Most parents, policy makers, and economists agree that jobs change lives in ways that no subsidy ever can. But there is huge disagreement on the role of the government in creating jobs; is it setting things on fire or creating the conditions for spontaneous combustion? We’d like to make the case that the “setting things on fire” view leads to industrial policy and economic stagnation and private sector cripples – animals bred in captivity find it hard to live in the jungle – that we had before 1991. It is almost important to recognise that India does not have a jobs problem (our official unemployment rate of 5% is not a doctored number), but a wages problem. The higher wages people are demanding can only be provided by formal jobs but 92% of our workforce still works informally, 50% of India’s labour force that works in agriculture generates only 15% of our GDP, and only 11% of the labour force works in manufacturing.
Putting poverty in the museum it belongs needs raising productivity. The productivity of a country is a complex question that involves individuals, enterprises, legislation, and much else. As Nobel laureate Robert Solow said, countries don’t need more cooks in the kitchen but a different recipe. With ten lakh kids joining the workforce every month for the next 20 years, we need merciless execution that focusses on five labour market transitions: farm to non-farm, rural to urban, subsistence self-employment to wage employment, school to work and informal to formal. Let us look at each one of them in more detail:
The enterprise geography of work
On surface, India’s entrepreneurship ecosystem seems healthy; 50% of our labour force is self-employed, and we have one enterprise for every four non-farm workers. But most of our enterprises are dwarves (Only 11% of manufacturing companies in India employ more than 200 people, compared with 52% in China), vary considerably in productivity (there is a 22-times productivity difference between a firm at the 90th and 10th percentile by size in manufacturing), and 40% of our labour force comprises the working poor (people who make enough money to live but not enough money to pull out of poverty).
This article is a part of FICCI publication “Economy of Jobs” that was released during our 89th AGM in December 2016. It presents essays from India’s leading business leaders and eminent thought leaders who share views and suggestions on job creation. The articles cover varied issues: demographics, education, skill development, entrepreneurship, impact of technology, labour laws, and as well as specific issues across sectors.
More articles from this series can be viewed here at: Economy of Jobs
We are just not producing enough enterprises and workers with the productivity to pay or deserve higher wages. Of India’s 6.3 crore enterprises, 1.2 crore do not have an office, 1.2 crore work from home, only 75 lakh have any tax registration, only 15 lakh pay the mandatory Provident Fund and ESI (employees state insurance) contribution, and only 10 lakh are companies. Of these companies, only 55,000 post at least a single job on an online job portal on any day. Only 17,500 companies have a paid-up capital of more than Rs. 10 crore.
India does not have a jobs problem, but a wages problem
India’s regulatory cholesterol stunts enterprise growth. Improving the ease of doing business would create a Cambrian explosion of new venture creation and massively increase productivity among existing enterprises. This requires rebooting the thought world of the Medium and Small Enterprises (MSME) Ministry, improving access for non-collateral credit, getting rid of the labour and tax inspector Raj, implementing the goods and services tax (GST), growing the venture capital industry, moving employer- employee and govt. interface to a paperless –presence less and cashless ecosystem, freeing foreign investment, and getting rid of outdated laws.
The physical geography of work
A difficult question around jobs is whether India is going to take jobs to people or people to jobs. India only has 50 cities with more than a million people; China has 375. We have 6 lakh villages of which 2 lakh have less than 200 people; there is no way they can become job magnets. At the same time, we also need to define urbanisation carefully; it is not just about shoving more people into Delhi, Mumbai or Bangalore. Considerable economic activity over last 10 years has come from Gurgaon near Delhi, Gachibowli near Hyderabad, Magarpatta near Pune, Whitefield near Bangalore and Mohali near Chandigarh. But unfortunately, these job magnets cannot be called smart cities. The problem is not just hardware or infrastructure; the problem is governance. New cities need real mayors because impotent or unelected city leadership creates dumb, not smart cities.
There are also natural conditions for strong regional disparities over the next 20 years; six states in the south and west of India (Gujarat, Maharashtra, Tamil Nadu, Karnataka, Andhra Pradesh and Telangana) will see 50% of the country’s GDP growth but only 5% of the population growth. But 4 out of 10 children born in the next ten years will be in the three states of Uttar Pradesh, Bihar and Madhya Pradesh.
Manish Sabharwal & Sonal Arora, Chairman & Vice President, Teamlease writes this piece for FICCI publication “Economy of Jobs”. Post continues on Page 2.