 "Lamba's 2047 vision: Enhancing human capital, services-led growth")
Even as India has set the goal to become a developed country by 2047, economist Rohit Lamba urged policymakers to shed their fetish for strategies adopted by China and East Asian countries, which rely on low-skill manufacturing to drive economic expansion, and instead focus on services-led growth.
However, regardless of the path the country chooses, it should prioritise improving human capital — primary education and health care — to provide productive labour to industries, he said.
Lamba, who co-authored the book titled Breaking the Mould: Reimagining India’s Economic Future with former Reserve Bank of India governor Raghuram Rajan, disagrees with the notion that India is growing at 8 per cent, believing its economic expansion to be at 6-6.5 per cent, which is also its long-term potential.
He cautioned against the hype surrounding economic expansion in India.
“I am worried that some kind of complacency is setting in. I can see that the economy is coasting along at around 6 per cent or maybe 6.5 per cent growth. That is not enough. Even that is not sustainable if we don’t address the so-called K-shaped recovery,” he warned.
The assistant professor of economics at Penn State University said that he is not against low-skill manufacturing but is against industrial policies that solely focus on this strategy.
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“We do want to pivot the thinking away from this cookie-cutter model that low-skill manufacturing is the only way. We’re not saying this is not a way, but this is not the only way for India to grow. And the idea was to kind of shake up this thinking a little bit,” he said while discussing his book.
He pointed out that India’s per capita gross domestic product (GDP) is currently around $2,500, compared to China’s $13,000 and South Korea’s approximately $35,000.
“If we grow at our current potential over the past 30 years, which is around 6 per cent and there is no increase in our population, we will double our GDP (per capita) every 12 years. So, by 2047, we are looking at a GDP of $10,000. Our foreign minister said that it can be reasonably expected that India can be at $18,000 per capita GDP by 2047. That’s probably what Viksit Bharat (Developed India) means. So, there is a gap of $8,000 per capita GDP,” Lamba pointed out.
The issue is where that gap will be filled from, he wondered, and gave reasons why India can’t imitate China to become a manufacturing giant. He attributed this to still-cheap Chinese labour, along with that of Vietnam and Bangladesh, the changing strategy of firms to have manufacturing bases near their home countries due to geopolitical reasons, and the rapidly changing nature of manufacturing itself, which utilises lots of embedded services such as in passenger cars, which are more like mobile phones, quite different from what used to be produced by Henry Ford.
He said though India is trying to set up chip fabrication plants, it is chip design where the value addition is and where India’s expertise lies.
“By various estimates, 20 per cent of chip design happens in India,” he said.
Emphasising services-led growth, Lamba said there are massive labour arbitrages in the tertiary sector, which is why global capability centres are performing so well.
Whichever path the country chooses to drive its growth, it must focus on primary education and health, he said.
“We just need to get basic primary and secondary education right. We are very, very far away from being able to produce a fit, healthy, and able workforce that will positively contribute to making the country a Viksit Bharat by 2047, irrespective of whichever path of development we choose,” Lamba said.
So, 30-35 per cent of the country’s children are still malnourished, he said, citing data from the National Health Family Survey of 2019.
The dropout rates are increasing significantly again after the pandemic, he pointed out.
“Even if you get children to school, how well are they learning? Are you able to produce learning machines by the age of 10? And we are not doing very well at it. And there is very good evidence that by the age of 5 to 6, if the child’s health and learning skills haven’t developed to a certain level, then a large part of their human potential is sadly lost,” he said.
In the country’s current development path, the biggest binding constraint is human capital, Lamba said.
“And right now, this focus is missing. It’s massively missing. The labour force in India might be cheaper than China, but adjusted for skills, Chinese labour is still cheaper,” he said.
He cited a Wheebox survey that showed that 50 per cent of India’s labour force coming out of college was not employable as of 2023.
Regarding the production-linked incentive scheme, Lamba said India is not an exception in raising tariffs to protect industries, but he is really worried about giving subsidies at the product level. This is not the only way to drive innovation, he reminded policymakers.
Discussing labour reforms, Lamba said India either has employment with specified tenure, such as in government jobs or the other extreme of contract labour, where workers are fired the moment there is any threat that they will become permanent.
“Both instruments are wrong. What we need is short-term tenure with the ability to grow and learn at work. But there have to be some repercussions for poor performance where you can be fired,” he said.