3 min read.Updated: 04 Sep 2018, 07:50 AM ISTLivemint
Overlooking quality of jobs in the quest for quantity will not make for a sustainable growth path
Entrepreneurship is good. It is an essential input for economic development, creating new markets, new industries and productivity-enhancing innovation. About 64% of respondents to the YouGov-Mint Millennial Survey are entrepreneurs or intend to become so. This tilt towards entrepreneurship is backed up by a number of other reports, such as the Q1 2017 “Randstad WorkMonitor" report. This, according to the theory, should be good news. But the reality in India is somewhat different. The evidence points to a substantial chunk of this being push entrepreneurship, spurred by a lack of options. This is one aspect of a larger problem: the poor quality of jobs in India.
The problem is often relegated to the background by the periodic high-decibel public debates about job creation or lack thereof. It should not be. The consequent misallocation of labour and capital results in poor productivity and economic inefficiencies that are a drag on growth. It is also a political economy headache, narrowing the space for policy manoeuvring and creating political incentives for counterproductive palliative measures—think subsidies, rigid labour laws and quota creep.
There are a number of factors here. First, between 1980 and 2000, labour productivity took off in India, more than doubling on average to 3.8% from an anaemic 1.7% in previous decades. It climbed up more sharply still in the first decade of the new millennium, before turning down in line with global trends. However, in the decades of plenty, the bulk of the productivity gains have come in capital-intensive sectors such as metal products and chemicals. Labour-intensive sectors, such as textiles, have remained relatively low productivity and, therefore, low wage.
Second, India’s employment elasticity—the percentage change in employment associated with one percentage point change in economic growth—compounds the problem. It is low overall, including in relatively high-paying sectors, such as finance and other services.
One of the few bright spots here has been construction, which has taken in a large percentage of the labour force shifting from agriculture. Unfortunately, as Roshan Kishore has noted in Hindustan Times (goo.gl/CaxSNt), construction’s employment elasticity is now on the decline. This makes it more difficult for the large chunk of the labour force employed in agriculture—over 40%—to migrate out of the most overpopulated, low-income sector in the Indian economy.
Third is Indian enterprises’ problem of scale. According to the sixth economic census, 58.5 million enterprises employed a minuscule 131.29 million people. As Ravi Kanbur has pointed out by disaggregating National Survey Sample Organisation and Annual Survey of Industry statistics, the natural size of the majority of these is small enough to remain below regulatory thresholds. Existing in this grey area is not easy. Credit is difficult to obtain, capital buffers non-existent, skilled labour hard to find, and operations dependent on the whim of the large companies they might be supplying. This does not make for stable employment or adequate wages. It is the ground reality of Indians’ predilection for entrepreneurship, far removed from the start-up hubs of Bengaluru or Hyderabad.
The problem is compounded by the lack of social safety nets. Little wonder government jobs are in such high demand, as the Lokniti research programme at the Centre for the Study of Developing Societies (goo.gl/xSwXMH) has found. The private sector’s supposed wage premium is a chimera in most cases. Government jobs, on the other hand, provide the fundamental elements that, ideally, quality private sector jobs with remunerative pay in conjunction with state infrastructure should give access to, such as medical care and housing.
The answers are as basic as the problems. The richest, largest economies in the developed world are built on a strong base of small, thriving enterprises. Start with improving connectivity, transport infrastructure and affordable housing to chip away at the spatial mismatches between enterprises and workers. Build human capital.
Digitization of land records under the National Land Records Modernization Programme, blockchain, and drone mapping, along with myriad new technologies, have the potential to strengthen survey and recording of property rights when allied with political direction, as in Andhra Pradesh. Along with financial inclusion, this will allow for the access to credit that is necessary for growth. Small enterprises can create quality jobs if they are small by choice, not by necessity.
These are not short-term solutions. But they will make for a more sustainable growth path than one where quality of jobs is overlooked in the quest for quantity.
Is entrepreneurship a viable option? Tell us at firstname.lastname@example.org
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