Heralding the Digital Economy Isn’t Enough, Can India Exploit it for Job Creation?

The Wire, December 14, 2016

Pradeep S. Mehta & Amol Kulkarni

Leveraging the job creation opportunity presented by the digital economy is a ‘natural fit’ for India, with demonetisation the perfect exercise for it.

Job creation is the gold standard to judge if a government policy is benefiting the economy. A policy that passes this litmus test is surely going to garner votes and increase the approval rating of the party or leader in power. The Modi government’s recent demonetisation of Rs 500 and Rs 1000 notes and its parallel push towards a digital economy has become a much talked-about policy move, which is now being tested at the altar of job creation.

Conflicting voices

It is not surprising that the opposition has fiercely attacked demonetisation as being labour unfriendly. As a result of more than 80% of the currency that was in circulation becoming worthless, informal labourers, farmers and daily-wage earners have remained unpaid or underpaid. Migrant workers are forced to return to their native villages and producers of perishable goods have no option but to undersell their products or accept the banned currency notes. It has been estimated that close to 4,00,000 jobs will be lost owing to demonetisation. Reports suggest that one-fifth of the 32 million employees in the textile and garment industry are daily-wage earners and will be adversely impacted. Similarly, more than 15% of the workforce in the leather industry will have to deal with the negative consequences of the note ban. All this could cause severe loss to the economy.

It would have been imprudent for the government to deny the difficulties created by demonetisation and thus it has decided by deferring the scale and soften the blow by terming such problems as a short-term inconvenience in the interest of long-term gains. The prime minister himself has led the charge by using punchlines like the demonetisation queue being a queue to end all queues for the poor and honest. In addition, the government has been defending this move as essential for the economy to unlock its potential, by increasing the formal economy, enlarging the tax base, reducing interest rates and thus having a positive impact on direct and indirect job creation.

What next?

Politics aside, it is too soon to evaluate the impact of demonetisation on jobs. Several well-meaning experiments to boost jobs, such as the National Rural Employment Guarantee Scheme and special economic zones have done well but perhaps resulted in less-than-expected benefits. More recent programmes, such as Make-in-India or Start-Up India, are yet to show results.

Despite a persistent government push, the rate of unemployment and underemployment in the country has been consistently increasing.

Evidence suggests that in order to create and sustain jobs, countries have resorted to strategies that are a ‘natural fit’ to their social, political and economic landscape. As the landscape changes, so do the policy focus and the sectors that create jobs. For instance, China started with job creation in low-cost, labour-intensive sectors such as apparel, footwear and toys. With improvements in skills, it moved to creating jobs in sophisticated assembly operations such as office machinery, telecommunications and electrical machinery. China is now moving up the value chain, ‘on-shoring’ the production of higher-value-added upstream and downstream products and creating jobs in these sectors. The Chinese strategy to constantly evaluate and improve is worth emulating.

As China exits sectors that created jobs for its economy, such industries are looking for other avenues to shift production. Countries like Cambodia, Laos, Myanmar, Vietnam and Bangladesh are now finding such low-wage and low-skill labour-intensive industries a ‘natural fit’. All these are open economies and are highly integrated with China, and thus are naturally placed to fill the space vacated by China.

Leverage the potential of digital economy

Manufacturing has not been a strong suit in job creation for the Indian economy. Agriculture and services have been the key job creating sectors, with the contribution of the former increasingly diminishing. In services, India started as a leader in software solutions and moved up the ladder by being one of the leading markets for electronic commerce. We have in place a highly advanced infrastructure for digital payments and financial services, and a national identification system, which needs to be leveraged. This opportunity aptly ties within the emerging socioeconomic narrative in a country expected to be dominated by an overwhelmingly young population and large consumer base.

Consequently, leveraging the opportunity presented by the digital economy for job creation is a ‘natural fit’ for India and the demonetisation exercise has provided the perfect context to seize this opportunity. Already, there are discussions on deploying more individuals at petrol pumps, banks, post offices, villages and semi-urban meeting centres to generate awareness about digital payments and help hand-hold people through the transition. As more merchants and consumers catch up to the digital opportunity, they will require assistance in the selection of service providers, data mining and analysis, consumer protection and grievance redressal. Several specialised and innovative service providers have emerged to provide services such as aggregators, payment gateways and customer management.

There is a need to use this expertise in traditional sectors like agriculture and emerging ones like the Internet of things. This would require significant efforts in terms of investment in research and the development of technology through a bottom-up approach, customisation for different consumer segments, including those possessing low-end feature phones and transacting in languages other than English and Hindi. We also need to think afresh about digital security, protection of sensitive customer data in light of low awareness and agent assisted models to access financial services.

Notwithstanding a significant impact on the existing jobs in the economy, demonetisation is a disruptive event that offers an important opportunity to create jobs. We cannot afford to miss this time.

The authors work for CUTS International

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