• October 18, 2017
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What’s behind India’s economic slowdown? The answer lies in 3-words: Jobs, Jobs and Jobs.

When the number of cell phones sold in India touched the billion mark in 2013, India manufactured very few cell phones. Mindful of the growing mobile phone market in the country, the government increased the import tariff for mobiles in 2015 (making the import of finished mobile devices more expensive than producing it locally—an exercise known as correcting the inverted duty structure). The reform, along with a few structural changes, made India one of the fastest growing mobile manufacturing economies in the world with more than 42 plants set up in the last two years, generating direct and indirect employment for over four lakh people.

By the year 2018, the number of unemployed job-seeking individuals in India will reach 18 million. Promising interventions, like the one that spurred job creation in the mobile manufacturing industry, need to be adopted more widely. According to a FICCI 2016 report, there are opportunities to correct inverted duty structure in six other sectors namely Capital goods, Cement, Electronics and electricals, Rubber products, Minerals and Textiles. Knowing what induces job creation, while keeping the macro reality of India in perspective, is a crucial step towards ameliorating the current situation.

Job creation is a consequence of two broad phenomena: the creation of new enterprises and expansion of the existing enterprises. Employment friendly policies like promoting investments, regulating international trade, making ecosystems conducive for businesses and managing labour markets, eventually lead to one of the above two phenomena. However, the theory has unique exceptions in the Indian context.

Enterprise creation in India has not traditionally translated to the creation of proportionate new jobs. More than 66 percent of the non-farm enterprises in the country—a little over 30 million, with most of them being MSMEs—function without a single hired worker. The government’s Startup India Policy, aimed at boosting enterprise creation while generating employment, is a step towards solving the problem. But the minuscule coverage of enterprises under the policy (2865 as per the latest report) remains a potential hurdle. Also, with 98 percent of the total VC funding going to startups located in just 6 cities, the regional skew in the number of new jobs created is high, leaving the potential of an otherwise vast nation almost untapped. Nonetheless, with the vehement implementation of the Startup India Action Plan, it is not impractical to expect a redressal in the medium term.

The inability of a large number of enterprises to grow and create jobs also indicates that enterprise expansion is non-aspirational in India. Research states that the lack of emphasis on innovation, coupled with byzantine regulations, are two prime reasons. Poor fund allocation in Research & Development (less than 1 percent of India’s annual budget, as compared to 3 to 5 percent by countries like the U.S. and China) inhibits innovation, and hence prospects of job growth. A program like the ‘Small Business Innovation and Research’ (which provides enterprises with competitive R&D grants), proposed in a NITI Aayog Expert Committee report, can be a game changer.

For the larger firms that can afford to innovate and grow, a totally different kind of challenge limits their job creation potential. The unit cost of capital has fallen to less than 0.6 times the unit cost of labour—a 16x drop from the unit cost of labour in the early 1980s. Chasing higher productivity at a lesser cost is the prevailing industry norm and recent developments in automation and artificial intelligence pose a daunting impact on the job market.

Apt policies aimed at tempering the impact of rapid technological buildout and striking a balance between productivity and labour employment need to be conceptualized. New age sectors like defence and aerospace, education and healthcare, and burgeoning green sectors like solar energy and wind, present another massive opportunity to identify the ‘upcoming jobs’ and prepare talent accordingly. India’s ambition to create more than 1 million new jobs in the green energy sector by 2022 is encouraging.

Large-scale job creation is the government’s most formidable challenge presently. Prudent strategies based on the actual lay-of-the-land will determine India’s growth trajectory and pronounce the quality of life our citizens will lead once we grow old as a nation. Not reaping the dividends of demography is not an option. The time to act is now![/vc_column_text][/vc_column][/vc_row]