Fitch flags high joblessness
Global rating agency points out rural distress, attributes GDP deceleration to weak mfg
Mumbai: Global ratings agency Fitch on Thursday said there has been a rise in unemployment in the country, and attributed GDP growth deceleration to domestic factors like weak manufacturing and dip in farmers' income.
The agency said the Reserve Bank will be on hold for the remainder of 2019 after Thursday's second consecutive 0.25 percent rate cut.
Commenting on the recent data showing a deceleration in growth, the agency said this is mainly driven by domestic factors and emanates from weak manufacturing and low food inflation weighing on farmers' incomes. It further said,"limited available indicators" also point to a "rise in unemployment".
The comments on rural incomes and rise in unemployment come amid the election campaigns where the issue of low job creation has gained greater prominence, with the Opposition attacking the government performance.
There have been concerns over jobless growth, which were also voiced by the then LabourMinister BangaruDattatreya in 2017.
Citing a study by Association for Democratic Reforms, former RBI governor Raghuram Rajan had last week said that jobs is the biggest issue in the elections.
A study by the Centre for Monitoring the Indian Economy had said as many as 1.1 crore jobs were lost in 2018 alone. The government has been citing the growth in EPFO registrations to stress on how jobs have increased and hiding negative dataprints on jobs and even growth.
On the rural economy front, farmers have taken out marches and protested in various pockets of the country over a slew of matters. The government has announced an income support scheme to farmers ahead of the elections.
The agency, whose research arm had earlier voiced doubts over the incumbent Narendra Modi government retaining power, said the elections will create a temporary uncertainty about the policy agenda.However, the agency noted that governments of all hues have been reform-minded in the last 30 years.
Pointing out to opinion polls predicting a narrower majority for the next government which will make it difficult to carry out reforms like GST, it said "however, there seems plenty of potential for a continued focus on reforms."
It credited the Modi government for carrying out ambitious reform like GST and the bankruptcy law and also added that there has been a reduction in red tape which has reduced transactions costs.
The agency said GDP growth averaged 7.5 percent in the five years to FY19, which is more than twice the 3.6 percent median growth in the 'BBB' peer grouping. It blamed a "weak fiscal position" as the factor constraining the sovereign rating and underlined that the next government's medium-term fiscal policy will be a keen factor to watch.
Governance standards remain weak, as illustrated by a low score for the World Bank's governance indicator, it said, pointing out that India is 47th percentile versus the 'BBB' median of 59.
The country's ranking on the UN Human Development Index (32nd percentile vs the 'BBB' median of 67) also indicates relatively low basic human development, it said.