The professor says that the quality of growth should take precedence over the magnitude of growth
In the wake of the economy witnessing a negative growth rate in 2020, a professor in economics at the Royal Thimphu College, Sanjeev Mehta said the government should focus on productivity-related growth to help recover the economy.
He said the challenge is to ensure the early recovery of the economy.
“It is unlikely that the country will experience a negative growth rate in 2021, but the GDP is likely to remain lower than in 2019,” he said, adding that it is not an easy task and that countries throughout the world are struggling to stay afloat.
According to him, the government should focus on productivity-related growth although the results would be visible more slowly than those contributed by fiscal stimulus.
“Fiscal stimulus would adversely impact fiscal sustainability and undermine long-term growth potential,” he added.
The professor explained that productivity-related growth includes strengthening the sectors which have the potential to create jobs and boost production capacity. “This will also boost aggregate demand.”
Meanwhile, productivity is the measure of production efficiency. At a national level, it captures the economy’s ability to ‘harness its physical and human resources to generate output and income’. Productivity growth refers to an increase in the value of outputs produced for a given level of inputs, over a given time.
There are possible ways to push up the growth rates, Sanjeev Mehta said. “The time has come to take some bold moves to get tourism kick-started- complete vaccination certificate as a visa requirement without quarantine requirement, but with a negative RT-PCR test results at arrival.”
He said that unless the tourism sector is opened, which experienced about a 75% dip in 2020, the self-sustained expansion will not take place.
In addition, he said that the critical issue is how to boost the growth process. High vaccination coverage will ensure herd immunity and the impact of the Covid-19 is likely to remain marginal and can expect freedom from lockdown and associated loss of productivity.
According to him, there are three possible ways to push up the growth rates. One, the time has come to take some bold moves to get tourism kick-started. Secondly, growth acceleration in the agriculture sector through investment in physical infrastructure and value chains. And thirdly, promote skilled-based education to develop human capital that meets the needs of changing production functions.
He said the local-level mini-infrastructure projects such as irrigation, water supply, and others (which can be identified based on local needs) need to be developed using surplus labor.
“It will not only create jobs but also raise the growth potential of the villages. It will allow the extensive spread of scarce resources across the regions and promote balanced development. The quality of growth should take precedence over the magnitude of growth,” said Sanjeev Mehta.
Meanwhile, during the discussion on reviewing the budget and expenditure so far, the government reminded all the sectors that 2021 was crucial for economic recovery and insisted on the effective implementation of capital investments.
Sanjeev Mehta said that any lockdown would adversely affect economic growth. “It will lead to greater employment loss and growth reduction. The growth rate will bounce back as the unlocking takes place, yet we should be cautious in its interpretation,” he said.
He added that growth rates in times of severe fluctuations tend to overestimate recovery. “Growth rate just after a crisis period would be very high because of the low base, yet the economy may remain below the pre-crisis level.”
According to the government, all sectors are urged to revisit and prioritize activities that were new, innovative, and effective to revive the economy.
Kinley Yonten from Thimphu