The ‘good jobs’ challenge India faces | The Financial Express

The ‘good jobs’ challenge India faces

The manufacturing sector has stayed stubbornly resistant to the kind of growth that propelled many nations to high middle-income status, and hasn’t created good jobs to its full potential

The ‘good jobs’ challenge India faces
Digital infrastructure will also be an important part of India’s future, and it can be provided more efficiently in urban settings.

After 75 years of existence as an independent nation, India’s biggest challenge remains the need to create more “good jobs” for its people. The shift from the original development strategy of government occupying the “commanding heights” of the economy, along with goals of self-reliance and import substitution, to one of “economic reform,” which broadly means greater reliance on the private sector and markets, has led to higher growth rates of GDP, the standard measure of the economy’s output. But job growth, in particular the growth of employment in sections of the economy where productivity, wages and working conditions justify the label “good jobs,” has been inadequate. Aggregate growth without enough good jobs means greater economic inequality (India is home to the world’s second richest person, and also to extreme poverty and deprivation), lower well-being (India scores low on self-reported measures of life satisfaction, popularly known as the Happiness Index), and ultimately a greater danger of social unrest and a return to stunted rates of growth.

Perhaps India’s services sector has done relatively well in creating good jobs, not just in information technology and finance, but also in sectors such as hospitality and tourism. But the manufacturing sector has stayed stubbornly resistant to the kind of growth that helped propel some East and Southeast Asian countries to high per capita incomes, and others at least to high middle-income status. One does not have to view manufacturing as the only source of good jobs to admit that it is an important potential source. Recently, Kunal Sen and I, inspired and pushed by the late Ashok Kotwal—an economist who was a committed seeker of ways to understand and improve the lot of everyday Indians—co-edited an e-symposium that asked a range of expert economists to analyze how the good jobs challenge might be tackled by Indian policymakers (bit.ly/3LW0DHH).

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The six contributions to the symposium provide a compact and coherent set of analyses and policy implications, which provide the core of a strategy for finally overcoming the obstacles to rapid growth in good jobs. One theme is that of planning for the growth of India’s cities. Cities and towns offer agglomeration economies, and, if designed well, can attract private investment and new good jobs. Good design means paying attention to infrastructure: transport, electricity, and sanitation, and cultural and environmental amenities. Digital infrastructure will also be an important part of India’s future, and it can be provided more efficiently in urban settings.

Another form of agglomeration is that of industry clusters, which can create economies of scale beyond what might be available to individual companies. Industry clusters support and benefit from thicker labour markets, reduced transaction costs for buyers, more efficient supply of ancillary services, knowledge sharing (deliberate or unintentional) and so on. Industry clusters are often geographically based, but with good digital infrastructure, some traditional distance constraints can also be relaxed.

One reason effective clusters or networks are so important for India is that many of the country’s firms are relatively small. Small and medium enterprises (SMEs) in India have often lacked good access to formal finance, instead relying on retained earnings or informal sources, neither of which supports robust, let alone optimal growth. Banks do not end for working capital, and small firms are often squeezed by large corporate buyers. Digital technology can support a major restructuring of the system of finance for SMEs, and regulation needs to keep up with these possibilities.

India missed the boat with respect to the post-World War II wave of globalisation, that allowed for rapid export-led growth. While being a late mover has disadvantages, especially because global value chains (GVCs) have become complex cross-national production networks, changes in demographics and geopolitics also afford new opportunities. Since the new GVCs involve extensive trade in intermediate goods, tariff structures need to be carefully designed—“self-reliance” may be a self-defeating goal beyond a point. Clusters, financing and agglomeration also assume greater importance. All of these issues come into play in the design of Special Economic Zones, for example, where these are export-oriented but have backward linkages to the domestic economy.

While the greatest unrealised potential for good jobs in India’s current situation may be in manufacturing, services, too can benefit from the same combination of strategic policies. Tradeable services such as those that are information-technology-based, or involve inward tourism (for sightseeing, or for medical services, in particular), can also benefit from many of the policies that would create good jobs in manufacturing.

So the lessons of the analyses in the e-symposium are that India’s good jobs challenge is tractable, but it requires an integrated set of policy changes, coordination of policies, and strategic focus for implementation. Underlying all of this are, of course, the shortcomings in India’s systems of education and training. But one might argue that those systems will also respond as the supply of good jobs and the demand to fill them both grow. Three decades of “reform” have not created enough momentum for this growth, but new policy focus might finally deliver good jobs for many more Indians.

The author is Professor of economics, University of California, Santa Cruz

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