India needs to create 12-15 million jobs each year if it wants demographic dividends, say Arindam Bhattacharya & Aparna Bijapurkar
India is preparing its 15-year vision document and seven-year strategy and action plan. The destination is clear; India needs eight per cent growth over the next 20 to 30 years to grow the Indian economy from a lower-middle income to an upper-middle income country. Implicit in this aspiration is also the need to create 12-15 million jobs each year if India has to reap the benefits of the demographic dividend, which should perhaps be the biggest policy imperative given the situation of growth with low job creation facing the country. In recent years, however, very few countries have achieved such a sustained period of high growth and job creation, other than China. India faces two challenges. The first is to adopt a set of strategies that will enable us to sustain a growth rate of eight per cent or higher in the “new” global economic environment, which is characterised by low to medium global growth and the absence of the “trade multiplier.” The second, and perhaps more serious, challenge is to ensure that the high growth rate is accompanied by high job creation. Between 2004 and 2012, the average annual gross domestic product (GDP) growth was 8.1 per cent but job growth averaged only 2 per cent. While the traditional models of globalisation — and consequently the economic model of manufacturing and export-led growth — are being disrupted, a set of new opportunities is emerging from the growth of digital technologies.
The first opportunity arises from the trend of growing “servitisation” of business. We are increasingly witnessing changing business models with growth of services consumption and trade, driven by a consumer need towards “solutions” rather than simple product-related transactions. These value-added services command higher margins for business. This growth can be seen, for example, in the rise of forward services in manufacturing, like asset performance improvement and predictive maintenance services, that leverage largescale data generated by connected devices. It can also be seen in the rise of asset-sharing models like Uber, which are beginning to disrupt traditional industries, such as automotives, which are growing by service provision rather than product sales. In India, the services sector has shown immense promise with a compound annual growth rate (CAGR) of 8.6 per cent (2010-2014), outperforming China (8.4 per cent) and the US (1.8 per cent). The second, related, opportunity is the growth in platform players, which is driving the viability of new start-ups, individual entrepreneurs, micro entrepreneurs employing a few workers and self-contracted workers. Hence, they support an entire ecosystem of self-employment; of “job creators” rather than only “job seekers.” By aggregating micro-entrepreneurs, platforms provide these services at relatively low transaction fees, lower costs for customers and grow the market.
The global and local challenges to growth and jobs on one hand, and the new opportunities presented by servitisation and the growth in platform players enabled by newer digital technologies on the other, strongly point to the need for a new economic development paradigm for India around three pillars: i) Domestic demand will have to be the primary driver of growth (although exports, especially in services, will continue to contribute to GDP growth). ii) Services will provide a strong opportunity for both domestic and export growth; even more so for job creation as manufacturing will become increasingly capital or automation-intensive. iii) Micro entrepreneurs will play a bigger role in driving growth and job creation, alongside larger enterprises.
The Government has already launched major policy initiatives, such as Ease of Doing Business, Digital India and Startup India, to lay a strong foundation for this new economic development paradigm. What is needed is a concerted, focussed implementation of these policies as well as a special focus on “activating” four key leverage points. First, digital infrastructure will be as critical as physical infrastructure. This should cover all layers of the “technology stack” — high quality and ubiquitous broadband and low cost smart phones, the India stack, societal platforms and standards and norms for inter-operability of digital systems that enterprises can leverage. Second, the risk and growth capital for micro entrepreneurs has to be scaled up rapidly, along with the rules and mechanisms for easy access to them. Third, the learning and skilling ecosystem has to move towards a “lifelong learning system” as new kinds of jobs emerge with very different skill profiles. Finally, labour norms need to be revisited.
While heavy manufacturing sectors are likely to start shedding jobs as they become automated, in the short-term the light manufacturing sector in India has the potential to grow and create more jobs by taking advantage of the industry shifts away from China, where labour costs are rising rapidly. We have to leverage the complementarity between labour and technology. “Evolved” services like construction and financial services are currently contributing over five per cent of GDP and a large number of jobs. “Under-penetrated” services, such as education, tourism, transport and storage and healthcare will see rapid growth and job creation, fuelled by the growth in technology. Finally, a new set of “emerging” services sectors, such as natural infrastructure management and digital services, will need to be developed in order to bridge the jobs gap.
(Courtesy: India: Growth and Jobs in the New Globalisation, BCG and CII)
