How India Can Create Jobs Immediately
The Indian government is faced with a challenging task, that of job creation. Hardnews spoke to eminent economist Santosh Mehrotra on how the country can use existing policies to create millions of jobs
Professor Santosh Mehrotra believes that India’s unemployment woes can be traced to the premature shift from agriculture to the service sector and the subsequent leapfrogging past the industry and manufacturing stages. One of the ways India can generate jobs, according to him, is by immediately resuscitating manufacturing, the productivity of which is far greater than of any other sector. He says, “If you compare to China, Thailand or Malaysia, their share of manufacturing in GDP – industry means construction plus manufacturing – is upwards of 30 percent. We are still no higher than 16 or 17 percent, which is where we were in 1991.” At the centre of his strategy is effective planning, without which one cannot achieve what is intended.
“The whole objective of development is that structural transformation takes place. Structural transformation implies that the entire structure of output changes and the structure of employment changes simultaneously,” he says. According to him, the transformation that India is in search of has been delayed as the country has been unable to reach critical mass in local or indigenous manufacturing. The little that has been done is nowhere close to what is actually required. What has happened instead is that the share of industry has not grown, but the share of services has increased at the expense of agriculture, “The problem is that you cannot leapfrog stages because the first phase is critical. If the service sector suffers a blow, the workers will move back to agriculture, which is stagnant and has grown only marginally in the last two decades,” Mehrotra says.
To absorb the incoming labour force, India needs not just a new industrial policy but also a new industrial strategy that resembles the trajectory followed by the Chinese and the East Asians, who by adopting planned industrialisation were able to pull their people out of poverty, “If one is to look at the Latin Americans, in comparison to East Asia, they have not been able to pull their citizens out of poverty because they abandoned planning. Now, if you look at China after 1979, when the country’s markets opened up and shifted to a market-led economy, their planning body did not become less, but more powerful.”
The problem is that you cannot leapfrog stages because the first phase is critical. If the service sector suffers a blow, the workers will move back to agriculture, which is stagnant and has grown only marginally in the last two decades
Mehrotra has a comprehensive plan to encourage manufacturing, skilling and production in the country. He straddles both big-ticket projects and smaller, local manufacturing clusters in a compelling plan.
According to Mehrotra, the Government of India needs to speed up and better facilitate ‘big-ticket’ projects especially the industrial corridors. “There are five industrial corridors that have been agreed upon with foreign bankers and donors. The industrial corridors I am talking about are mega corridors, Delhi-Mumbai Freight Corridor and the Amritsar-Delhi-Kolkata Corridor. Both projects are getting funding from the Japanese, but approvals are not coming through fast enough. In addition, there are three other corridors – the Bengaluru-Mumbai, Chennai-Vizag (connects to Kolkata), and the Chennai-Bengaluru ones. What these will do is to build industry & infrastructure corridors around the golden quadrilateral. These projects have the right thinking and, one by one, funding is being found. Each project is at a different stage of either completion, planning or finalising, and ideation. The timelines for the east coast projects are in the first phase – from Vizag to Chennai and Vizag to Kolkata – while the third's conceptualisation is at a further stage. For the others, it is still too early. If you want to increase jobs this should be a part of your strategy to actually push the investment in these quickly. You can imagine, in megaprojects of this kind with the best of intentions it will take a long time.”
Professor Mehrotra identifies already built established manufacturing hubs and sectors that need to be supported by investment in infrastructure, “This country has 6,000 clusters of economic activity, which include handlooms, handicrafts and other artisanal products. In addition, there are 1350 modern industry clusters, which produce hosiery, garments, woollen products, automobiles or auto products/components and pharmaceuticals. All of these industries are located in clusters. India needs a mature cluster development programme."
Clusters are where MSMEs are concentrated and where the bulk of the unorganised sector is found. He says that “currently the Indian government has not sanctioned a substantial budget for the programme – the MSME ministry annual budget is only Rs 3,000 crore for all the Ministry’s activities. For the 6,000 clusters, the total budget could not be more than Rs 1000 cr, at best. For the exact budget per cluster, do the math,” he says. Focusing on clusters helps reorient priorities for the creation of jobs, as of now these very small enterprises are characterised by low technology, low productivity and a small number of workers paid no wages with no social security. Mehrotra worries: “So what you have is a low-level equilibrium trap, you have a poverty trap for these small enterprises.”
He further avers that the State should be providing several services such as skill development centres near the clusters. Mehrotra is clear that the skill development centres should not be spread around the country, one should skill them where the jobs are. Skilling should be demand-driven rather than supply-driven. The eminent economist believes that if people are skilled and are not given jobs they can go back to agriculture. Cluster development means that you locate the skill centres close to where the jobs are. The State cannot do this by itself and should not.
Focusing on clusters helps reorient priorities for the creation of jobs, as of now these very small enterprises are characterised by low technology, low productivity and a small number of workers paid no wages with no social security
“The State must ensure that agglomeration economies that are natural to a cluster are realised. One of the main functions of the State then becomes to actually enable industry associations and allow them to come into existence. These associations will then help in technology development, design development, marketing and selling.”
Low Cost Urban Housing
“The government is already engaged in building low-cost rural housing, and now it should use AMRUT or the urban renewal fund for improve small town infrastructure: electricity, water, sewage services.” The focus of this renewal fund should be supplementary to the cluster programme, “Otherwise, you will get an influx of labour from all over the country, but nowhere for them to stay. We can already see this overcrowding happening in every city, not just in the six metros of the country.” This investment in infrastructure of small towns will attract investment industries, which will create jobs. This is in addition to the low-cost urban houses that the government is trying to promote through cheaper loans. There is need for such quality infrastructure (including low cost housing)t in townships like Firozabad or Aligarh where clusters are located. While it is important to build houses in other cities, tying in AMRUT with clusters will help generate improved infrastructure where it should be happening. One immediate outcome will be a drop in the pressure on metros, and an increase in jobs in such cluster-based small towns and cities
Two social service sectors
The final source of immediate employment creation lies in immediate expansion of the State, “Health and education are labour-intensive and the country needs more paramedic staff, more nurses, more Primary Health Centres and Community Health Centres. Education already has enough teachers at the primary level, however, more teachers are required at secondary and higher secondary level. The number of students enrolled in Classes IX and X have grown phenomenally. There is a shortage of general teachers and a crisis situation for science and maths teachers, and the rapidly diversifying needs of students require more science, technology, engineering and maths teachers.
“The size of the State must increate, and for that you need to tread the path of fiscal consolidation and you can only do this by increasing the taxed population. The tax to GDP ratio has not risen.”
This investment in infrastructure of small towns will attract investment industries, which will create jobs. This is in addition to the low-cost urban houses that the government is trying to promote through cheaper loans
Which sectors need support?
The government came out with a package for garments eight months ago. Why not for food processing or furniture, asks Professor Mehrotra. “It’s absolutely critical because these and similar sectors such as food processing, garments, leather, wood and furniture need packages because they account for 50 percent of manufacturing employment in the country. These are labour-intensive sectors. The spillover effects of manufacturing permeate the entire economy.”