Global consultancy firm Price Waterhouse Coopers has stated that India has the prospective to develop into the world’s No. 2 economy in 2050 soon after China, if it adopts the needed structural reforms. The query is: Which structural reforms? The “structural” reforms of demonetisation and GST, although touted as path-breaking, etcetera have led to a secular decline in our GDP development prices. Remember that international agencies like these had supported these methods of the Government. So, let us believe via the challenges, lest we drop the No. 2 slot.
The challenge of the decade is how to handle the new technologies. A driverless metro train was inaugurated in the nation not too long ago. Good. But Matthew D Johnson, Professor at St. Stephen’s University, Canada, has forecast that robots will displace 50 per cent of jobs by 2035. The scenario will be considerably worse by 2050, when India has the prospective to develop into No. 2 in the globe. The total employment in the organised sector has been declining in the nation in the final several years, though significant numbers of youth are getting into the labour market place. Let also provide jobs to the backlog of unemployed we are adding to the unemployed by killing the current jobs, in component, by adopting new technologies.
Vanishing jobs
Robots are creating pizzas and serving buyers in human-significantly less shops in the United States today. Wherefrom will the crores of our little shopowners and youth make a living then? A restaurant in Kerala not too long ago introduced robotic waiters. So, jobs are vanishing. On the other hand, the little industries that are at the forefront of job creation, are below stress from major providers that manufacture via worldwide worth chains.
A significant pharmaceutical manufacturer in India may perhaps be importing raw supplies from China, containers from Brazil, electronic gear from Germany and logistics application from India. They roam the globe searching for the lowest costs for raw supplies and the highest costs for their completed goods. They also get “economies of scale.” The price of production is reduce when undertaken on a significant scale.
A little pharmaceutical firm can’t possibly compete with these significant providers due to the fact it has to get raw supplies locally even if they are highly-priced and sell the completed goods locally even if the price tag is significantly less. The little entrepreneur may perhaps be a graduate who is the acquire manager, production manager, human resource manager, accountant, finance manager and advertising manager of his little unit. How can she possibly compete with the numbers of engineers and PhDs employed by major providers for each and every of these functions?
If our little industries come below stress, if job-creation suffers, then the youth getting into the job market place will engage in counter-productive criminal activities, as an alternative of productive activities. This is the logical outcome of adopting effective production by hi-tech, worldwide worth chain-driven major providers. Thus, the worldwide consultancy firm, Arthur D Little, and the Bank of America have stated that nearby production need to be encouraged and little industries need to be supplied help. I do not believe the “encouragement” and “assistance” will be productive, offered the enormous and ever-rising gap in the technologies and worldwide worth chains establishing in between little- and significant providers.
Protection, not encouragement
“Encouragement” and “assistance” implies that the major and little will continue to compete in the market place. This will not work in the coming decade, just as it has not worked in the final 3 decades of liberalisation. I recall a report commissioned by the Manmohan Singh government that recommended that clusters of little industries have to be established to allow them to minimize their price of production by creating neighborhood water pollution remedy plants, for instance. That did not work. We will necessarily have to provide “protection”, rather than “encouragement” and “assistance” to our little corporations, to allow them to withstand competitors from significant providers in order to provide jobs to our youth.
The protection supplied to domestic and little industries may perhaps lead to them creating substandard or highly-priced items. They will be in a position sell their shoddy items in the domestic markets due to the fact fantastic top quality items produced by significant and foreign providers would be topic to higher taxes and get priced out of the market place.
One attainable way out is to restricted robotic and significant-scale production for exports. That will allow our industrialists to adopt frontline technologies and also acquire the advantages of low-cost labour offered in our country—but only for exports. The nation will get sophisticated technologies and jobs will be produced in the export sector though the domestic market place will provide space to the little providers and they will produce jobs.
Cheap goods or jobs?
But let us not fool ourselves. The “inefficient” production undertaken by the little companies in India will lead to higher price of production. The garment that could be made by a significant firm at Rs 200, will be made by the little manufacturer at Rs 250. This will impose an “unnecessary” price on the Indian customer. This price need to be observed as a “employment tax.” When the customer pays Rs 50 more for the garment, she will spend Rs one hundred significantly less for the loss due to improved crime. The selection ahead of the Finance Minister is this: Will we ask Indian customers to get highly-priced domestic goods with jobs or low-cost foreign goods devoid of jobs?
The demographic divided becoming touted as India’s strength is gradually but inexorably moving towards becoming a demographic disaster. Demonetisation, GST and Covid pandemic have dealt 3 heavy blows to our folks. Those who have lost their jobs are eking out a living by promoting vegetables. According to one particular district-level official of the BJP from UP, the day-to-day earnings of vegetable sellers has declined from Rs 2,000-a-day to Rs 500 today. Today, there are 20 vegetable vendors exactly where there have been only two previously. This decline in people’s revenue will absolutely explode—even if it requires a couple of years for that to take place.
The challenge for the subsequent decade is to come across a pathway in between the efficiency of the job-consuming significant corporations and the inefficiency of the job-producing little corporations.
The writer is a former professor of Economics at IIM Bengaluru.