India had emerged from the previous economic downturn amid fears of jobless growth. The current recovery is stronger than the one we saw after the collapse of the tech bubble and should hopefully create more jobs as well.
The harsh experience of the early naughties should remind us that jobs are not necessarily created in tandem with growth. Public policy has a role to play in ensuring that the employment elasticity of Indian growth is high. India needs at least 10 million new jobs a year—to take care of the annual growth in the labour force and to absorb excess farm labour.
There are three main challenges. One, the government needs to ensure that there is strong growth in employment-intensive sectors such as textile manufacturing and modern retailing so that the demand for labour is strong. Two, companies will employ workers only if they are well trained and have the requisite skills; a lot needs to be done in primary and technical education. Three, the labour markets should not be so rigid that companies prefer to mechanize rather than hire new workers.
Not enough is being done on these three fronts. It is disturbing to see that essential reforms such as removing restrictions on modern retail, better urban land markets to help construction activity and more rational labour laws have completely slipped off the government’s agenda. Amid all the fashionable talk about inclusive growth, we often forget that the only way countries emerge out of poverty is by the shift of people into modern sectors with access to machines, global markets and the latest management skills. Development does not come from welfare programmes, however necessary they may be in the short run to bolster the low incomes of the poor. That is the lesson from South Korea, Thailand, Taiwan, Hong Kong and even China.
Reform of labour laws will be a hot potato that this government is unlikely to want to handle. Closing the skills gap is a long haul. That is why the two best ways to accelerate job creation are to create conditions for higher investment and growth, on the one hand, and to unshackle labour-intensive activities such as retailing and construction, on the other. The government can play a direct role here by funding a massive programme to construct new roads, rail lines, irrigation projects and urban regeneration—these programmes will collectively create millions of jobs for those with few skills.
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