Job growth: India’s job paradigm needs to change


The job losses due to the pandemic and the subsequent K-shaped recovery have exposed the structural weakness and lack of resilience of the informal sector, a large part of our economy, even as the government now aims to create 6 million jobs this fiscal year. If we separate growth and employment data for India from the 1970s into three fundamentals – total hours of work, capital stock and total factor productivity (TFP) – we find that between 1970 and 1990 growth working hours had the highest contribution. However, from the early 1990s, the use of capital began to increase sharply in relation to the increase in net labor hours, a phenomenon called “capital deepening”. India’s economy has become markedly more capital-intensive, which has been reflected in the slower growth of labour-intensive sectors, evident in both goods and services.

Traditionally, policymakers in low-income countries have relied on investment and manufacturing-led growth to boost employment. Unfortunately, in India, the share of manufacturing as a percentage of GDP has remained stubbornly around 15%, with the declining employment elasticity of manufacturing investment clearly showing the challenge facing this employment paradigm. in India. The rapid growth of automation and digitization in manufacturing will make this an even greater challenge. This is not to say that the recent success of the PLI program in attracting manufacturing investment is not important for the country, especially given the geopolitical window that India currently has. But one wonders whether it will create the 10 to 12 million new jobs needed each year. Or is it time to draw a new political paradigm for employment, more suited to the realities of the 21st century?

To answer this question, let’s take a step back and look at two root causes of the current challenge and two global developments that will shape the future. The first root cause is the “missing link” in India’s industrial structure. It is universally recognized that a dynamic and ambitious SME sector — the “middle” — is essential to job creation. Unfortunately, India’s industrial sector is dominated by either large industrial firms or small firms, which are said to account for 99% of the estimated 60 million MSMEs. These struggle with weak competitiveness and are caught in the crucible of limited access to growth capital, overwhelming regulatory burden, low skill levels and lack of innovation. The global trend towards higher levels of digitalization (seen as job-destroying) can end it by bringing all the ingredients (identity, access to capital, regulations, skills, social security, markets) into one digital platform at a cost affordable as a good audience. This would require changing some current policies (data sharing, regulations and standards) and overcoming inter-ministerial boundaries (finance, skills, IT, MSMEs, trade) and a governance model that builds trust.

The second fundamental cause is the contradictory assertions of economists (that there are not enough jobs created), of the industrial sector (that there are not enough sufficiently qualified employees) and of training centers (who claim industry is unwilling to pay for skills). India had set up the Ministry of Skills to put more emphasis on this issue, spending billions over the years. But the problem persists even as the world grapples with the challenge of the need for new skills driven by increasing digitalization. The solution is to put professionalization at the center of our schools-skills-jobs platform in partnership with the industry itself. The Delhi government is trying to achieve this with a combination of new age vocational tracks introduced in school, a new skills university with curricula designed (and taught) by industry partners and a digital jobs market. specialized. This could provide a model for the rest of the country, but again calls for the reform of the governance model of several ministries, each going its own way.

The third is the need to exploit the global trend of servitization. In the last century, mass manufacturing has been the main engine of economic growth and employment, reducing the cost of goods by 3 to 10 times and thus increasing demand, investment and employment. The 21st century sees the development of mass services driven by increasing digitalization as a driver of economic growth and employment. Digital technologies can reduce the cost of service by 10 times up to 100 times. We have seen this play out in the telecommunications sector, where millions of jobs have been created. A similar revolution is waiting to happen in several sectors like health, education, financial services, agriculture, etc., with huge unmet demand. While world-class physical infrastructure was the backbone of mass manufacturing, world-class digital infrastructure needs an enabling regulatory regime, standards for data flow and revenue sharing, privacy laws and an organizational model that makes it a public good. This, again, calls for multi-ministerial cooperation.

The final piece of the puzzle is shaped by a question I’ve been thinking about. The main driver of formal employment growth in India over the past decades has been the ITeS sector. What can be a similar driver in the future? When it comes to global demographics, wealthier countries are aging rapidly as people live longer. Over the next two decades, India will be the only major economy with a large young and educated population. As the demand and economic costs of healthcare services and solutions are rapidly increasing in wealthy countries, India can become the global service provider to meet them through medical tourism, remote healthcare services and provision of in-person health care (for example, nurses for the elderly to care about). Can we unlock this potential by building our education and training capacities, setting universally acceptable standards for medicine and data privacy, and negotiating these services in our FTAs? Again, the answer will lie in the ability to manage the complex governance that crosses multiple departments and states.

Multilateralism, mass manufacturing, the Internet, and young, supportive demographics have defined the economic growth and employment paradigm of the past century. Every element of this context has changed with the growth of competitive geopolitics, digitalization, and the aging demographics of rich countries. For sustainable job creation, India needs to rethink the employment paradigm through policies aimed at unlocking formalization, professionalization, servitization and ITS-ization. The complexity of the governance challenge to achieve this is significant. But so is the price of getting it right.

The author is senior associate and director of the BCG Henderson Institute, The Boston Consulting Group. Views are personal

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