Temporary Economic Slowdown - Lessons to be learnt
iasparliament
October 23, 2019
What is the issue?
Most reforms and policies which aims to weed out adverse practices cause disruptions which catch people off-guard.
This reflects lack of preparedness and unwillingness to come to terms with reality.
What could be learnt from the slump in the automobile sector?
The recent temporary slowdown in some sectors of the economy carry lessons that will help India prepare for such disruptions in the future.
Take, for instance, the automobile sector.
For decades, reams have been written about pollution, congestion, and accidents caused by the burgeoning number of automobiles in cities.
Solutions - Shifting to mass transport systems that are more environment-friendly, less polluting, cheaper, faster and safer.
There is a need for enhanced paratransit like taxis to complement public transport.
Reason why these solutions are feasible -The urban infrastructure cannot keep pace with the increase in the number of automobiles.
As the cost of owning a vehicle is so high, a new trend is seen in the developed economies that people prefer taxis to owning vehicles.
Logistics cost in India is high compared to the developed world.
But, what is the impact of these solutions?
ICRA study, 2018 – In the post-GST, the turnaround time for long-haul trucks has been reduced by at least a fifth as inter-State check posts were removed.
This means that more trips are possible per truck and this could lead to a slump in demand for new trucks.
Therefore, productivity improvement in one sector may imply catastrophe for another one.
After years of planning, campaigning and expenditure, more people are using public transport and paratransit options in major cities.
We should have expected vehicle sales to fall as a result of these changes and we should have prepared for alternatives.
The response to the current fall in sales of automobiles is worryingly indicative of how we might respond to future shocks.
This raises the question of what will happen if the same scenario plays itself out as a consequence of reforms and campaigns in a few years.
Why is one sector’s gain, another’s loss?
Wheeled luggage may result in porters in railway stations going out of business.
Cycle-rickshaws are slowly being phased out and are being replaced by motorised vehicles.
The fact that the coal or petroleum sectors are showing decline may not automatically imply that the core sectors are in the doldrums.
The expectation should be that they will show decline, especially when India is investing so heavily in renewables.
As more and more industries opt for captive renewables, thermal plants will become increasing stressed and SEBs may have to forsake their high-paying commercial and industrial customers.
What is to be understood?
In the short run, whenever such changes take place, disruption is inevitable.
Yet, we expect the change to be inconsequential, or the industry hopes that growth in the sector will outdo the disruptive effects of the reform.
All this speaks volumes about the confidence we have in our own interventions.
Our stakeholders should be prepared for the consequences of the country’s consciously undertaken reforms.
The inexorable march of technology, digitisation and ‘green’ public policies will inevitably have an impact on several industries.
National and societal welfare, the environment and ethical governance will start taking precedence over profits for a few.
Several sectors of the old economy will need to brace themselves for more such shocks which will be permanent and inevitable.
