Job number one (GS Paper 3, Indian Economy)
Introduction
- India is the fastest growing economy in the world, with one major problem- it is not producing enough jobs.
- The working-age population that is actually working is 46.6 percent, in other economies this percentage is close to 70 percent.
Did India commit a mistake by emphasizing service sector jobs?
- The answer requires reconsidering India’s original bet against the Asian formula for development: Conduct land reform, move excess labour from farms to factories, manufacture stuff with that abundant labour force, sell to the world.
- Instead, India’s bet was on services.
- In exporting services, it graduated from the 1990s call centres to the early 2000s outsourced IT and back-office services to a fuller menu of technology-enabled services offerings today, employing 5.4 million people.
- It’s useful to remind ourselves that the working-age population is about 950 million strong.
- Jobs in high-end services require workers with requisite skills; however, the 2023 India Skills Report points to a massive skills deficit with only half of young Indians employable currently.
- This means that for the foreseeable future, low-skilled services remain the default labour absorbers.
The IT sector shrank for the first time in 25 years
- The jewel in the service's crown, the IT sector, shrank for the first time in 25 years.
- As automation and artificial intelligence pick up pace, many jobs in IT will become redundant.
- The slowdown is showing in cutbacks and slow hiring.
- As for the rest of those “employed” in low-skilled services, earnings are so low that after the long march back home to the villages during the Covid lockdown, many preferred to remain there.
- Sixty million more people are in agriculture than they were four years ago.
- If India was planning to write its unique development story countering conventional wisdom of moving from farms to factories, it has certainly torn up that playbook with a vengeance.
There is a need for multiple job creation vectors
- With an employment picture this grim, the government that comes to power after these elections needs to make job creation its job number one.
- It also needs to re-think the de facto singular bet strategy manufacturing’s share has shrunk to 13 per cent of GDP with all hopes riding on services.
- It can be argued that given the number of people who need employment, multiple job-creation vectors are essential.
- They need policy support, co-investment — especially in education, skill-building and jobs-preparedness — and tax and regulatory incentives to employers.
Several promising vectors for job creation
Potential in Global Capability Centres (GCCs)
- In high-end services exports, there’s potential in Global Capability Centres (GCCs) — offshore units of MNCs that provide services to the parent that range from finance, legal and HR to high-tech innovation clusters in cyber, analytics and AI.
- There are already over 1,500 GCCs employing 1.6 million people, expected to grow to 4.5 million by 2030.
- Services out of such centres could become one of India’s biggest exports, generating incomes and demand for even more services from lower-skilled tiers.
Exploit India’s tech startups
- There is unrealised potential in India’s tech startups.
- If they can scale up, they employ many people directly and indirectly.
- Back in 2021, hot money was seeking refuge from an unfriendly China and India provided a convenient destination.
- Early investors drew in others who feared they were missing out.
- Successive investors were pressed to overvalue a company to get in on the deal, often ignoring market fundamentals, regulatory uncertainties and talent shortages.
- Fast forward to now: Many high-flyers — Paytm, Byju’s, Oyo — have crash-landed and investments in Indian startups have fallen to their lowest levels since 2015, while write-downs have surged.
- Consider this a second chance — with fresh lessons — for Indian startups.
- There are growing needs in AI, SaaS, defence and greentech – solid industries that play to India’s strengths.
- But founders have to be mindful of their seemingly reflexive capacity for hubris at the first signs of success and not assume that regulations will bend for them.
- As these startups grow, they will hire more people; creating a skilled talent pool is essential.
“Green economy” jobs in India
- Consider India’s urgent need for a green transition.
- As the third-largest energy-consuming nation, it is already fourth in the world in renewable energy installed capacity.
- It plans to install 500 gigawatts of renewable energy capacity, producing 5 million tonnes of green hydrogen annually, cutting emissions by 45 per cent by 2030.
- The World Economic Forum projects 50 million net new “green economy” jobs in India.
Manufacturing sector must be revived
- Given the size of the jobs deficit, we cannot afford to slam the door on manufacturing.
- We must look beyond the high-profile plans for manufacturing iPhones, Teslas, and semiconductors and enable small and medium manufacturers, who are likely to be less automation-intensive and more reliable labour absorbers.
- India’s digital public infrastructure — possibly using the Open Network for Digital Commerce that connects market players on a single protocol — can be leveraged for access to credit, resources, logistics, warehousing, and customers.
- This can help small-and-medium manufacturers replicate the benefits of larger players.
Conclusion
- We are staring at an employment crisis, which could get worse. But with policy support that could change.
- With an employment picture this grim, the government that comes to power after these elections needs to make job creation its job number one.
