No quick fixes for India's jobs crisis

If policymakers pay attention to the needs of the country and act on them, the outcomes will be visible a decade from now-but doing nothing is not an option

After dismissing all adverse reports on employment for a long time, the government finally acknowledged, in Finance Minister Nirmala Sitharaman’s Union Budget speech, that it has an unemployment problem. The issue of job creation and unemployment also received plenty of attention in the Economic Survey brought out by the chief economic adviser.

In her Budget speech, the FM announced five schemes — most of which entailed offering incentives to employers if the latter decided to hire more employees. One scheme was particularly interesting. The FM wants the top 500 companies to hire and train interns.  The interns would likely get Rs 5,000 a month plus a one-time assistance of Rs 6,000. The government may bear most of the intern’s stipend costs, with the company chipping in with some amount and taking care of the training expenses. The final details are yet to come out.

These are not very practical ideas. One also gets the impression that the government does not have a complete grasp of the issue.  India has an unemployment problem, a bigger youth unemployment problem, a job creation problem, and, finally, a skills (or rather a lack of skills among youth) problem.

These, in turn, can be treated as two primary issues that need to be tackled. The first is ensuring that enough jobs are being created to absorb the huge number of youth joining the workforce every year, or at least the majority of them. And second, ensuring that the youth — the job seekers — are actually employable. 

The problem of creating enough jobs is something all countries are facing but India, with its demographic profile and population size, is the worst hit. Depending on which set of statistics you use, the number of youth being added to the working-age population in India ranges from 10 million to 14 million.

Creating jobs to absorb them is a difficult proposition even if the economy is growing at 7 or 8 per cent annually. The jobs created per unit of gross domestic product (GDP) growth has dropped sharply over the decades everywhere in the world because of technological advances and other factors that lead to rapid increases in productivity. In the 1970s, the employment elasticity of GDP in India was almost 1, and the population was also much smaller. In the current decade, the employment elasticity has probably come down to 0.1 per cent. Thus, 8 per cent economic growth alone is unlikely to create enough jobs.

The only way to create a significant number of new jobs — even if they do not meet the entire demand — is to make India an attractive destination for building new manufacturing and service sector capacities. Despite all the talk about the improved ease of doing business, the truth is that there are too many compliances, regulations, and other hurdles that businesspeople in India need to deal with. For many manufacturers, while India offers a huge potential market, a country like Vietnam is easier to set up a manufacturing unit in. This is also one reason why India has not managed to become a global manufacturing hub.

Apart from investing in infrastructure and logistics to make India a more attractive destination, the Union and state governments need to work together to reduce friction for global manufacturing (and services) investors looking to set up base in the country. They must also support domestic product companies that are still primarily importing from China rather than manufacturing in India.

As far as the second problem — the lack of skills — is concerned, the government has tried to tackle it through skill development programmes. This is looking at the wrong end of things. What needs to be tackled first is the broken education system. No country in the world that has grown rapidly has done so without paying attention to education.

There is often a debate as to whether the government is giving enough funds to education. This debate is clouded by the fact that education is the responsibility of both the Union and state governments. In 1976, an amendment shifted education from the State list to the Concurrent list.

Fixing education will need a complete rethink by our governments — both the Union policymakers as well as those in different state governments. It will be a test of true federalism because it requires both to cooperate and work closely together.

High-quality free education to all up to 12th standard is necessary. That means the state takes a far more active hand in running schools, training good teachers, and ensuring that the teachers are rewarded. Vietnam is an example of how it can be done — by training and incentivising teachers.

The coaching industry needs to be closed down because it does nothing but encourage schools to pass on the responsibility of teaching to these institutes. Finally, regulatory capacity needs to be enhanced to ensure the schools are run properly.

Without fixing school education first, no amount of intervention at college, university, or technical institution levels will help. Nor can anyone expect to be skilled if basic education and literacy are weak.

It will require long-term planning and focus. If done properly, the outcomes may be visible a decade from now. But not taking any action is not an option.

The writer is former editor Business Today and Businessworld and founder of Prosaic View, an editorial consultancy