LIVELIHOOD ECONOMY CLAIMS THE SPOTLIGHT
The economic scarring caused by the covid-19 pandemic has forced public policy to pivot to shoring up the livelihood economy EPISODE #33
Dear Reader,
A very Happy Monday to you.
Last week the Reserve Bank of India governor Shaktikanta Das made an interesting observation while addressing the Financial Inclusion summit hosted by the Economic Times:
“While we have made tremendous strides in this area over the years, the (covid-19) pandemic has created new challenges and complexities. The financial system will have a crucial role to fulfil the aspirations and needs of our economy on the mend.”
The RBI governor is spot on. The pandemic, which forced a national and state-level lockdown, has accelerated the push towards greater adoption of digital payments. One aspect of this trend has been the deepening of financial inclusion framework, which enabled a seamless pass through of a massive Rs 5.53 trillion in Direct Benefit Transfers in 2020-21.
In fact, this is the big pivot in India’s growth strategy. To put it simply the public policy stance is now focused on the livelihood economy. This is in contrast to the period prior to the pandemic when the primary objective was to accelerate growth to top the benchmark of $5 trillion. The pandemic has devastated livelihoods forcing the union government to recalibrate its strategy and expand the size and scope of the social safety net. So this week I examine this pivot to the livelihood economy and the implications.
This week’s cover photo is taken by Ibrahim Rifath. Thank you Ibrahim.
A big shoutout to Gautam, Vivek, Rajit, Raman, Premasundaran, Vandana and Aashish for your informed responses, appreciation and amplification. Gratitude also to all those who responded on Twitter and LinkedIn. It is key to growing this newsletter community. And, many thanks to readers who hit the like button 😊.
If you are not already a subscriber, please do sign up and spread the word.
THE LIVELIHOOD PIVOT
Last week the Reserve Bank of India (RBI) governor Shaktikanta Das made an interesting observation in his inaugural address at the financial inclusion event hosted by the Economic Times newspaper. Alluding to the covid-19 pandemic and its devastating economic fall-out, the governor said:
“Financial inclusion is a key driver of sustained and balanced economic growth which helps reduce income inequality and poverty. While we have made tremendous strides in this area over the years, the pandemic has created new challenges and complexities. The financial system will have a crucial role to fulfil the aspirations and needs of our economy on the mend.”
According to the governor the pandemic has forced a major disruption, both in social and economic terms. Consequently the priority of public policy, going forward, is to chart a new paradigm for development. In other words the approach of public policy cannot be business-as-usual.
In fact public policy has already begun to effect this pivot. In the last 18-months the re-calibration has focused on protecting lives and mitigation of the economic damage, especially to those at the bottom of the pyramid. But clearly, going by the governor’s remarks, this is a good start but much more needs to be done.
Indeed in the recovery phase, defined by 2021, public policy has a new priority: The livelihood economy.
To explain this point further, prior to the onset of the covid-19 pandemic, which originated in Wuhan, China, the national focus was to take the shortest route to expand the economy to $5 trillion. For now this has been put on hold. Instead the focus is to heal the scarring caused by the pandemic and at the same time create the foundations of a new growth strategy.
The Devastation
In a bid to break the chain of infection of SARS-COV2 virus India opted for a national lockdown in March last year. By the time the lockdown was withdrawn the economy had been ravaged and key constituents like migrants saw their lives severely disrupted. Consequently the economy contracted by a staggering 23.9 % in the first quarter ended June. Worse it swelled the ranks of the poor, reversing a declining trend of the previous two decades. I had in a previous column dwelled on this problem of the ‘New Poor’—those who had fallen back into poverty.
“For the first time India and the world are witnessing a reversal in the decline of poverty levels—so painstakingly achieved over the last few decades. The World Bank had estimated last April that about 40 million would be pushed back into extreme poverty in 2020 due to the economic shock caused by the once in 100-year pandemic. Over the year with the global economic outlook worsening the World Bank revised this number upwards rather dramatically: they now estimate that the surge in the number of new poor could be anywhere between 119-124 million.”
If you do wish to read it again please click here.
Tragically the covid-19 pandemic returned in a new avatar, Delta, in February-March this year. The ferocity was unprecedented and the devastation even greater. Especially since lockdowns became the primary line of defence to contain the spread. In fact, even now it continues to be deployed in a staggered manner in some states—especially since the SARS-COV2 virus continues to infect at an alarming rate in Maharashtra and Kerala (the ground zero for the pandemic in India).
What this has done is to shrink the active days of the Indian economy in this fiscal. So effective economic activity in 2021-22 will take place only for about 8-9 months. In other words the country would have lost a quarter of a year of economic activity. And this after the gap year of 2020-21 when the economy shrank by a little over 7%.
To put it simply India’s economic clock has been wound back to 2018. Yes, the vaccine roll-out holds out hope—but more for the future than the present. Consequently the scarring of the economy is unlikely to heal in the immediate future. A helping hand from public policy therefore is not an option but an imperative.
A New Playbook
It is well documented that in the first phase of the covid-19 pandemic India’s public policy leaned towards saving lives. The onset of the second wave restored this emphasis. As this wave abates the focus is once again shifting to restoring livelihood. The bet is that vaccines will offer a shield against another wave—increasingly there is evidence that those vaccinated suffer lesser consequences when infected with SARS-COV2 virus. It provides crucial space for public policy to focus more on restoring livelihood.
In the first phase the union government, over the last 18 months, stepped up its efforts to shore up the social safety nets to mitigate the damage to those at the bottom of the pyramid. As a result, 800 million people were assured free food grains through the public distribution system. In addition the government stepped up cash transfers under a raft of schemes using the financial inclusion architecture built on the foundation of the JAM (Jandhan bank account, Aadhaar and the Mobile phone) trinity. An estimated Rs 5.53 trillion was transferred under Direct Benefits Transfer across 319 government schemes during 2020-21.
This was, as the RBI governor pointed out, the big learning about the benefits of financial inclusion and segues into the second phase.
“The pandemic has accelerated the push towards digitalisation with greater adoption of digital payments. It is important to take steps to converge greater digitalisation with goals of financial inclusion.”
And then added:
“In order to make the post-pandemic recovery more inclusive and sustainable, financial inclusion would continue to be our policy priority.”
Exactly why the RBI over the last year and more has maintained ample liquidity in the financial markets and also followed up with measures to lower the cost of credit—especially to small and medium business enterprises—and assisted small business and individuals struggling to repay stressed loans.
Simultaneously the disruption in technology and a liberalisation of norms by the RBI has galvanised FinTechs. In turn the empowered FinTechs are creating fresh space for financial inclusion by enabling credit flows to hitherto credit starved segments. To cite a few examples the growth of ‘Buy Now Pay Later’ phenomenon has brought on board an entire class of new consumers from outside of the top metros; similarly the shift away from non-collateral linked lending has not only facilitated credit to small business it has also enabled the birth of new financial intermediaries—most of whom are rewriting the rules of business. This is significant because they are feeding the livelihood economy.
More recently the union government undertook a reshuffle of the Union Cabinet. Among several changes it also brought the Ministry of Skill Development and the Ministry of Human Resource Development under the purview of one minister, Dharmendra Pradhan. The effort clearly is to provide a seamless connect between education, knowledge and eventually job creation. The mantra is: Take jobs to the people.
A must read piece by K P Krishnan, the former secretary in the Ministry of Skill Development, in Business Standard unpacks this further:
“The pandemic has also rapidly altered the nature of work. As workplaces increasingly shift to a hybrid mode of functioning — new kinds of job roles have emerged and a number of jobs have become redundant. New kinds of skills have become more valuable. For example, digital skills, which were considered transferable skills or soft skills until recently, have now become a core foundational skill — as important as literacy or numeracy. As workplaces are rapidly changing, a key skill needed for the future is the ability to “learn to learn” and “adapt” to new modes of working. Strong foundational skills are necessary to ensure that workers are adaptive to change — making it vital to have strong pathways between formal and vocational education systems.”
And then added:
“The Ministry of Skill Development and Entrepreneurship was created in November 2014 with a lot of expectations. Overall skilling outcomes have not yet met these expectations. The ministry has successfully consolidated skilling initiatives of the Government of India into a common framework. However, “skilling” continues to be a poor cousin of “education”. Hopefully, the recent decision to place these two crucial ministries under the charge of one cabinet minister is the first step in this long overdue integration, which is necessary for better outcomes.”
It is clear then that ‘repair and recovery’ will dominate the policy space for the next two years. However the idea is to create a new architecture which is enabling. One which will articulate and not restrict the aspirations of people; creating a billion entrepreneurs as it were.
Recommended Viewing
Early last month the US space agency NASA flew its spacecraft, Juno, close to Jupiter’s ice-encrusted moon Ganymede. It was the closest that any spacecraft had managed in more than two decades. NASA created an animation from the close-up photographs of Ganymede and Jupiter. The experience is unmissable. Maximise your screen to enhance the viewing experience.
Last week I came across a rare clip of two maestros of Indian classical music—Ustad Vilayat Khan and Ustad Bismillah Khan—performing at a concert. I traced the full version on YouTube. Besides their stand-out and passionate performance, the duo did an impromptu during their concert. Won’t spoil your surprise. Enjoy.
Till we meet again next week. Stay safe.
The last line of your article Anil, encapsulates the spirit of this writeup and the subtle connection with some of your recent posts. The real growth story of India will only come alive when the financial inclusion of the billion people takes place. The Aadhar card and bank accounts for all are like laying down the foundation for a fast moving digital economy. Initially we heard about jobless growth; the GDP was growth was being noticed by the rest of the world, but it was largely due to the growth of some industrial houses or certain sectors, like IT etc. If India has to become an economic success story, then the billion underprivileged have to part of the economic growth story. A very important observation indeed. Keep on shining the guiding light.
Dear Anil,
Your analysis of the present scenario is very correct.The need of the hour is that the public policy has to focus on livelihood and help people to recover from the economic and social upheaval caused due to the pandemic. The aim of financial inclusion is to provide financial services and solutions to all regardless of their incomes and savings and help the economically underprivileged. This can happen only if there is equality in opportunity. Still a large segment of our population does not have bank accounts. Among them are the women , poor in rural areas, landless and migrant workers.the reason could be lack of nearby financial institutions, poor financial literacy , documentation required,lack of financial capability etc.
We need more Fintech companies to make financial services more accessible to general public. These include traditional financial transactions, saving and investments, loan processing etc.For this We require improvements in financial infrastructure and digitalisation.
Your comment on integration of formal and vocational education system is very relevant. It will offer students the option of pursing nonconventional degree courses to acquire skill sets sought by the industry. National skill universities have been set up for this purpose.
Music has no limits , borders or age.It is proved in the two beautiful video clips.Music by Greek composer Vangelis ( chariots of fire fame) in NASA clip was amazing just like the photography. The thumri jugalbandi of the two legends is a treat to the ears!!
Finally the picture by Ibrahim speaks volumes about India.the woman is carrying drinking water, a basic neccessity, the road reflect lack of maintenance and there is garbage and plastic waste all around along with stray animals!! The RAINS, waterlogging , traffic jams all reflect the sad state of our crumbling infrastructure.