Prof. (Dr.) D. Mukhopadhyay Mukherjee
The consequence of Covid-19 took the shape of global pandemic which caused the world economy to be almost in ventilation and it is more so happens in the populous countries belonging to the underdeveloped and developing economies and certainly India was not an exception in anyway which is abode of 1.40 billion population keeping in view that the Census 2021 is overdue. The stalwarts are of the views that the degree of burden to the economy and loss of lives is manifolds compared with the Great Depression of 1929-30 and the Century old Spain Flu 1917 as well. This breeds a severe socio-economic crisis in the homo sapiens civilization driven by technology. The Indian economy is being observed to be on the path of recovery and current IPOs, vehicles, for financial resource mobilization are evidences that the economy is back to the mood of recovery but it is mentionable that the recovery is yet to gain momentum as economic activities are just on the track at a slow rate. Therefore, without reinventing the economic wheel for faster recovery, Lord John Maynard Keynes’ macroeconomic theory applied to enabling economic recovery from the Great Depression 1929-30 may be wisely applicable to the current scenario as the on-going economic crisis is similar to that of the Great Depression in multiple ways. The principal indicators for economic activities are mobility of the professionals, power consumption rate and white collar and blue collar human resources’ participation in the process of conversion of input to output particularly during last two weeks is being observed to be in place. The process began just to meet the demand of stand stillness of the economy.
The Keynesian multiplier approach is the need of the hour to push forward the sick economy through government spending on the strong foundation of favorable monetary and fiscal policy adoption, implementation, monitoring and applying corrective measures whenever necessary on the basis of flawless feedback mechanism. What is required to be done by the government is to make current under consumption take upward trend through empowering middle and lower income groups-strata by efficient price mechanism and regulating labor market aiming at job creation and providing social security in one hand and exercising strict vigilance over deflation by an efficient monetary policy on the other. The government should spend in infrastructure building, connecting Indian mass to the rest of the world through technological collaborations, inviting foreign investors by hassle-free regulation, speeding up dispute resolution , of course, keeping eyes on sovereignty and integrity of the country, social security should receive priority, making education more and more skill based and gap between existing higher education delivery and the contemporary needs of quality education should be made as narrower as possible against global benchmark. It is a very sorry figure to mention that hardly 5% of Indian work force are attributed with required skill sets compared with the economically advanced countries such as 24% in China, 52% in the USA, 68% in the UK, 75% in Germany, 80% in Japan and magnificent 96% in South Korea. This needs immediate attention of the government as how to impart more and time-honored skills to the job seekers. Moreover, about 46% the youth graduated from educational institutions across the country are somehow employable. The Return on Skill(ROS) needs emergent attention of the policy makers. The Expenditure Multiplier Effect’s buoyancy is to be created in order to rejuvenate the pandemic eclipsed economy. The change in aggregate expenditure circles should be made in place throughout the length and breadth of the economy. The Expenditure Multiplier cannot derive the desired outcome unless household consumers are empowered by economic stimulate and here lies the role of government expenditure. The Multiplier is applicable to any kind of expenditure and not restricted to household expenditures only. It is categorically applicable to the aggregate Expenditure Model such as C+I+G+(X-M) and it works in both the ways-when expenditure decreases and increases as well. Investment falls off when confidence of the business faces downward trend and business leaders’ sentiment goes down when export(X) remains captive by the negative force created by low export. These changes shall certainly reduce aggregate expenditure and consequently create an adverse impact on real GDP by dint of the Multiplier moving in reverse direction.
As part of autonomous investment in institutional training, creation of skill and training universities , providing continuing education, training for the trainers, reducing the gaps of huge proportion of poorly trained manpower in unorganized and informal sector that absorbs about 90% unorganized work force can generate a spill-over effect. It has been observed during last two months that economic front of India is struggling tooth and nail to bring back the sick economy to the track of recovery. There are substantial empirical evidences on the governmental effects of different reopening trajectories and their timing and speed on economic recovery.
A comprehensive set of policies associated with the litmus tested Keynesian macroeconomic model for economy-recovery by Multiplier force is an answer to promoting a speedy and strong recovery that can take care of inequality, ensures sustainability, causing resilient and inclusive development. Initially, Multiplier takes some time to gain momentum and eventually Acceleration starts to be operational by dint of which a sustained aggregate demand induces a significant rate of increase in investment expenditure triggering rapid economic expansion. It is important to mention that cost of production and other allied indirect costs in the form of overheads including adopting total quality management in the form of appraisal cost , internal failure cost , external failure cost and after sales delivery cost need to be managed in order to enjoy the benefits of operating leverage ensuring of which needs a strategic cost management approach. In order to obviate the problems of cost optimization, professionally qualified cost and management accountant (cma)’s services and empowering them to provide authentic cost data for planning cost structures responsive to domestic and international markets is a time honored recommendation. For becoming an entry player in the emerging markets and maintain sustainability, cost of production and quality are the twin denominators for measuring performance in the buyers’ market as sellers’ market are seldom seen in real term.It is a sine qua non for demand revival in the market and demand without power to purchase is nothing but desire which has hardly any effect or impact in demand revival process and that is why many Nobel Laureates in Economic Sciences are categorically found to be in favor of empowering people with monetary income which is the ice-breaking point to overcome the ongoing deadlock in the economy mainly under chronic recession such as the ongoing pandemic.
The government must have considered efforts to ensure budgeted expenditure in different sectors and it is more so in infrastructure development sector say, road construction, communication facility building, creating institutions of higher learning for imparting skill and providing technology oriented and continuing education and training for sharpening existing expertise in mass scale. At this point, it is to note that credit growth since the commencement of the Financial year 2021-22 is observed to insignificant. The commercial banks are still looming under the influence ofthe ongoing pandemic fever and their main business to lend and financing projects is not very encouraging in terms of data, facts, figures and performance.
Under the given circumstance, It may be recommended that government should spend more faster in rest of the period of 2021-22 in order to obtain Keynesian Multiplier Effect .Besides, more transparency in the formulated policies and undoing the draconian economic and fiscal laws for making investors’ friendly business environment is a must otherwise, Multiplier will be constrained not to influence Acceleration. The Government has already undone retrospective taxation laws by scrapping the 2012 Fiscal Law in the Monsoon Budget Session of the Parliament which is certainly a welcome step in investors’ friendly image building and attracting foreign investment. Scrapping retrospective fiscal law, 2012 is expected to make some adverse impact of losing INR 12,000 crore but long run benefits need to be accounted for and taken into consideration. Ultimately cost-benefit analysis is likely to give its verdict in favour of sustainability, growth and development. Therefore, Keynes Multiplier along with providing progressive investors’ friendly business environment to pivoting consumption and investment expenditures in order to achieve consequent revival of economy from the demonized claws of the recession created by the Pandemic is possible and overall socio-economic progress is likely to take place eventually.
(The author is Professor of Management and an Independent Researcher)
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