Finance Commission chairman Arvind Panagariya believes that India's main challenge isn't creating jobs but reallocating capital to more labour-intensive sectors. Too much capital is tied up in industries that don't hire many workers, he said.
"The problem lies in the industry's composition, especially manufacturing," Panagariya told NDTV in an interview. "You have sectors like machinery, pharmaceuticals, and petroleum refining that absorb a lot of capital but don't employ enough workers. The focus needs to shift towards industries that can generate more jobs per unit of capital."
Panagariya emphasized the need to restructure the industrial landscape to favor sectors that can create more employment opportunities, adding that the Centre should start focussing on industries that employ more workers per unit of capital
Addressing the opposition's allegations that the government has failed to generate enough jobs, Panagariya clarified that the country's issue is not unemployment but low labor productivity.
Unemployment figures have been consistently dropping, he told the channel. The real issue, according to him, is under-employment, where a job that could be done by one worker is being done by two or three, reflecting low productivity per worker, which is a long-term problem.
Panagariya feels the upcoming Budget will be a test for Finance Minster Nirmala Sitharaman, adding that it needs to bring together various constituencies and outline a clear economic policy roadmap. The budget, likely in July, will provide an insight into the Modi coalition’s priorities going forward. A boost to government coffers recently means there’s fiscal space to spend more. Tax revenue has soared and the central bank recently announced it will pay a record dividend of about $25 billion to the government.
S&P Global Ratings recently signaled a possible credit rating upgrade in coming months, citing the improved fiscal position.
Economists expect the BJP-led government to continue its focus on infrastructure spending, which has helped underpin rapid economic growth. India’s economy expanded more than 8% in the fiscal year that ended in March, with the central bank predicting growth will reach 7.2% in the current fiscal year.
“We expect the new government to stick to the fiscal consolidation path with a continued thrust on infrastructure creation through more rail network, amidst a slight tilt towards more rural spending,” Goldman Sachs Group Inc. economists including Santanu Sengupta wrote in a note.