Jobs and Bihar...

Jobs are the yardstick to measure growth in real terms. How many jobs an economy creates to keep its labor force fully employed by the use of policy has become the new norm. Both monetary and fiscal polices are aimed at minimizing unemployment and maximize employment. Monetary policy is the role of the central-bank and fiscal-policy is with government… Any government can affect the creation of jobs by managing its expenditure but it should avoid overheating (high inflation). When the economy reaches its limits, close to full-employment, prices start rising because labor is fully employed and production can not be increased, therefore only prices increase not the real-supply. Therefore it is not rational to apply a loose money-policy, more expenditure. But as long as there is unemployment in the economy we need to push employment in the face of a weak private sector. There are both types of issues involved with expenditure crowd in of investment and crowd-out of investment. For a developing region crowd-in is more relevant, initial government expenditure kicks investment cycle, government spending becomes important. As an example, skills development is important for industry and for creating more jobs. When a government spends to create jobs it creates many more jobs in other places. Demand for a teacher will demand more things and people in job to satisfy its teacher’s demand, who will be the maid, who will be the house-keeper, accountant, many more too. We need appropriate spending to keep the work-force and work match each-other. In other words, more jobs to absorb the labor force. Therefore unemployment-rate is a major determinant of the success or failure of a government. Our rate of population growth rate decides our growth rate. Higher rate of population growth rate can create higher growth rates.

Bihar’s population growth-rate is 25%, per ten year and GDP growth rate is 9 % which shows that that the region is performing well below its potential. If population is growing 25% then the economy can easily achieve 20% growth after deducting frictional and natural unemployment-rate. Natural rate of unemployment is the level of unemployment which remains all time in the economy. It moves around 5%. If we calculate the average growth rate to achieve in ten years we will get 20%. The economy consistently needs to grow 20% every year to maintain long-run potential growth rate at 20%. Unemployment rate in Bihar is 8.5% which is much above the natural-rate of 5% which raises questions against the government policy in an economic perspective. Why Bihar can not achieve 20% growth rate? And, why the unemployment rate is high? How we can overcome this shortcoming and what are the factors?

Recently it was in news from Bihar that the government has no plans to use funds from the Centre and most of them have returned back to the centre. MPs do not spend their funds too. There were too many irregularities in MGREGS and corruption charges too. Money allotted under Mid-day meal remained unspent and was returned too. Money provided for the Naxal-hit area was barely spent and the government was accused of being soft on Naxalism. Corruption has been a rampant theme of daily life. Most of the funds under various welfare programmes were appropriated by the politicians.

There from an economic perspective Bihar is underperforming in terms of unemployment, behind Gujarat... Low expenditure has resulted of high unemployment and to increase employment and growth we need to spend judiciously and right. Funds are there to be used for growth and development, and, unspent funds would indicate neglect of distress a common man is facing in his life and if we are given funds to improve the quality of life of the region’s people we should spend. Politicians elsewhere demand more funds and spend more funds but here politicians do not know where to spend. All the MPs who have unspent funds should invest in education and skill development. MPs do not know what to do with the money they are provided. They have no idea where to spend productively and how to contribute to development.

Bihar’s high unemployment rate indicates that the government expenditure is not enough to maintain the population and jobs match each other. To keep the population independent and not dependent on the State the government should create as much jobs it can by spending on the targeted population. But inconsistency in the use of funds under welfare schemes has given rise to the idea that politicians are not competent as they ideally should be. They have no idea how to realize goals of unemployment and poverty reduction. Bihar has a high population growth rate and to meet the demands of growing and young population it needs to create employment opportunities and to achieve this end the politician must well know in advance which things they should cater. Bihar desperately needs a good manifesto…