While the role of private enterprise will be paramount, the State must act unhesitatingly as an active enabler for the long term. The segments to be supported can be identified at the highest levels of decision-making by the Centre and the concerned state governments. Thereafter, the entire set of ministries and departments involved should undertake vigorous promotion. This includes state governments and the district administrations, along with the local self-governments at the sub state levels that must be deeply involved in the implementation of these new policies and programs.
For maximum impact in discharging their responsibilities, these bodies would need to be made financially capable by increasing the flow of funds from the Centre. Hitherto the successive Finance Commissions have followed an incremental approach in transferring funds to the states and the UTs, and based their advice on principles that have not evolved much. It is time to give the highest priority to net job creation as a criterion, with the Centre passing on a greater share of the divisible pool of the resources. Starting with the Fourteenth Commission’s recommendation of 42%, it should be increased by 2% annually only on the basis of progress on employment creation. Within four years, a desired 50% should be reached; a level most votaries of co-operative federalism have long been suggesting.
The Centre, over time, will have to tighten its own belt alongside reducing expenditure on several redundant Centrally funded or sponsored schemes. This change, should not, in many ways, cause much disappointment amongst the states, who have usually preferred more untied funds that allow them to devise local schemes more relevant to their needs. A caveat here is that states themselves should in turn give greater funding and autonomy in implementation to district authorities, municipal bodies and the zilla panchayats. More importantly, the virtual lack of trust amongst the local bodies, districts and the state governments has to be consciously overcome, otherwise entrepreneurs and businesses would lose faith and not bother to avail of any government scheme, howsoever attractive they might be.
Prima facie, the labour and skill intensive sectors of manufacturing that would qualify for employment-focus and incentives are textiles (in particular apparel), leather products, gems and jewellery, automobiles and their components (especially two wheelers and entry level passenger vehicles), pharmaceutical-formulation and a range of electronics and consumer durable items. In terms of creating employment, all manufacturing is not job-generating—this is partly the reason employment in this sector has remained stagnant at about 14% of the aggregate for decades. On the other hand, the sector helps create almost three to four times the number of jobs in the related services, a fact that explains the persistent enthusiasm of those who advocate the expansion of manufacturing as a share of GDP.
Given our capital scarce economy, we must also think beyond manufacturing and the service sector, to find avenues where combined job creation is higher. One such industry is real estate, which continues to be highly labour intensive. Affordable urban and rural housing in general are unambiguously job creating—both for unskilled workers and for women, an often overlooked part of the potential workforce. The industry holds tremendous value potential and has been a sizeable job provider in many countries including China. To hold back migrant labour in cities, employers in India may soon have to provide them with living quarters, a la the chawls put up by textile mill owners during the inter-war decades in Mumbai.
Another area of preferred attention should be labour intensive infrastructure—city and rural roads, schools and clinics, public playgrounds and parks, water supply and sewage systems , all of which employ a large number of people in construction and in their periodic maintenance. Some other practical areas worth mentioning include mining of major as well as minor metals, all of which, given our technology adoption, are labour absorbing. With several inhibiting regulations in coal and other minerals having been recently reviewed, a focus here can be highly rewarding. Newer age industries such as e-commerce and the related logistics and delivery services would also help substitute the inevitable loss of jobs likely as retail moves away from brick and mortar stores.
All this said, the most labour absorbing part of the Indian economy is without a doubt, agriculture. About half of the total employment in the country is in farming. Though many may not be fully employed as there is more disguised employment here than in any other sector of the economy, and per capital farmer income at $2,000 continues to be a third of the national average, the sector still remains capable of vast productivity gains through a variety of structural reforms. Recent moves include direct marketing by farmers without going through a layer of middlemen and a shift to greater value added horticultural crops, commercial crops and oilseeds (today, $10 bn worth edible oil is still imported annually). A concerted focus on water conservation measures, compulsory drip irrigation and a ban on using the subsidised surface water for guzzlers like sugarcane and paddy must be considered at the earliest.
Despite such moves, as productivity and innovation improve the farm output, fewer hands on farms will be needed. As this happens, retaining most of those that become surplus in their rural settings rather than letting them fall prey to the bright city-lights where metros are bursting will be critical. Promoting rural industries, especially food processing, attracting low skilled apparel making, leather goods and services such as repairs of vehicles and consumer-durables can be consciously promoted in villages rather than on more expensive real estate in urban areas, already struggling with congestion, environmental degradation and water and air pollution. Ultimately, in addition to undertaking a societal cost-benefit analysis to understand promotion of these industries in cities relative to villages, one must keep in mind that eight hours of hard manual labour for minimal wage (as offered under MGNREGA) is not every youth’s preferred option. If villages cannot provide comparable income, many will continue to succumb to the temptation of exploring their fortunes in cities, near and far.
The various potential policy changes and measures laid out will, no doubt, take unprecedented efforts at every level. While we cannot make progress on all of them at once, we can certainly shift direction with urgency and lay out a plan that centres around employment creation as the north star of India’s economy for the next decade or two.
This is the concluding part of a two-part article. The first part appeared on 12 July.
Dr Ajay Dua, a developmental economist, is a former Union Commerce & Industry Secretary.