‘India has to ensure it carries everybody along’

UNDP’s Chhibber on why India has not been able to create enough jobs and why allowing retail FDI is not a big deal
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First Published: Sun, Nov 11 2012. 11 20 PM IST
Chhibber says foreign direct investment in retail will be a good signal that India is opening up but the move’s immediate benefits will not be that great. Photo: Pradeep Gaur/Mint
Chhibber says foreign direct investment in retail will be a good signal that India is opening up but the move’s immediate benefits will not be that great. Photo: Pradeep Gaur/Mint
Updated: Mon, Nov 12 2012. 12 40 AM IST
New Delhi: Ajay Chhibber has been the assistant secretary-general and regional director at the United Nations Development Programme (UNDP) in charge of the Asia-Pacific since April 2008. Before UNDP, Chhibber had worked with the World Bank for 25 years. He has been offered the job to head the newly proposed independent evaluation office by the Planning Commission. Chhibber hasn’t accepted the offer. During his recent visit to India, he spoke in an interview about why India has not been able to create enough jobs during its high-growth years and why allowing foreign investment in retail is not such a big deal as it is made out to be.
Edited excerpts:
Do you think the development path India is following is the right one and will lead to poverty eradication and social justice?
India’s story is both a positive story and perhaps a story where more could be done. Positive story in the sense our aspiration is now 9-10% growth with faster reduction in poverty. As you can see, most people are disappointed with 6% growth. What is interesting to me is that we used to have the fast-growing states in west and south India and we had the so-called BIMARU (Bihar, Madhya Pradesh, Rajasthan, Uttar Pradesh) states. But if you look at the growth rate now of the BIMARU states, they have also picked up very substantially.
If you look at a decade, from 2001 to 2010, the BIMARU states have grown as fast as the (traditionally) fast-growing western and southern states. If you look at the last five years, they have grown faster. So there is this awakening of the sleepy part of India, which may actually do very good.
But we can’t just look at the GDP (gross domestic product) numbers because we have to ensure that those people who have actually been left behind, there is rising inequality, there is very high malnutrition in the country and there is this huge inequality in access to health, education, water and sanitation. So that’s the picture we have. But the elephant has now woken up and is on the move. We have to now adjust and ensure that the elephant keeps moving and we also have to ensure that we are carrying everybody along with us.
But it is often said that the kind of high growth we saw in the last couple of years actually did not lead to the kind of job creation one would expect. So what went wrong with the policy?
It is true that our growth could be much more employment-intensive. We have had fast growth but our employment intensity, or the number of jobs created for each percentage increase in growth, is much lower than other Asian economies, considerably lower than China, for example. So, we have to find a way to not just grow fast but to make sure that people are getting jobs. I think the big issue there is that we have not focused as much on the manufacturing job creation. Without the manufacturing jobs, you cannot make a big dent on poverty.
Poverty has gone down because of growth, but it has gone down three times lower than China, two times lower than even Indonesia. So we could have done a lot more poverty reduction with the kind of growth we had. Now, of course, the growth itself has slowed down. So the challenge for us is very clear, we have to raise the growth rate. But growth has to be in areas that will create many more jobs with it than what the case was in the past. The secret to that is clearly manufacturing employment job creation.
But the challenge that manufacturing is currently facing is on the land acquisition front. How does one balance between the right of land owners and the need for industrialization?
There are three factors that are holding back manufacturing. One is this issue of land. It’s not that people will not give up their land, but at what price? So more clarity on the land acquisition policy will help. People also need to realize that when they ask for land for manufacturing establishments, there should be reasonable demand for land. There is some feeling sometimes that people take much more land than they need because this is seen as an opportunity to get hold of more land. So all this needs to be clarified more carefully.
But there are two other factors that are holding it back. One is infrastructure such as in power, which still remains a big bottleneck. And then there is the labour issue. There are labour laws in this country ostensibly to protect labour but actually end up hurting labour because they make it very difficult to set up plants. You don’t go for large-scale plants and you end up doing more of subcontracting. Your secondary suppliers then can use more contractual labour.
So there is this whole issue of how that labour policy has affected investment decisions in this country. Either you go for very capital-intensive technology or you go for subcontracting arrangements. Those industries where subcontracting arrangements are possible, there we have seen manufacturing employment go up. But it’s not the way we want our manufacturing sector to grow. The current labour laws are actually anti-labour.
But don’t you think the whole debate of stringent labour laws stalling more job creation is a little overstated given that we are ranked towards the lower end in the ease of doing business ranking and there are many other factors that impact how businesses are run in this country?
Absolutely. The time it takes to start business, permits for construction, time taken for dispute resolution, everything takes more time here than anywhere else. Any many of those changes actually will not require legislation. Labour legislation, of course, is a huge political issue and it is not going to be that easy to solve. There are things that we can do now, but I am thinking over the next 20 years, if we want a transformation like China saw, then we also have to address these fundamental issues.
We are not only losing foreign direct investment (FDI), our corporates are moving outside. So they are voting with their feet already. So it is good that we have FDI in retail discussion. But that should not distract us from the fact that there a lot of things that we could be doing for our own investors here.
Retail is not such a complex technology. Many of our corporates could also be doing it. So it’s not like we need only Wal-Mart to come and show us how to do retail here. The FDI part of it is important but not critical. It will be a good signal that India is opening up but immediate benefits of that will not be that great. Look at what happened in the milk sector. Without any FDI, we did it. We had a pioneer like (Verghese) Kurien, who organized at both ends. Once the market was there, we delivered to the market.
The UNDP was associated with the rural job-guarantee programme. But you have recently questioned the long-term benefit of the scheme. What’s wrong with this programme?
I think it’s a good programme. I am not against the scheme. But the question we have to ask is, what is the end game here? Do we just keep putting this money into these people or are we helping these rural areas in creating assets, either human assets or physical assets, that will eventually get these people out of poverty, build more resilience and put an end to the need for such a programme. That’s what we need to think about.
So how can it be better designed so that helps in creating more durable assets in the rural area?
Presently, the scheme does not permit the use of heavy equipment. But sometimes you may need to bring heavy equipment in order to do certain things to make it durable. I accept the fact that you don’t want the heavy equipment to supplant the labour, but there are certain things that you won’t be able to do just by labour. Having a scheme that says I will only use physical labour restricts what you can do with it also.
The government is now venturing into the direct cash transfer of all subsidies. Do you think such transfers are the best way to follow in a country such as India for all kinds of subsidies, including food subsidy?
We did a study along with the Delhi government and SEWA (Self-Employed Women’s Association), which actually asked this question. We gave people the choice where you can either keep going to the food distribution system or take cash. Then we asked the people after one year how they used their money. And we found that there was no decline in nutritional intake. But they were much happier with the flexibility they had with the cash and they didn’t have the problem of dealing with ration shops. So we have to think why then we need such an expensive system and one with so much of corruption and leakage. India may need strategically a storage of food grains but that is a different question.
The Planning Commission is setting up this independent evaluation office to look into how various government schemes are functioning. Do you think it’s a good idea?
There are so many schemes and there is so much money. You clearly need more evaluation how they are affecting the lives of people on the ground. But then the question comes, will people take the ideas of such evaluations seriously? But then that’s another step which we will have to take. I am a strong believer in evaluation. Right now, we have so many schemes doing so many things that the left hand does not know what the right hand is doing. And half of the time you don’t know whether any of these benefits is actually reaching anybody on the ground. So some office that will unentangle all of this will be a good thing.
And you have an offer from the Planning Commission to head this office. Are you going to accept it?
Good question.
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First Published: Sun, Nov 11 2012. 11 20 PM IST
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