The growing young population in India would lead the country to become the hub for global manufacturing, which is currently China. However, the challenge will be the quality of manpower, said RBI Deputy Governor Subir Gokaran.
The manufacturing sector must look at a way to safeguard the livelihood security of the employees. Chinese pool of workers is going to shrink as the population ages over the next two decades,during which period India will add a substantial number of workers. While China will lose around 40 million workers between 2010 and 2030 as they move past the age of 60, India will actually add 220 million workers, he said.
Speaking at the 175th annual general meeting of the Madras Chamber of Commerce and Industry, here, he said the mere fact that the economy has a large number of potential workers however, did not guarantee that they would be employed in desirable, relatively high-productivity, well-paying jobs. “There is nothing automatic about the process, which is what makes the other policies that facilitate and support it extremely important. This is where some questions about India’s ability to replicate the process arise. Vocational, job-oriented training may be a necessary part of equipping workers,” he said.
Gokarn said there was evidence that job security regulations in manufacturing deter employers from hiring worker. If job security is eliminated, workers must have access to a safety net of unemployment insurance. By all accounts, the MGNREGS was providing a tangible safety net for rural workers. It was time to think of cost-effective ways to extend safety net access to industrial workers as a concomitant to scaling down job security regulations.
He said a large number of workers had to be trained and equipped to work in modern industrial environments. Whether this should be done through traditional schooling or alternative methods is a matter of debate, but the primary objective should be to move from generic knowledge to work-oriented skills. The number involved indicates that the whole exercise is going to be a huge organisational and financial challenge, but it must be faced.
He added that India’s record in moving people from farm to factory had not been very good. During 1993-94, the structure of economic activity changed significantly. The share of agriculture declined, that of services increased and the share of industry remained virtually the same.
He added that over 55 per cent of the workforce remained in agriculture, with the decline in this sector’s share being equality absorbed by industry and services. In 1993-94, agriculture with 30 per cent of GDP, was providing employment and livelihoods to 65 per cent of the workforce. By 2007-08, the same sector accounted for less than 17 per cent GDP, but continued to support 55 per cent of the workforce. In short, the workforce did not restructure as rapidly as the economy did, indicating the inability of non-agricultural sectors to absorb workers.
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Bonds by infra companies
Gokaran said bonds issued by infrastructure companies should also get exempt from withholding tax, which infrastructure development funds enjoys. This would help the infrastructure sector, which would require over Rs 40 lakh crore in 12th Five year Plan, to attract investments.
So far, the responsibility for financing new investments has fallen predominantly on banks. For reasons relating to asset-liability management and sector exposure limits, the capacity of banks to continue to finance this sector was limited. Therefore, alternative channels had to be quickly put into place, he said.
The corporate bond market is perhaps the most important of these, according to him.