 "'Make India a fertile habitat for job creation '")
What is the current situation in the employment market? Are sufficient employment opportunities being created?
India is a cyclical and structural job emergency. The cyclical emergency has arisen because corporate confidence has been decimated by low growth rates, high inflation and regulatory uncertainty. The structural emergency arises because of our demographic dividend (10 lakh young adults joining the labour force every month for the next 20 years) and the lack of structural transformation. We are stuck at 12% manufacturing employment, 50% agricultural employment, 50% self-employment and 90% informal employment. China’s genius at putting poverty in the museum is a child of its farm to non-farm transition that has got 400 million people off farms and into factories. India is not creating jobs at the rate required to either absorb the flow of youth or relocate the existing stock to higher productivity jobs.
Has the number of jobs that the manufacturing sector creates gone down? If so, is the service sector equipped to absorb this demand?
Only 12% of India works in manufacturing; this is the same share of the labour force as post-industrial United States. Most of Indian manufacturing is either skill or capital intensive instead of being labour intensive. The fastest growing segments of the labour market are sales, customer services and logistics -- service sectors that are children of India’s domestic consumption explosion. But it is unclear that service jobs are going to be enough for India. Twenty-five% of the world’s new workers in the next five years will be Indian. And China has crossed the Lewisian turning point (economist Arthur Lewis’s Nobel prize winning work on how wages rise rapidly after a country runs out of farm labour). Currently Vietnam is the biggest gainer from China’s rising wages and India’s infrastructure deficit, but this needs to change.
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So what challenges lie ahead of the next government?
The next government will have to raise the total number of jobs and expand the share of formal jobs. Expanding the total number of jobs is key because we aren’t creating enough jobs. And increasing the share of formal jobs is key because 100% of net job creation in the last 20 years has happened in informal jobs. Informality is not only the slavery of the 21 st century, but has created a huge productivity drag on the economy with sub-scale enterprises that don’t have access to credit or create career corridors. But the primary agenda is recognising that the reforms so far have only fixed the sins of commission (what the government was doing wrong) and what we need to fix now are the sins of omission (what the government is not doing). Making India a fertile habitat for job creation is about creating the infrastructure for manufacturing like uninterrupted power, uninterrupted highways, deep sea ports and a rejuvenated rail network.
Another priority should be fixing our geography of work . India only has 50 cities with more than a million people , while China has 400. We have 600,000 villages; 200,000 of them have less than 200 people. Politicians dream of taking jobs to people but we need to take people to jobs.
The third priority is regulatory cholesterol. India is a hostile habitat for entrepreneurship in terms of regulations that make it complicated and painful to start and run a business. The biggest manifestation of this is substantially stunted firm size (companies with less than 49 workers accounted for 84% of manufacturing employment). This obviously includes labour laws but includes the various inspector, compliance and permission raj that has remained unchanged since 1991.
The fourth priority is regulatory predictability. Most investments have long payback periods and uncertainty around taxation, or the lack of predictability around regulations hold back the virtuous investment cycle. The fifth priority is macro-economic stability because the huge inflation of the last five years has raised interest rates and created a divergence between real and nominal wages that is retarding the migration from rural areas. Finally, while labour reforms are mostly equated with hire and fire, the most important labour reform is fixing the 48% mandatory salary confiscation for low wage employees in poor value schemes like EPFO, ESI, EDLI, EPS, etc. Our employee benefits regime breeds informal employment and is the lowest hanging fruit in labour legislation; long term solutions lie in making labour laws a state subject.
What areas require greater focus for skill development?
The biggest interventions in skills lie at the intersection of education and employment. We need to massively raise the number of apprentices because learning-by-doing and learning-while-earning are the most powerful vehicles for skill development. But because of dysfunctional Apprenticeship Act of 1961 India only has 3 lakh apprentices , while Germany has 3 million, Japan has 10 million and China has 20 million. We need to introduce vocational universities that differ from traditional universities in three ways: they pray to the one god of employers; they have qualification corridors between certificates, diplomas, associate degrees and full degrees; and they deliver flexibility between classrooms, cloud delivery and on-the-job training. We need to redo the Right to Education Act to shift from enrollment to learning outcomes. We need to fix the financing failure in vocational training by catalysing a vocational training market and diverting money from distorting programs like NREGS to skill development. Basically the government is organised vertically but the skills problem is a horizontal that needs a more adventurous state that creates more room for innovation and risk taking by both the public and private sector.
Once corrective measures are in place, how much time will it take for the results to show?
India can see a cyclical upturn in hiring in a six - month time frame because the animal spirit of corporate India has been suppressed for too long. Both domestic and multinational companies and entrepreneurs will start investing relatively quickly if stability and clarity returns to the regulatory and policy outlook. However , the structural investment cycle would only kick off after 18-24 months of sustained reforms . India has become a hostile habitat for capital and entrepreneurship over the last few years and large investments will be needed to bridge the infrastructure deficit.