Employment guarantee for skills or jobs?

Conventional Indian thinking on raising growth and reducing poverty has tended to simultaneously focus on raising the rate of investment on the one hand, and pumping funds into anti-poverty interventions on the other. Thus, the biggest constraint to raising India?s present average GDP growth rate of less than 7% to the Plan target of 8% is the shortage of resources to raise the rate of investment to over 28%. Likewise, after experimenting with a number of rural development and employment schemes, the latest wisdom on poverty reduction has taken the form of the National Rural Employment Guarantee Bill to be tabled in Parliament.

There can be no argument that raising the rate of investment is a key variable. Similarly, in an emerging economy like ours, while high growth is the biggest anti-poverty measure, targeted interventions are needed to spread the benefits of growth to the most disadvantaged sections. What has not received adequate attention of policy is the efficiency of not just investment, but the combined productivity of all inputs that come together to generate outputs in the economic system measured as total factor productivity (TFP). It is evident the higher the growth in TFP, the higher the GDP growth that can be achieved from the same rate of investment or a bigger dent in poverty made from the same level of government spending.

A World Bank projection shows that if India could double its TFP recorded during 1991-2000 to the level achieved in Ireland, the GDP growth rate could be raised significantly even at the prevailing rates of investment. Thus the rate of investment is not necessarily the determining constraint, and the efficiency with which this investment is managed could make a substantial difference. This would depend on how all the players in the system move up the knowledge curve. Knowledge management requires not just the spread of ICT technologies, but also development of a skilled and educated workforce and absorption of new methods of management.

Looked at this way, it is worthwhile enquiring whether the National Rural Employment Gua-rantee Bill would result in the most efficient deployment of government resources to meet the objective of poverty reduction. It is evident that employment guarantee schemes would provide employment to those at the bottom of the economic ladder and out of the job market.

Typically, these would be members of the rural casual work force, who are illiterate and devoid of skills. Since employment guarantee schemes would provide only work and no skills, these persons would have to be supported year after year, because the programme would not equip them to enter the job market on their own. Thus, as population growth adds more persons to the ranks of the unemployed, the number to be supported by the employment guarantee schemes would continue to grow year after year. Inevitably, government expenditure on the programme would keep rising.

Ideally, the programme has to be designed in a manner that creates self-reliance among those it supports at the fastest possible pace. What this means is that those supported once, should be able to enter the job market and the scheme moves on to help first-time entrants to the ranks of the unemployed. Such an outcome would add more to GDP growth by expanding the job market and also keep a check on government expenditure.

The only way this can be done is by focusing on skill development of those to be guaranteed jobs. It may be desirable to spend a higher amount per person, half of which could be devoted to adult literacy and skill development programmes. Thus the employment guarantee Bill should first guarantee skills and then a job. This would spread knowledge at the base of the pyramid, and make a dramatic difference to the TFP of the rural economy and also to the earning capacity and quality of life of those supported by the scheme.

Today, there are new methods available that can impart basic literacy and skills in a matter of months. For example, Tata Consultancy Services has developed a module that can make a man read and write in less than three months. Similarly, 10 to 12 week courses are enough to train people for jobs, such as masonry, housekeeping and service in tourism, electrical repair and plumbing, mechanical repair for auto and machinery, rural marketing etc. This list is large and could run into hundreds of vocations. More important, businesses in each of these segments would tell you that they are faced with a huge shortage of skilled personnel.

Those supporting the rural employment guarantee Bill could, therefore, do with some introspection. The scheme could have two components. First, those seeking work must be made to undergo a six-month adult literacy and vocational training programme. While training, they could be given mid-day meals and some wage support. The vocational courses could be designed in partnership with the private sector and delivered through public-private partnerships and community-based organisations or self-help groups. Second, following the training, those who are unable to find jobs could be given one-time support of providing 200 days of work.

Employment guarantee must raise the productivity of the rural poor. This can only be done through spread of knowledge and its effective management. If the skill level at the bottom of the pyramid is raised, the productivity of rural assets can be increased substantially. Thus, even if the rate of investment in rural areas remains stagnant over the next few years, infusion of knowledge can raise rural growth and reduce poverty far more effectively than mere infusion of money.

The writer is an advisor to Ficci. These are his personal views