As a growing economy, India is an investment destination today because we are a billion plus market of consumers. In reality, we are clueless about how all these people will add economic value. In reality, India’s stellar growth story has not taken into account one of the most fundamental outcomes of development: Jobs.
With a growing army of consumers, the question is, where are the related jobs? How will consumers spend if they are not employed in the first place? Are we growing for the sake of just GDP numbers or are we truly growing progressive as a people?
Post Budget, there is hope that the economy will again be on the path to growth. We may not hit double digits yet, but there is anticipation that we will be closer to a 6.5 percent- 7 percent GDP growth.
But why is it that higher growth rates are not accompanied by a higher rate of employment or employability? There are a host of factors.
With growth comes industrialisation, and with that more and more capital-intensive development. This is an inevitable fallout. The only thing missing is jobs.
“One of the reasons for not enough job creation in India has been the inability to make manufacturing the growth engine of India,” says CRISIL Chief Economist DK Joshi. “India seems to have jumped straight from agriculture to services, by passing manufacturing. Even the manufacturing that happens is getting more capital intensive as labour laws are restrictive.” The sector has adopted and adapted to new and quick technology transfers from the rest of the world.
Two, a recent report by the International Labour Organisation suggests that the main labour market challenges in South Asia were about increasing labour productivity to ensure that incomes were rising and poverty was falling. We have faced challenges in improving the quality of labour because of the lack of investment in skills, education and filling in the skill gaps. The report also talks about creating enough jobs for a growing working age population, which is expanding by two percent each year. The global economy will need to create 400 million new jobs over the next decade to absorb the estimated yearly growth of a 40 million labour force. A majority of these youth will be in India and China.
Moreover, much of India’s growing population remains outside the organised workforce. This is a cause of concern because a lot of these educated (but unskilled) people are left to fend for themselves. There is need to create a framework that supports risk, entrepreneurship and innovation. There is also a need for the government to focus on sectors outside of traditional big industry. “We can focus more on labour intensive sectors such as textiles and food processing labour intensive manufacturing,” says Joshi.
The depth of the talent pool we are creating is also questionable. Saugato Ghosh CEO, Marico Ltd, feels that “while we have a demographic dividend in numbers, unless there is a systematic investment in technical skills, the depth of the talent pool is questionable”.
It is because of issues like this that skill development becomes pertinent. According to CII President Adi Godrej, India has employment opportunities but not enough employable people.
“There is undoubtedly a skill gap,” asserts KV Kamath, Chairman of Infosys and ICICI Bank. But he doesn’t think manufacturing alone holds key. That new services and industries are needed is a truism but will it happen sooner than the rise of an empty workforce, remains a big question mark.
In the face of these challenges, do we need a new economic model? Abheek Barua, Chief Economist of HDFC Bank, warns against jumping to an easy conclusion. “Large scale manufacturing will be important,” he says. “We can’t discard examples that have worked in a high population economy like China.”
Arun Nanda, non-executive Director of the Mahindra Group, suggests a strong push to boost the small and medium enterprise (SME) sector as a solution. “For every million rupees invested, they create more jobs than in the large businesses,” he says.
What then is holding manufacturing back? Is it credit supply? Are small businesses finding it harder to get loans? “Credit isn’t the only problem for smaller enterprises,” says Barua. “They also come with a higher degree of risk that can’t be ignored.”
Electoral concerns have not helped matters much either. Any political party that can engage the youth and create jobs holds in good stead. However, this also means we may have used shortcuts that may seem electorally prudent.
The MGNREGA, for instance, has been successful at improving livelihoods of people. It may be a good stop gap but is it sustainable?
“Our social subsidy culture doesn’t drive entrepreneurs,” says Saugato Ghosh. “You are paying a premium on people to be slothful in our nation.”
It is also valid to ask whether the scheme has created skill in the process of giving people employment. Ghosh points to the contradictions that arise. “In this case we may have employment but not necessarily higher productivity. When you want higher productivity, which will drive GDP growth, this kind of employment creation will not deliver.”
Such programmes are also not fiscally prudent. “Demographic dividend is not a disaster yet, but can soon become so if we fail to boost the manufacturing sector,” says CRISIL’s Joshi. “The government will then have to create jobs through programmes that are fiscally unsustainable, like MGNREGA.”
Once celebrated for a burgeoning workforce, India’s billion-plus market stares at an impending job crisis. From 2001 until the economy peaked in 2008, industrial growth and even productivity came with high capital investment but without proving to be an employment multiplier. Even now, when we consider lofty possibilities of recovery, we have a colossal workforce that may remain underemployed or all together unemployable.
What does this tell us about our economic model? Are we chasing an inherently flawed demographic dream? Don’t all citizens deserve to be a part of that growth story? Most important, are India’s policy makers taking cognisance of this?