Low salary packages deprive manufacturing sector of top talent, but here’s how to fill skills gap

Published: October 3, 2016 6:03 AM

The manufacturing sector has so far been deprived of top talent because of its inability to pay high salary packages compared to the services sector

maufacturing skills-l-reuThe only respite has come in the form of introduction of the Seventh Pay Commission and One Rank One Pension, that too for a few, which is barely sufficient to safeguard economic interests. (Source: Reuters)

A June 2016 report by the World Bank decreased global growth forecast from 2.9% (projected in January) to 2.4%. For the global growth tigers—the United States, China and euro economies—the projected growth rates for 2016 were revised. For the US, these were revised to 1.9% from the 2.4% predicted in 2015; for China and 19 economies using the euro these were 6.7% and 1.6%, respectively, the same as in 2015. Also, even for developing and emerging economies—considered future growth drivers—the growth rate in 2016 is projected at 3.5%, down from 4.1% predicted in 2015.

If forecasts are made today, these projections will see a further dip, as many countries are facing economic vulnerabilities. The primary factors are predicament in US Fed Reserve’s interest rate fixation, particularly after Britain’s exit from the eurozone, geopolitical concerns in the Middle East, unstable crude oil prices, sluggish economic recovery of major eurozone economies, continuing slowdown in China, and weak global trade.

Economists have forecast that volatile conditions will persist for the next few months. The corrective measures taken in the recent past by several economies—China introduced circuit breaker rule to protect the interests of investors, the European Central Bank introduced long-term financing options to the banks in the eurozone to lend more, the US economy’s no interest rate hike in its quarterly monetary policies, and the Bank of Japan’s asset purchase programme to stop the economy from falling into recession—are yet to show any significant relief, and new global disorders are adding fuel to the fire.

However, the Indian economy is better placed. The World Bank has projected 6.7% GDP growth for India in 2016, which is achievable under current circumstances. The imbalances with which the Indian economy is grappling can be corrected domestically by understanding their causes at both the business and buyer levels, and then taking appropriate actions.

At the business level, the prognoses of the 96th Business Expectations Survey by think tank NCAER—the National Council of Applied Economic Research—showed a decrease of 6.7% in business confidence index for April 2016 over January 2016.

In addition, similar reports by RBI’s Industrial Outlook and by FICCI’s Business Confidence Survey, which were published in the first half of 2016, projected subdued business sentiment and low investment for Indian businesses in the future.

On the buyer side, commercial banks, in order to strengthen their revenues, passed only half the volume of RBI’s rate cuts to borrowers, and rather decreased interest rates on savings instruments to yield lesser returns to depositors. Similarly, the government did not let the benefit of falling petroleum prices percolate to the consumer level to meet low fiscal deficit targets.

The only respite has come in the form of introduction of the Seventh Pay Commission and One Rank One Pension, that too for a few, which is barely sufficient to safeguard economic interests. The cycle of “low investment, low employment, low demand, low growth” needs to be broken at the earliest.

Boosting manufacturing

The government must understand that the economic fiasco worldwide won’t permit easy influx of foreign investment. So, it should strive for consumption-led domestic investment. The manufacturing sector has to be accorded top priority with all sops, as it can generate more employment (skilled and unskilled) vis-a-vis agricultural and services sectors. High employment will help provide a boost to consumption and impetus to further investment, besides it is also an opportunity for cheap Indian exports when conditions start improving.

For this, a well-articulated approach of extending cheap credit to manufacturing units—particularly those which employ more labourers—should be designed.

Efforts must be made to minimise bureaucratic complications. Today, a manufacturing unit has to comply with nearly 70 regulatory laws, along with multiple inspections, besides filing over 100 returns annually. This multi-tier regulatory framework has to be replaced with a simplified submission of one annual comprehensive return.

The manufacturing sector has so far been deprived of the top talent because of its inability to pay high salary packages compared to the services sector. One of the steps that can be taken to reverse this trend is that all higher educational institutes should be sensitised to invite indigenous manufacturing companies first for placements, rather than financial and consulting companies.

The sustenance of Indian economy rests on the two issues of skill development of existing workers and innovation. In order to impart skills, mandatory provisions for in-house training of employees in manufacturing units in collaboration with NSDC should be made. As we lack strong intellectual property framework, we are slow to innovate. A culture of innovation has to be cultivated. In 2014-15, India filed only 1,428 patents, while Japan, China and South Korea filed 44,325, 29,846 and 14,626 patents, respectively. With the fiscal deficit down, the time is right when surcharges and cesses can be shun to dispense additional purchasing power with the masses.

RS Bawa is vice-chancellor, Chandigarh University;
Rajiv Khosla is head, University School of Business, Chandigarh University. Views are personal

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