Required: A Stimulus To Spend

A fiscal stimulus is crucial to protect the Indian labour force, says CP CHANDRASEKHAR

The effects of recession on the Indian labour market are only now being felt. One immediate effect, in terms of dependent industries, is the loss of jobs in the garment, gems and jewellery sector. Only seven percent of the workers constitute organised workers, and even this figure includes temporary workers.

Second, there is a set of sectors where demand is dependent upon credit-financed purchases, as in construction, automobile and consumer durables. There is a visible effect here, either because people find it difficult to access credit, finance purchases or they cannot meet repayments. There’s a whole ancillary and raw material sector that services these industries — the unorganised, flexible labour force.

We’re observing a sort of media response and public outcry when it affects the new middle class in the automobile industry and the IT sector, not to say that we shouldn’t be concerned over Satyam. But behind all this, lakhs of workers are losing jobs, a fact that’s been largely overlooked. The more flexible a workforce is, the less attention it gets, such as 94 percent of the country’s workforce which is unorganised.

Agricultural commodity prices are rising globally. Earlier, many agricultural imports were controlled by quantitative restrictions. We moved away from this by moderating tariffs. Take vegetable oil: November 2008 saw a significant increase in palm oil imports. This affects the vegetable oil, the coconut oil and soya bean sectors. Recession will mean increased imports and this is bound to have an adverse impact on the livelihood of the peasants and the agriculture industry.

There’s always talk about changing labour laws, but they prevent retrenchment and are in place so that investments can occur in new areas. In any case, a very small proportion of the employment sector is protected. The new Social Security Bill for the unorganised sector, which was passed recently, is far more limited in its scope than what was being pushed by the NCUS.

The problem is that the problem doesn’t stem from within. We need a stimulus that restores the viability of agriculture. If it results in increased prices, it will need stronger procurement in the public distribution system. Since the problem is demandrelated and not triggered by supply, giving incentives alone is not a solution. Profitability arises only when there are sales. The stimulus is crucial to bring about change.

We need a major fiscal stimulus. The subsidy route won’t work any longer. What’s unraveling is far too big for that. The government should drop fiscal conservatives and spend on the common man.