Relevance of Keynesianism in Gujarat !

Contagious effect of the economic slump due to covid19, strikingly similar in effects to that of the “Great Depression” has wreaked havoc on the whole economic sphere. Dilution of labour laws in Gujarat to bring greater flexibility of the market in terms of bargaining power, workers safety standards, - and operations related to retrenchments to attract investments were contradicting. Hitherto CMIE (Centre for Monitoring Indian Economy) monthly timeseries data on the Gujarat unemployment rate (increased from July to December) status gives us a deep revelation on the failure of an entrenched belief in neoliberal policies as a panacea of all economic and social issues.



As the classical school of thought proposed flexible labour market would reduce the unemployment more than that of a rigid market, this “Laissezz faire” approach eroded the welfare state proposed by Keynes. During a recession, these reforms are not effective in dealing with the fundamental problem of lack of effective demand. Increased working hours from 48 to 72 hours weekly,9 to 12 hours daily hand in hand with no overtime pay is truly exploitation of workers who really can’t meet their means of subsistence. This only lowers the workers real wage and attributes in lowering aggregate demand, especially consumption. For prosperity to back and for effective growth the government needs to intervene through expansionary fiscal policy, not solely concentrating on the labour market which is a micro perspective treatment will not reap growth.



We witnessed the unprecedented exodus of migrant workers during this time, from the total pool of the migrant workers in Gujarat 68% of them were employed in unorganized sector and 24% worked in the organized sector. There is an increasing trend for the proportion of workers without a job contract in the non-agricultural sector (PLFS data 2018-19). So further deregulation in labour market worsens the informalization, easy hiring and firing of workers imparting multidimensional effects like lacking educational standards of their children (Gross enrolment ratio of Gujarat is lower than the national average),occupational health issues, social justice, opportunities.

These “capability deprivation” further increases poverty, not surprisingly these ill-effects also reflected in the decrease in labour force participation rate of Gujarat (-3.7% according to CMIE data). This deliberate move necessarily decreases the skilled labour force which further hampers the growth of good investment opportunities. Cash transfer in hands can compensate for the loss in purchasing power of these workers to ensures that they have enough resources to increase their propensity to consume. Expanding social safety nets through welfare funds, strengthening policies like MGNREGA promoting work-life balance, decent working hours, safety health standards will be beneficial. For a profuse growth of investment, they look for a skilled workforce with good health standards for enhancing higher productivity. Ease of business motive policies during this time exacerbate the inequality gap between the higher and lower income-earning households leading to a diverged growth (K shape recovery) that we are experiencing now. Keynesianism advocates government have the supremacy to change ill effects of capitalism through judicious injection of money into the economy for the proactive generation of aggregate demand. “What it really takes India to attain atmanirbharta”? as the large population cannot survive and grow without the active intervention of state which certainly works as a combination of “accelerator” and “multiplier” mechanism on the economy generating huge demand and for proper utilization of demographic dividend which would kickstart industrial production and adds more revenue for the government.

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