It Is Time to Address India’s Abysmal Job Creation Record

The Wire, November 25, 2016

Pradeep S. Mehta & Amol Kulkarni

More than 550 jobs were lost each day in the last four years in India, placing it behind Bangladesh and Vietnam in terms of job creation.

The sheer pressure of poverty means that job creation will always be high on the agenda of any government. In India, significant public resources have been invested to encash the demographic dividend and prevent it from becoming a burden. But the results have been far from desirable for several reasons. The unemployment rate has touched 5%, a five-year high, and around 35% of the working population is under-employed. Fewer jobs are being added to the economy with each passing year. When compared to other countries, India’s performance on job creation has been abysmal. Our rate of job creation is half that of Vietnam. In fact, it has been suggested that 550 jobs were lost every day in the last four years.

Before considering the possible strategies on job creation for India, it is necessary to consider the emerging political and economic strains in both the local and the global context, within which job-creation strategies will operate.

Recent trends suggest a dwindling potential for manufacturing. But the government is pursuing a manufacturing-led job creation strategy. Experts in NITI Aayog suggest emulating China is still possible. China built its export-led growth on massive infrastructure investment, which facilitated easy access to power, water, transport and information infrastructure. While India is gradually improving on these counts, replicating the China story will be difficult, given the differences in social and political milieu of the two countries, as well as changed global scenarios.

Putting all eggs in one basket (that is, export) and depending on trade will be naive, considering the increasingly uncertain global political environment wherein benefits of free trade and liberalisation are being increasingly questioned with complex social forces becoming an important determinant. A new conservative world order might be in offing as Donald Trump starts preparing to take over as president of the US early next year.

Large-scale industries that have mainly driven growth and employment domestically as well as in other countries have been fueled by traditional energy sources like fossil fuels such as coal and gas. Continuous reliance on fossil fuels and faith in non-renewable energy fed success stories along with hope for their revival and repetition, will be undesirable in a sustainability conscious world. This will also be antithetical to the commitments made by the Indian government at several international forums to reduce the domestic carbon footprint. It will also adversely impact our chances to lead the global transition to clean energy.

Economists like Dani Rodrik point out that emerging economies are experiencing premature de-industrialisation and will reach their peak in industrial production sooner than expected. One of the reasons is automation. It is taking away the advantage of traditional low cost manufacturing hubs, which are being relocated near the consumers to enable customisation and cut delivery cost. For instance, Adidas and Reebok intend to open robot assisted customised manufacturing units in Germany and the US.

The World Bank predicts that the proportion of jobs threatened by automation in India, China and Ethiopia, is 69%, 77% and 85%, respectively. Raymond Industries has recently announced plans for replacing one third of its workforce in India by robots. Furthermore, a paucity of strategy in dealing with such emerging threats makes us vulnerable.

And while automation is more of a recent phenomenon, deeper analysis points to the yawning gap in skills of those entering the job market. The Global Competitiveness Report highlights India’s miserable performance on indicators like technological readiness, higher education, training and skill development. Bangladesh and Sri Lanka perform better than India on financial market development. Our performance is poor by global standards on indicators like life expectancy (rank 106) or even infant mortality (rank 115), pointing to a failure of the public health system. The World Economic Forum Report on global gender gap reveals that on the indicator of women’s health, India is third last. Similarly, on the global hunger index, India lies among the bottom group of countries, even below neighbours like Nepal, Myanmar and Bangladesh.

Given that hitherto pursued strategies have achieved less than desirable results and that the domestic and global contexts have become more complicated than ever before, what corrective strategy should be pursued to realise the elusive job creation dream?

Designing a forward looking strategy

It is becoming increasingly difficult to predict the nature of jobs that will be required in the future and the role of manufacturing in job creation. History tells us that while the industrial revolution and technological advancements in the past abolished certain types of jobs, it also created others. Such is the hope with automation as well. However, the industries will only be able to list its current requirements and might not be able to predict what the future holds. Remember, no one could have predicted that thee-commerce sector and aggregator platforms will be able to generate significant direct and indirect jobs.

A forward looking strategy on job creation could incorporate certain elements, though they need not be limited to them. Private sector participation can be encouraged, for instance. The government has hitherto carried the burden of designing a job creation strategy, provide higher education and training and act as chief provider of skills. The time is now ripe to actively engage the private sector to share this burden, which must be henceforth viewed as an opportunity.

To this end, education, skill development and training need to be treated as self-sustaining industries wherein the government and private sector can compete and collaborate to satisfy the increasing and varied demands of prospective employers, employees and entrepreneurs in areas like education, skills, certification and job matching. One can already witness a lot of private sector interest and innovation in these areas. LinkedIn has recently signed a memorandum of understanding with the government on job creation.

Private sector participation is expected to increasingly become relevant for meeting the continuously changing demand of industries and to help individuals engage in ‘life-long learning’. Experts like Arun Maira argue that human beings are the only ‘appreciating assets’ of an enterprise whose value can increase over time as they learn. Therefore, employers would do well to ‘humanise’ their enterprises and not only ‘digitise’ them, and contribute to their value appreciation, by facilitating continuous learning and skill development.

The government should not view such innovation and private sector involvement in politically sensitive areas with suspicion. On the contrary, it must promote such industries and engage in smart regulation of such multi-sided markets. The traditional approach of controlling entry and preventing dominance will not work. Regulation would need to be based on stakeholder consultation and continuously evolve with the markets. Participation and interaction between stakeholders must be promoted and abuse should be checked.

A significant population is moving away from agriculture to other lucrative employment opportunities, resulting in migration and increased pressure on potential urban growth centres. There is a need to make agriculture and rural non-farm sectors attractive again. Mechanisation and technology advancement could help. Successful experiments in Madhya Pradesh, Punjab, Haryana and other states exist wherein large farmers employ rural youth to run custom hiring centres which rent out machinery, like tractors, threshers, seed drills, harvesters and cultivators to small and marginal farmers, thus increasing their productivity. Availability of low cost technologies like seed grading machines can open avenues for non-farm employment, such as production and sale of certified seeds. Such experiments need to be scaled up and geographically expanded. States like Rajasthan have taken the cue and are making admirable efforts. Continuous regulatory reforms in factor markets are also needed to jump-start growth and enable Indian agriculture to participate in the global agriculture value chains.

As large industries start moving towards automated ways of production; micro, small and medium enterprises (MSMEs) will become more relevant than ever before to provide jobs to the semi-skilled and unskilled. While the government is pursuing several reforms to facilitate such businesses – like enabling access to credit and ensuring timely payments of receivables to MSMEs – it seems that relatively larger corporations are benefitting from such schemes. Smaller enterprises are still grappling with traditional challenges like land use conversion, getting necessary operational approvals, dealing with incompetent and corrupt government officials at entry and mid-levels. It is extremely important to ensure that reforms reach their intended beneficiaries. The government and civil society will need to come together to generate awareness about schemes designed to benefit SMEs and address supply side constraints by building the capacity of mid and entry level government officers, monitoring their performance and fixing accountability.

The government must also try to identify niche areas that are capable of being leveraged. Evidence suggests that successful economies identify niche areas, build necessary expertise and create necessary hard and soft infrastructure to create jobs. This is a continuous process as economies move up the value chain, acquire new skills and improve existing infrastructure. For instance, China started with export of labour intensive products such as apparel, footwear and toys. With rising skill endowments, it moved to more sophisticated assembly operations such as office machinery, telecommunications and electrical machinery, as a part of global supply chain. The International Monetary Fund notes that China is now moving up the value chain, ‘on shoring’ the production of higher-value-added upstream products and moving into more sophisticated downstream products as well. At the same time, with its wages rising, it has started to exit some lower-end, more labour-intensive sectors.

This evolution in the Chinese economy has provided opportunities to low-wage, low-income countries, such as, Cambodia, Laos, Myanmar and Vietnam. All these are open economies and are highly integrated with China, and thus are naturally placed to fill the spot emptied by China. In addition, countries like Bangladesh have created their own expertise in sectors such as apparel.

India also needs to identify its own niche areas capable of being leveraged for job creation. We have traditionally been sound in software and technology services sector. Perhaps it is time to leverage such expertise in allied, emerging themes in technology to generate unskilled and semi-skilled jobs. An entire ecosystem could be built around technology enabled sectors which could include jobs in manufacturing, assembling, packaging, sales, delivery, installation, repairing and the like.

NASSCOM recently noted that India aims to capture 20% market share in Internet of Things sector, worth US$300bn. Concurrent investment in infrastructure, skill development, awareness generation, research and development would be required to enable this sector realise its potential. Regulations will need to be attuned to facilitate the growth of technology driven industries. Policies like the technology upgradation fund will need to be reviewed in this light. Tools like ‘regulatory impact assessment’ and ‘regulatory sandbox’ should be adopted to get the policy and regulatory framework right in increasingly tested areas.

The government also needs to rethink its approach for the informal sector. It has been pointed out that over the years, while ‘labour saving’ technologies have grown, ‘labour linking’ technologies are also on rise. With decent electricity and internet connection, individuals in emerging economies can provide services to global corporations. Several customised platforms on the internet have emerged (aggregators, e-commerce players) which link demand and supply, thus creating direct and indirect employment. Such contractual jobs are akin to informal employment, which is no longer a ‘dirty word’, and has been rechristened as ‘gig’ economy. With the rise of gig economies, the government can no longer treat the informal sector as undesirable. It will need to revisit policies aimed at transitioning the informal sector to the formal sector. However, there is still a need to understand the constraints for growth (and not necessarily formalisation) of informal enterprises and provide them support to become ‘future ready’. Singapore recently announced a new industry transformation programme from which certain ideas could be borrowed.

In addition to the rise of ‘gig’ economies, there is an immense global pressure to replace conventional sources of energy with greener energy sources. This would require the development of new skill sets in environment management and the emergence of novel service providers. It has been reported that renewable energy technologies are generally more labour-intensive than more mechanised fossil fuel technologies and can provide a tremendous opportunity to create local jobs for a young and growing workforce. For instance, experts suggest that the government’s push in solar energy could generate close to 1.1 mn jobs in construction, project management and design, business development and operations and maintenance, in next half a decade. Smaller size projects can generate more jobs in hydel sector as well. It has been estimated that the wind energy sector also has the potential to create significant jobs in construction, transportation, operations, maintenance and other areas.

The focus on sustainable development should prompt the government to think about policies to incentivise environment protection and preservation and perhaps treat it as non-farm entrepreneurship. Economies like Costa Rica and Uganda have experimented with programmes like payments for environment services and offer some examples for India to learn from. With support from the World Bank, the Democratic Republic of Congo has recently designed the first-of-its-kind, large-scale programme to curb forest loss and to improve the livelihoods of indigenous peoples and local communities. In Mozambique, an integrated portfolio of forest and landscape investments is helping to generate jobs and improve food security for rural communities. Research is also required to upscale green solutions which do not compromise industrial competitiveness and provide quick returns on investments.

Waste management needs to be a crucial component of an inclusive and sustainable development agenda. With increasing use of electronic items and limited avenues for disposal, e-waste collection, management, and disposal could be another area having the potential to create low skilled jobs. Specific skills could also be required for diverting organic waste from the landfill or incineration, reuse of recycled materials, and generating energy from waste. Such new avenues of job creation must be identified and promoted.

It will also be useful to begin thinking about concepts like targeted universal basic income to help individuals tide over phases of unemployment and gain new skills. The success of the universal identity card (Aadhar) experiment in India, it’s seeding into bank accounts and transfer of direct benefits must motivate the government to transfer higher income to the poor which can be linked with access to high quality education and health services. Such targeted basic income must replace inefficient subsidies. Access to such services will go a long way in preparing the poor in dealing with employment related uncertainties in the future.

There can be no straight answer to job creation. A multi-pronged dynamic and decentralised approach needs to be developed and implemented in collaboration with diverse stakeholders, such as the government, industries, academia, civil society, experts and media. Such multi-stakeholder alliances must discuss and debate politically, technically and commercially feasible ideas to deal with the challenges which the economy of tomorrow brings with it, job creation being the chief amongst them.

The authors work for CUTS International

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