Job creation is expected to be an important focus area in the upcoming budget. Incentivising expansion of employment opportunities in especially the manufacturing and construction sectors could help tide over the economic uncertainty caused by the COVID-19 pandemic, a McKinsey & Co. analyst has said.
Till 2030, the country would need to create additional nine crore non-farm jobs to absorb the new workers who will be entering the workforce based on current demographics.
"For gainful and productive employment growth of this magnitude, India's GDP will need to grow by 8- 8.5 per cent annually over 2023-30, after the Covid-driven dip and recovery. In this high-growth path, manufacturing and construction sectors would need to amplify the most, while knowledge and labour-intensive services continue their momentum," senior partner McKinsey & Co., Shirish Sankhe told Business Today, while also referring to recommendations made in the global management firm's 2020 study, India's Turning Point.
The world's fifth-largest economy is expected to witness the entry of six crore new workers as well as the movement of three crore workers from farm to non-farm jobs.
"The construction sector can add 25 million non-farm jobs and the manufacturing sector can add one-fifth of the incremental GDP by 2030," said Sankhe.
Sankhe advocates that a return to the high growth trajectory would require progress along four key pillars of building high-productive businesses, enabling businesses to climb the ladder of scale, undertaking accelerated policy reforms in the real sectors and raising significant capital for growth.
Six pillars of growth
The first pillar consists of building frontier businesses that are 2.5 times more productive than traditional business models and are capable of generating $2.5 trillion of economic value by 2030.
These include global manufacturing hubs serving India and the world in electronics, pharmaceuticals, auto and auto components, next-generation financial services, modern retail and e-commerce, and productive and resilient cities.
The second pillar requires Indian businesses to climb the ladder of scale, i.e., small companies to grow to mid-sized and mid-sized firms to grow larger.
"India has a 'missing middle' of mid-size firms that typically grow into formidable competitors of larger rivals. India needs to grow from 600 plus large firms currently, to nearly 1800 large firms. This requires 1000 plus mid-size firms to become large and 10,000 plus small firms to become mid-size. This would require better credit availability and access as well as greater ease of doing business," opined Sankhe.
The third pillar calls for accelerating six areas of real-sector reforms including sector-specific pro-growth policies to raise productivity, unlocking land supply through land market reforms, creating flexible labour markets, enabling efficient power distribution to reduce power tariffs by 20-25 per cent, monetising government-owned assets and large-scale privatisation and improving ease and reducing the cost of doing business.
The fourth pillar involves raising $2.4 trillion capital by 2030 to finance growth and increasing investment as a percentage of GDP by 5 percentage points through financial sector reforms.
"While the central government's pro-growth agenda is critical, roughly 60 per cent of the real and financial sector reforms need to be led by the states, and all require active participation by the business sector," asserted Sankhe.
He welcomed policy initiatives like the production linked incentive (PLI) scheme for the manufacturing sector, prioritising privatisation of public sector enterprise (PSEs) and monetisation of assets like roads, and the proposal to set up a bad bank to reduce the non-performing assets (NPAs) of public sector lenders in the path to policy reforms announced by the Central Government in the post-pandemic period.
The country could, thus, realise its twin goals of job creation and GDP growth through a convergence of pro-growth vision, implementation of policy initiatives and projects at a state level.
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