Day 11 – Q 1.Macro-economic stability is a prerequisite to sustainable growth and job creation. Comment.

1. Macro-economic stability is a prerequisite to sustainable growth and job creation. Comment. 

स्थाई विकास और रोजगार सृजन के लिए मैक्रो-इकनॉमिक स्टेबिलिटी एक महत्त्वपूर्ण शर्त है। टिप्पणी करें।

Introduction

Macroeconomics is a branch of economics that studies behavior and performance of the economy as a whole. In macroeconomics, economy wide phenomena are examined such as inflation, price levels, rate of economic growth, national income, gross domestic product and changes in unemployment.

Body

There is no single, simple, quantitative definition of a stable macroeconomic framework.

A stable macroeconomic policy environment features:

• a fiscal stance safely consistent with fiscal solvency
• a monetary policy stance consistent with a low and stable rate of inflation, 
• a robust exchange rate regime that avoids both systematic currency misalignment and excessive volatility in the real exchange rate.

Macroeconomic stability and sustainable growth:

• A stable macroeconomic framework is necessary though not sufficient for sustainable economic growth.

For instance, in Latin America, the recovery of economic growth in Chile and Mexico was preceded by the restoration of budget discipline and the reduction of inflation.

• High inflation introduces high volatility in relative prices and makes investment a risky decision. This will negatively impact the growth. 
• Prudent macroeconomic policies can result in low and stable inflation.  

Example: India witnessed its best phase of macro-economic stability during 2014-19. Average inflation is down to 4.6% during this period.

• By moving toward debt sustainability, policymakers will help create the conditions for steady and continuous progress on growth
• Inappropriate exchange rate policies distort the composition of growth by influencing the price of tradable versus non-tradable goods.

Macroeconomic stability by itself, however, does not ensure high rates of economic growth. In most cases, sustained high rates of growth also depend upon key structural measures, such as regulatory reform, privatization, civil service reform, improved governance, trade liberalization, and banking sector reform,

Macroeconomic stability and Job creation:

• Large swings in economic activity, high inflation, unsustainable debt levels and volatility in exchange rates and financial markets can all contribute to job losses.
• In order to generate employment at the required scale, countries will have to achieve sustained growth, which in turn critically depends on supportive macroeconomic policies. Example:- USA
• Appropriate macroeconomic policies, along with active labour market policies, can help to manage the cyclical threats to employment, and also boost skills and capacities to ensure that workers can adapt to longer-term structural changes. 
• Also, Continued and sustained economic growth is a precondition for employment.

Why is it difficult to achieve macroeconomic stability:

• Macro-economic decisions may even damage the interests/goals of individual economic units.
• Existence of non-merit subsidies is leading to higher levels of inflation.
• Volatile global markets also lead to macroeconomic instability.
• Populist policy measures like farm loan waivers are leading to increased fiscal deficit.

Conclusion

Macroeconomic stability coupled with adequate policy measures and labour reforms can only lead to sustainable growth and job creation.