Time to act

The ministry of labour report that five lakh Indian jobs have been lost in just three months of the global slowdown should dispel any notions that the Indian economy will continue to witness healthy growth despite the downturn in the United States. The mood in Davos,the expectation that India will grow by 7 per cent,the forecasts made by analysts who fear to be different from the rest,all these can cause damage by inducing complacency and allowing the government to sit back and watch. The fact that India does not regularly produce employment figures is one reason for this problem. However,we do have numbers for industrial production,auto sales and exports. These have been showing a sharp decline. They have been indicating that economic activity has been falling. Considering how demand for exports,consumption and investment will be hit by the global downturn,it is unwise to think we are being cautious by not responding to the signs of slowing demand. For

example,in the most recent credit policy,the RBI chose to wait and watch on cutting interest rates. Consequently,the economy will lose more momentum before the RBI responds.

Large parts of the service sector,including tourism,hotels and airlines,are facing a slowdown. Services as a whole may not show a slowdown since the government sector,which is part of services,will show an increase as the contribution of this sector to GDP is measured by salaries paid,and higher payments after the Sixth Pay Commission will show up as higher growth in services. The industrial sector will be badly hit. Here we see jobs actually being shed. The gems and jewellery sector has shed 11.9 per cent of its workforce in the last three months. Automobiles and transport sectors have shed 4.8 per cent and 4 per cent of their jobs,

respectively. Metal exporters have laid off 2.6 per cent and textile exporters 1.29 per cent.

The risks from erring on the side on inaction are far greater than erring on the side of doing too much. Those who warn against doing too much can only come up with inflation as the danger. At a time when prices are falling,this is a mistake. Never was the danger of inflation as small as it is today. Given the risks from a slowdown,we can afford that risk.