Constraints in Macroeconomic Policies in Raising Employment
Author : MudaserAhad Bhat and Binish QadriVolume 7 No.1 January-June 2018 pp 1-9
Abstract
Macroeconomic factors such as low inflation, export orientation and low labor taxes help to determine how much employment is created by growth. The relationship between growth and employment is strong and positive which gets enlightened when all macroeconomic policies work in harmony. Indian economy at the time of independence was mainly rural in nature and in a bad state. This was due to the anti-Indian policies of the British Government. The country was engulfed by the vicious circle of poverty and to break this vicious circle Government of India planned in a focused way. The emphasis shifted from agriculture to industry. Also emphasis was laid on increasing role of the state to generate employment and reduce poverty by appropriate macroeconomic policies. However, little was achieved till 1990’s. So the path to long-run economic growth was ensured by introducing New Economic Policy in 1991, which aimed at reducing fiscal deficits, lowering inflation, maintaining exchange rate stability etc. One thing that was obvious was that under New Economic Policy, the public sector will have a diminished role and will be largely limited to social sectors and non-profit making activities unattractive to the private sector. These policy changes affected macroeconomic policies of the government. Despite these policy changes brought under the New Economic Policy, one feature that still remains an important feature of macroeconomic policies in India is that macroeconomic policies still continue to act more as the control devices rather than as development tools. As a result macroeconomic policies fail to generate additional employment. Macroeconomic policies need to be converted into tools for macroeconomic stabilization (Shah, 2008). There are various constraints in macroeconomic policies which refrain them to act as development tools and thereby increase unemployment levels in underdeveloped economies of the world. The present paper attempts to highlight such constraints and suggest remedial measures.
Keywords
Heterogeneity, formalism, overlapping, absence of equi-genetic change, accommodation with assimilation, stretching-the-existing function, leaving-the-one stretching function
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