India needs to embark on export-led growth to create high-income jobs with a big role of MSMEs
India’s GDP growth is highest in the world but its ‘Active work-force (job holders and job seekers)’ is shrinking, while there is a rise in the poverty level. Such a phenomenon in a fast growing economy is surprising and this needs an in-depth study. In a growing economy, new jobs must be generated and the growth benefits should percolate to the population at the bottom of the pyramid. In such a peculiar situation, let’s revisit the concept of GDP treating this to be National income.
In 1934-35, GDP was invented by Simon Kuznets, a Nobel laureate from the USA. Thereafter, the entire world recognized that GDP is the national income. This is a sum total of value addition during production of “goods and services”. This is used for consumption and investment by the public and government, besides financing trade deficits (goods and services)”.
Currently, out of 1085 million employable workforce (above 15 years age), the ‘Active work-force’ has reduced to about 435 million from about 500 million in 2016 and 475 million in 2011. It reveals that several persons have lost hope and exited from the job market, causing shrinkage of the active workforce despite new additions in the work force @10-12 million per year.
For percolating benefits of GDP growth, India must enlarge labour participation ratio (LPR) in the productive activities. Currently, this has tumbled to about 40 per cent of the total employable workforce, as against 50.3 per cent in 2016 and 52.9 per cent in 2011. In other nations, it is 60-75 per cent. Falling LPR is the root cause of growing poverty and the distress among majority households.
Therefore, India must revisit its GDP growth model. For better appraisal, let’s visit the pattern of job distribution. As per the 5th employment survey, 2016, about 46.6 per cent of the job-holders are self-employed persons, about 36.4 per cent are casual and contract labourers and the balance 17 per cent are getting regular salary. It means that about 80-82 per cent of job holders are employed in the unorganized small business, mostly in the micro and small sector and farming sector. Out of which, about 45-50 per cent are self-employed persons, including farmers.
More so, such a majority of job holders are having low income below Rs.10,000/- per month. Considering the complexity, first priority should be attached to generating more jobs by improving LPR. Thereafter, we shall ponder how to raise their income level. During the interim period, the inflation should be controlled.
For generating low/middle income jobs, the agriculture and MSME sector must prosper through proactive policy. Farmers are the true entrepreneurs, who can generate huge jobs. They need remunerative prices, cheaper inputs and protection from the natural calamities. Ways and means must be designed for this with affordable fiscal burden. Consistent and calibrated export could be a right choice. Food processing industries should gain priority.
Role of FCI should be changed as a marketing and storage facilitator. This could be a game changer in the agro sector. The MSME sector, particularly the micro and small business, are the next big job providers. But those are mostly under stress after 2016. They need liberal credits and tax incentives and exemption. Regulatory easement and simplification of tax laws will motivate them to expand and formalize their business. That will enhance income and generate more jobs. In the medium term, this might surpass agriculture in crafting new jobs with lower middle income.
India also needs large businesses for mass production in an efficient manner. They outsource goods and services and support small businesses. However, those may be pursued for boosting exports and replacing imports. For which, radical reforms must be enacted. They should also invest in the infrastructure for improving efficiency of the Indian economy.
By and large, India needs a mixed economy of small, medium and large business. In the developing phase, the small business and agriculture needs incentives. Gradually, those will expand and join the formal economy. This is the story of most Asian countries, including China and Japan.
Thereafter, the regular salaried jobs with middle/high income will grow at a faster pace. Growth model should be investment and export-led and not consumption-led. The consumption shall automatically grow with rising income. High interest, stringent NPA norms, tough business regulations and its criminalization are deterrent to new investment. For capital scarce countries like India, investment needs and priorities must be worked through a composite plan.
Global precedents show that faster growth was achieved through rapid industrial growth only. The GDP growth is heavily dependent upon components such as, ‘public and administration expenditures’ and direct tax collection and high end services. Such a growth model needs total review.
(The author has written Turn Around India-2020)
