BT Buzz: What the new govt can do to create more jobs

The new government at the centre faces a winner's curse when it comes to jobs - if the last five years were difficult, the next 10 would be equally challenging.

Growth creates fewer jobs than it used to. Azim Premji University's State of Working India report states that a 10 per cent rise in gross domestic product (GDP) now results in less than one per cent increase in employment. In the 1970s and 80s, when GDP growth was around three-four per cent, employment grew at two per cent an annum.

One of the reasons for this divergence is the mega trend of automation driven by newer technologies. This is the reason why any government will struggle to show good jobs numbers in either manufacturing or services. Companies are building smart factories that require one-fourth or less of the manpower needed even five years ago. The second mega trend is anti-globalisation, which could lead to lower exports growth support for Indian manufacturing and services companies. Complicating these two secular trends are a few historical neglects. India, over the decades, has under-invested in healthcare, education, and skills development. All of this will come to bite the new government as it braces up to the challenge of finding millions of jobs every year.   

So what could the government do? And what would be the new engines of jobs generation? Here are four ideas:

1. The Centre for Sustainable Employment at Azim Premji University has proposed the creation of a National Urban Employment Guarantee Programme, similar to the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) that guarantees 100 days of work to any rural household that chooses to avail of it. The Centre suggests that the pan-India scheme covers towns with population less than one million. There are about 4000 such towns with 126 million people of working age. Workers with varying levels of formal education up to standard 12 could be made eligible for 100 days of guaranteed employment a year at Rs 500 per day. The proposed programme, the Centre states, seeks to address "underemployment and low wages in informal workforce; migration to large cities from small towns; poor quality of urban infrastructure and public services; ecological degradation; shortage of human and financial capacities of Urban Local Bodies (ULBs); unemployment and lack of skills among the educated youth".

2. In India, some states have the supply of labour (northern parts), while other states the demand. The matchmaking of supply with demand is not very efficient yet and economic migration comes with its own share of issues. How could jobs be created where the supply is? Mohandas Pai, Chairman of Manipal Global, suggests that the central government, in partnership with states such as Uttar Pradesh, Bihar, Madhya Pradesh and Rajasthan, set up labour intensive industries near small towns linked to major roads. To incentivise industries to move to these locations, governments got to offer ready-made infrastructure. "Industry will be interested if they don't have to invest much capital. They don't want to take the risk of going to a different area. Governments, therefore, have to develop ready-made infrastructure like factory sheds with power, water connection etc.," Pai says. The bigger cities have no capacity to expand - the government must increase minimum wages in these cities so that industries that are labour-intensive are forced to shift to the smaller towns, he adds. "Once you generate a lot of jobs in these towns, the money will go into consumption. That will generate bigger demand. That demand will lead to the creation of more white-collar jobs at the top - jobs in distribution, in consumer goods, sales," Pai says.

3. Santosh Mehrotra, Professor of Economics and Chairperson, Centre for Informal Sector and Labour Studies, Jawaharlal Nehru University, suggests an Industrial Policy with many interlocking components - India doesn't really have an industrial policy. The first element of an industrial policy would be to correct India's inverted duty structure (IDS), he says. In many sectors, the tariff rates on imported finished products are lower than the tariffs imposed on raw material, which are inputs to domestic manufacturers of the same finished product. "If I am a trader and a consumer, I like to import and consume an imported finished product. The GST talks of getting the benefit of an input tax credit in a situation where IDS is applicable. This somewhat offsets the IDS but at best, it might create a level playing field. An infant industry - for instance, a solar module manufacturing or microchip industry  - needs a field that favours them. We need a trade policy aligned to the industrial policy," he suggests. The new industrial policy also needs to develop special packages for five sectors that contribute to half of all manufacturing jobs, or about 30 million. Apparel and garments, wooden furniture, leather and footwear, textiles and food processing. The third leg of Mehrotra's suggestion has to do with cluster development. Most of the manufacturing in the country exists in the form of clusters. There are 5,500 clusters in our economy. "Our cluster programmes today are poorly designed, under-funded, and is split between different ministries. There are no providers of services at the local level. India needs an integrated programme, a package of services. This means that you cannot split cluster development between ministries. In addition, cluster programmes must deliver a package of services (credit, technology support, market development, skills) at the cluster level," he says. An interlocking policy suggestion to this has to do with the Atal Mission for Rejuvenation and Urban Transformation (AMRUT) programme that intends to cover 500 cities. Each city was to get Rs 100 crore. "Bring the money to improve infrastructure to where the clusters are because that's where the jobs are," Mehrotra suggests.

4. Of course, none of the above would fly without the ease of doing business. In the World Bank's Ease of Doing Business rankings, India ranked 77 in 2019 - India jumped 65 ranks in the last four years. Nevertheless, at Number 77, the task is only half done. Many sectors, such as real estate and food services companies, struggle with multiple approvals that are required from multiple departments. In fact, in many states, a restaurant starting-up may need to wait out six months before it can manage all its licences. Today, the difficulty of doing business even extends to the number of government numbers issued. Rituparna Chakraborty, Co-Founder- EVP at employment services company TeamLease stresses on the need to introduce a Unique Enterprise Number to replace over 25 current numbers that enterprises get from the government. These include a Corporate Identity Number (unique 21 digits); a Taxpayer Identification Number for commercial taxes (unique 11 digits); GST (15 digits); PAN (10-digit alphanumeric); a Provident Fund Number (11-digit alphanumeric); a Professional Tax Registration Certificate (9 digits); a Profession Tax Enrolment Certificate (9 digits); and an Income Tax Deduction and Calculation Number (10-digit alphanumeric), among many others. A Unique Enterprise Number would make life easy for a company while enabling better enforcement and regulation by the government. Chakraborty also suggests the formation of a GST-type council of state and centre that commits to "rationalisation, simplification and digitisation of the 60,000 compliance rules, 3,100 filings and 5,500 changes a year any average sized company needs to comply with".

Many of these suggestions are workable but remain a long haul. Nevertheless, a start must be made right away if India is serious about avoiding a demographic disaster.  

Big ideas

1. A new Industrial Policy that aligns trade policy to industrial goals, cluster development

2. Hike minimum wages in big cities so that labour-intensive industries are forced to relocate to smaller towns in states with high labour supply

3. Centre-state governments can create ready-to-use infrastructure for industries re-locating to smaller towns to make it capital-lite, and less risky

4. A National Urban Employment Guarantee Programme, on the lines of MGNREGA

5. Ease of business: Introduce a Unique Enterprise Number to replace over 25 current numbers that enterprises get from the government