From UPSC perspective, the following things are important :
Prelims level : GVA
Mains level : Paper 3- Limits of relying on high-growth sectors
The latest estimates of the fourth quarter of financial year 2020-21 (January-March) brought some relief, for policymakers.
Interpreting the construction sector GVA increase
- The construction sector showed a 15 per cent increase in gross value added (GVA) in the last quarter, which is nearly double the growth experienced by the sector in the previous year (7.7 per cent).
- Sign of better times: The buoyant growth of this sector has been hailed by policymakers not just as a sign of better times to come,
- Addressing distress: Growth in the construction sector is also considered as the capacity of the economy to address the distress that households have faced in the past year.
- Addressing needs of workforce: The Chief Economic Advisor pointed to the high growth rates in construction possibly to indicate that growth would address the needs of the beleaguered workforce.
- The Union budget 2021 has also allocated a considerable sum towards infrastructure and construction in the hopes of the sector playing a catalysing role.
Issues with relying on the growth of high-employment sector
- No strong correlation: While GVA and/or GDP are considered as indicators of economic health, it has been argued in detail how it may not be prudent to rely on these alone as measures of economic welfare.
- In particular, mere growth in a sector may not necessarily translate into benefits for its workers.
- In the last quarter of 2019-2020, when construction GVA grew at nearly 8 per cent, employment in the same sector grew by 3 per cent based on our estimates from CMIE-CPHS.
- Fallback employment option: The fact that employment grew in this sector even during a crisis year is largely because of the fact that the construction sector emerged as a fallback employment option for many displaced workers.
- During “normal” times, the sector typically employs only about 10-15 per cent of India’s total workforce.
- Even if this sector were to expand in line with its GVA growth, it will not be able to provide employment beyond a certain level.
- Employment alone is not enough: Moreover, employment alone is not enough.
- Earnings for an average daily wage worker in the sector have actually declined this year.
- Again, the overall economic growth in GVA in the sector has not been passed on to the workers.
- Any relief effort that relies solely on economic growth as a means to uplift workers will be sorely inadequate as we see from the experience of workers in construction.
- The need of the hour is to go beyond relying on sectoral growth as a means of delivering relief to workers.
- Direct transfers of cash and food are also needed, as is livelihood support through employment guarantee programmes.
While boosting growth of high-employment sectors is one strategy to adopt, this has its limitations. The capacity of a sector is limited in terms of the number of workers that it can absorb, and the extent to which growth can benefit workers.
Back2Basics: What is GVA?
- Gross value added (GVA) is an economic productivity metric that measures the contribution of a corporate subsidiary, company, or municipality to an economy, producer, sector, or region.
- GVA is essentially a measure of the “net” value of output — deducting the cost of any input that went into its production from its total value.
- GVA thus adjusts gross domestic product (GDP) by the impact of subsidies and taxes (tariffs) on products.