greater unemployment.
  • Also, the increasingly erratic rainfall (due to climate change), affects crop production.

Untapped Rural Consumption

  • Unstable agricultural production first lowers the demand for agricultural labour and, subsequently, its supply, showing up in greater unemployment.
  • This affects the investment rate as when non-agricultural firms observe slow agricultural growth, they are likely to hold their investment plans.
  • Also, low agricultural export growth, the dismal banking credit, suggest that poor agricultural performance is a significant explanation of slack domestic demand.

 

Government Response

  • The government has responded to the slowing of growth by announcing a range of measures, the most prominent of them being the reduction in the corporate tax rate.
    • However, 85% of the workforce is engaged in unorganized sector, therefore corporate tax reduction will not bring a big change.
  • According to estimates, corporate tax reduction can increase GDP by 0.2 to 0.6%.
  • Also, a large part of corporate sales is driven by rural demand, but rural demand has slowed down, reflected in the lay-offs by biscuit manufacturers, automobiles and other ancillary industries.
  • Policy focus is disproportionately on the tax rate, the ease of doing business in the non-agricultural sector and a fussy adherence to a dubious fiscal-balance target.
  • Workforce leaving low-productivity agriculture, due to inadequate skills and industries, they are not getting absorbed into the organised non-agricultural sector.

Long term solution:

  • Any long-term solution to the problem of unemployment to which the slowing growth of the economy is related must start with agricultural production.
  • Government intervention should comprise steps to spur demand in the economy, by raising the purchasing power of the masses, especially in rural India.
  • It has long been recognised that there is a crop-yield cycle related to annual variations in rainfall but we are now witnessing a stagnation.
  • We may be experiencing an ecological undertow, and it could defeat our best-laid plans for progress.
  • Now, unlike in the case of a cycle, recovery cannot simply be assumed.
  • We would need the expertise of agricultural scientists to confirm what exactly is responsible for this state but it would not be out to place to ask if there is not a role for ecological factors in causing agricultural stagnation.
  • These factors encompass land degradation involving loss of soil moisture and nutrients, and the drop in the water table, leading to scarcity which raises the cost of cultivation.
  • Almost all of this is directly man-made, related as it is to over-exploitation or abuse, as in the case of excessive fertilizer use, of the earth’s resources.
  • Then there the increasingly erratic rainfall, actually due to climate change entirely induced by human action.
  • A deeper adaptation is required to deal with these factors. Intelligent governance, resource deployment and change in farmer behaviour would all need to combine for this.
  • It is significant that the reality of an unstable agricultural sector rendering economy-wide growth fragile has not elicited an adequate economic policy response.
  • Policy focus is disproportionately on the tax rate, the ease of doing business in the non-agricultural sector and a fussy adherence to a dubious fiscal-balance target.
  • It is now time to draw in the public agricultural institutes and farmer bodies for their views on how to resuscitate the sector.
  • To tackle the unemployment crisis, action will be needed on multiple fronts including investments in human capital, the revival of the productive sectors, and programmes to stimulate small entrepreneurship.
  • Globally, industrial growth driven by mindless consumption is the cause of climate change, therefore economic cost must not be at the expense of the environment.
  • Finally, any long-term solution to the problem of unemployment to which the slowing growth of the economy is related must start with agricultural production.
  • Intelligent governance, resource deployment and change in farmer behaviour, should be envisaged combined.

 

Conclusion:

To tackle the unemployment crisis, action will be needed on multiple  fronts including investments in human capital, the revival of the productive sectors, and programmes to stimulate small entrepreneurship. The rural picture matters not only because the largest numbers are located there but also because of their low incomes. This means that the future growth of demand for much of industrial production is likely to come from there.

Sample Question:

The Indian economy has been witnessing an economic slowdown in the consumption sector, which has been the major driver of the growth in the Indian economy. Analyze the nature and factors contributing to the current economic slowdown.


Infograph The link between jobs, farming and climate