It is crucial to align policy across sectors and upgrade the country’s social infrastructure
In
India’s highly segmented labour market, one can still discern 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; yet with investment low, credit offtake low,
capacity utilisation in industry low, agricultural growth low, plant
load factor low, it is hardly surprising that job growth is low as well.
Although
growth is relatively high (though slowing for last several quarters),
it is the pattern of growth that is the problem. Among many dimensions
of this problem is the fact that in the quarter century since economic
reforms began, it is not manufacturing that has 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.
So what can policy-makers do to
revive job growth, other than invest more in infrastructure, which this
government has been attempting to do especially for last 18 months or
so, in both rural and urban India?
Industrial, trade policy
First,
an industrial and trade policy is needed. The Department of Industrial
Policy and Promotion (DIPP) is finally preparing an industrial policy.
For 20 years after economic reforms began in 1991 there was no National
Manufacturing Policy, and the Policy, when it came in 2011, was not even
implemented. By the time the 12th Plan (with the first mention of
Industrial Policy since 1991) became public, the UPA government had gone
into policy paralysis. Not only did tariffs come down too fast in the
1990s, but what has damaged manufacturing is inverted duty structures.
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. This is precisely what has happened over many years.
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 since the last 12-15 years, leading to higher raw material cost
at home, emanating from the unfavourable inverted duty structure. This
was pointed out by FICCI way back in 2014 for aluminium, steel,
chemicals, capital goods, electronics. 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 the Finance
Minister has made changes, and slowly electronics manufacturing has
grown.
Second, specialpackages 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
Three,
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 is poorly funded and could be better designed as well.
But
the Ministry’s total annual budget for all programmes, including
cluster development, is grossly inadequate. Spread over 6,000 clusters,
it becomes even more inadequate to transform MSMEs located in clusters.
Fourth,
align urban development with manufacturing clusters to create jobs. The
Ministry of Urban Development (MoUD) has a programme called AMRUT (Atal
Mission for Rejuvenation and Urban Transformation) aimed at improving
infrastructure for small towns. Infrastructure investment by the
government always creates many jobs. But the programme does not take
into account whether the infrastructure investment under it is taking
place in towns which have clusters of unorganised sector economic
activities. Hence an engagement between the Urban Development and MSME
Ministries is necessary to ensure that this is happening. It will
attract more investment to industrial clusters, which is where most
non-agricultural jobs are.
Fifth, focus of women. Girls are
losing out in jobs, or those with increasing education can’t find them,
despite having gotten higher levels of education in the last 10 years.
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
(rather than standalone vocational training providers), which is where
the jobs are, is likely to be more successful. 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.
And sixth, public investments in
health, education, police and judiciary 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 only by 2025. Given the
state of health and nutrition of the population, it is critical that
public expenditure on health is increased faster and not as late as
2025. In the absence of greater public expenditure, the private sector
in health keepsexpanding,which only raises the household costs on
health without necessarily improving health outcomes, because the
private sector does not spend on preventive and public health measures.
But the private sector prefers to set up hospitals to cure people after
they have become sick rather than prevent them from becoming unhealthy
in the first place. Preventive and public health have always been in all
countries the responsibility of government. More government expenditure
in health means more jobs in government and better health outcomes.
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