Insights into Editorial: Six steps to job creation
Expectations from India’s manufacturing sector are high. These include, among other objectives, job creation, exports and a force that will drive future economic growth.
In India’s highly segmented labour market, there are at least three demographic groups that are in urgent need of jobs: a growing number of better educated youth; uneducated agricultural workers who wish to leave agricultural distress behind; and young women, who too are better educated than ever before.
India is indeed the fastest growing large economy in the world. Growth should be inclusive and sustainable. One of the crucial determinant of the same is it should be employment intensive. There has been a low job growth due to several factors such as low investment, capacity utilization in industry, agriculture growth and low plant load factor.
Although growth is relatively high it is the pattern of growth that is an area of concern. One of the concerns is that manufacturing sector has not been the leading sector driving growth. Manufacturing should drive productivity in the whole economy. Services cannot, as services by definition ‘service’ the distribution of produced goods.
Growth generates employment and employment generates further growth. In general, employment corresponds to the qualitative aspect of growth. If a country is on the growth trajectory, it will generate more employment opportunities and while the growth declines, people start losing jobs.
Jobless growth is an economic phenomenon in which a macro economy experiences growth while maintaining or decreasing its level of employment.
The aim should be at growth that is driven both by improvements in productivity and modernizations of its labour force — especially since better jobs are crucial to improving the lives of millions.
What are the main factors of India’s jobless growth?
The transition peasants into factory workers requires basic training, which is not keeping in pace with job needs. Moreover the main contributor in India’s GDP is service sector which is not labour intensive and thus adds to jobless growth.
The other factor is related to small and medium enterprises (SMEs). Their labour intensity is four times higher than that of large firms. SMEs, which employ 40 per cent of the workforce of the country and which represent about 45 per cent of India’s manufacturing output and 40 per cent of India’s total exports, are in a better position to create jobs. But it is not able to do so because of poor infrastructure, lack of skilled labour and also they don’t have easy access to loans.
What can policy-makers do to revive job growth?
- An industrial and trade policy is needed.
The Department of Industrial Policy and Promotion (DIPP) is preparing an industrial policy. National Manufacturing Policy came in 2011, was not implemented fully.
- While the DIPP is preparing the industrial policy document, it is essential that trade policy is consistent with such an industrial policy. Otherwise the two may work at cross purposes and undermine each other’s objectives.
- Excessive imports have been decimating Indian manufacturing.
- An inverted duty structure has the following features: higher duty on intermediate goods compared to final finished goods, with the latter often enjoying concessional customs duty.
- As a result, domestic manufacturers face high tariffs leading to higher raw material cost at home, emanating from the unfavourable inverted duty structure.
- This has prevented many manufacturing sectors from growing since economic reforms began. This must be corrected.
The automobiles sector in India faced no inverted duty structure, and has thrived. India has become in the last decade one of the largest producers of vehicles of several kinds in the world now. Electronics faced an inverted duty structure, but due to changes made, electronics manufacturing has shown slow growth.
- Special packages are needed for labour-intensive industries to create jobs.
There are a number of labour intensive manufacturing sectors in India such as food processing, leather and footwear, wood manufacturers and furniture, textiles and apparel and garments.
- The apparel and garments sector received a package from the Government of India roughly a year back. The other labour intensive sectors have been ignored.
- The nature of the package will need to be individually designed for each sector defined as quickly as possible.
- Cluster development
There should be cluster development to support job creation in micro, small and medium enterprises (MSMEs).
- Most of the unorganised sector employment is in MSMEs, which tend to be concentrated in specific geographic locations.
- There are 1,350 modern industry clusters in India and an additional 4,000 traditional product manufacturing clusters, like handloom, handicraft and other traditional single product group clusters.
- There is a cluster development programme of the Ministry of MSMEs, which need to be funded adequately and better designed to create more opportunities.
- Align urban development with manufacturing clusters to create jobs.
The Ministry of Urban Development has a programme called AMRUT (Atal Mission for Rejuvenation and Urban Transformation) aimed at improving infrastructure for small towns. Infrastructure investment by the government creates many jobs.
- The same intervention should be made in towns which have clusters of unorganised sector economic activities.
- Hence an engagement between the Urban Development and MSME Ministries is necessary to attract more investment to industrial clusters and increase non-agricultural jobs.
- More focus on women participation
Girls are losing out in jobs, or those with increasing education can’t find them, despite having gotten higher levels of education.
- Secondary enrolment in the country rose from 58% to 85% in a matter of five years (2010-2015), with gender parity.
- Skilling close to clusters is likely to create more no of jobs.
- The problem with skilling programmes has been low placement after skilling is complete.
- The availability of jobs close to where the skilling is conducted will also enhance the demand for skilling.
- Public investments in health, education, police and judiciary
This can create many government jobs.
- Public investment in the health sector has remained even in the last three years at 1.15% of GDP, despite the creation of the national health policy at the beginning of 2017.
- The policy indicates that expenditure on health will rise to 2.5% of GDP by 2025.
- Given the state of health and nutrition of the population, it is critical that public expenditure on health is increased immediately.
- In the absence of greater public expenditure, the private sector in health keeps expanding, which raises the household costs on health without necessarily improving health outcomes, because the private sector does not spend on preventive and public health measures.
- Preventive and public health have been in all countries the responsibility of government. More government expenditure in health means more jobs in government and better health outcomes.
Next important area should be Revitalising schools.
- Government schools should maintain education quality on par with private schools.
- Many new government jobs can be provided if more young people could be trained specially to become teachers for science and mathematics at the secondary and higher secondary levels in government schools.
The same applies to the police and the judiciary.
- All the vacancies in Police and judiciary should be filled immediately. More police and a larger judiciary can both reduce crime as well as speed up the process of justice for the ordinary citizen.
Government schemes rarely create many jobs. International evidence is that when consumer demand grows consistently, whether from domestic or international markets, that is when jobs grow. That requires an industrial policy. Ease of doing business improvement and infrastructure investment increases should improve the economic environment. But most importantly India needs a robust industrial policy.
And also it is crucial to align policy across sectors and upgrade the country’s social infrastructure.