GS Analyst: Daily Current Affairs

Context:   

The perpetuation of inequalities is aggravated by the ongoing neglect of the social sector, especially considering the lack of lucrative employment opportunities and the imminent job crisis.

Poverty and Income

• Multidimensional Poverty Claims: The Finance Minister asserted that 25 crore people were lifted out of multidimensional poverty (MPI) in the last decade, but MPI's limitations were acknowledged.
• Misleading Income Growth Claims: The Budget claimed a 50% average real income increase, but it was criticized for not addressing income distribution issues, with evidence suggesting stagnant real wages.
• Unsettled Employment Scenario: Despite optimistic budget statements, the report highlighted distress in the job market, especially with a rise in agriculture employment and low wages under MGNREGS.

Demand and Allocations for Social Sector

• MGNREGS Budget Discrepancies:Despite high demand, MGNREGS faces issues, reflected in a higher Revised Estimate (RE) for 2023-24, indicating potential underfunding for the program.
• Stagnant Social Sector Budgets:The allocations for social sector schemes, including education and health, saw nominal increases, but real-term reductions over the past decade persist, exacerbating inequalities.
• Neglect of Basic Services:The Budget's focus on high-profile schemes neglects essential services like education and health, contributing to poor infrastructure and perpetuating social inequalities.

 Aspirations vs. Realities

• Unrealized Economic Well-being: The Budget emphasized improved living and earning conditions, but evidence suggests depressed incomes for the majority, with women's increased participation potentially indicating distress.
• Divergence in Budget Claims and Ground Reality: The Budget's positive tone clashes with poor growth in private consumption expenditure and the reversal of structural employment changes, pointing towards economic challenges.
• Inadequate Focus on Social Sectors: Neglecting social sector development exacerbates inequalities, hindering India's true aspiration, especially in the absence of gainful employment opportunities and a looming job crisis.

Context:  

A substantial transformation in the energy economy could potentially generate new employment opportunities, offering a temporary solution. However, the rapid pace of change may outstrip the workforce's ability to adapt.

Evolution of Economic Theories on Human Labour

• Classical Perspective: Since Adam Smith, classical theories considered human labor essential for production, reducing all processes to labor time.
• Neoclassical View: Modern theories, including neoclassical economics, assume labor and capital as basic factors with substitution possibilities.
• Keynesian Approach: Keynesian theory diverges, making unemployment a central concern and offering measures to address it.

Challenge to Traditional Economic Theories:

• Rise of Automation: Widespread use of robots and AI challenges classical and neoclassical assumptions by making production without human labor a reality.
• Sraffa's Unique Perspective: Only Sraffa's theory allows for a labor-less economy, acknowledging the dynamic of potential unemployment.
• Policy Responses: Traditional economists propose structural readjustment, while Keynesians emphasize demand solutions, and practical approaches may involve a mix of strategies.

Unprecedented Threat of Job Displacement

• Historical Context: Historically, machines increased productivity and created new jobs, countering fears of job loss.
• Current Shift in Energy Base: Massive changes may create new jobs, but the pace and extent of transformation raise concerns about the labor force keeping up.
• Uncertain Future: Unlike past shifts, the rapid and far-reaching nature of change makes the impact on employment uncertain, questioning traditional optimism.

Context:

Implementing significant fiscal consolidation in an election year is a bold and necessary move that deserves commendation.

Rethinking Fiscal Policies Post-Pandemic:

• Over-Correction in Advanced Economies: Post-2008, advanced economies over-corrected fiscal policy post-pandemic, causing prolonged inflation and aggressive monetary tightening.
• US Case Study: The US exemplifies the challenge, with an expanding fiscal deficit amidst efforts to control inflation, leading to conflicting policy actions.
• Shift to Counter-Productive Fiscal Policy: The lesson learned is that counter-cyclical policies must be symmetrical; otherwise, fiscal interventions can become counter-productive.

India's Fiscal Consolidation Imperative:

• Divergence in India's Cyclical Position: Despite strong growth, India's fiscal consolidation was crucial due to elevated starting points and its impact on public debt sustainability.
• Concerns About Debt Dynamics: The signal sent by the increasing public debt to GDP ratio emphasizes the need for fiscal consolidation to avoid adverse debt dynamics.
• Operational Challenges: Maintaining elevated fiscal deficits would require consistently high real growth, leaving little ammunition for future shocks in a volatile global environment.

Commendation and Future Strategies:

• Commendation for Fiscal Consolidation: The interim budget receives commendation for front-loading fiscal consolidation, with lower deficits than market expectations.
• Shift in Focus to Growth Extraction: The focus should now shift to extracting the least growth-costly fiscal consolidation by emphasizing revenue generation over expenditure compression.
• Principles for Sustainable Consolidation: Prioritize raising revenues, incorporate strategic asset sales, preserve key sectors like health and education, and ensure capex growth while reducing deficits.