India needs to boost manufacturing

Tue, 10 Jun Pre-Open

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There is continuing debate about employment scenario in India. The unemployment rate today stands perennially low at 2-3%. This paints a rosy picture. But does this mean India's employment conditions are at its best? Not really.

Fathom this! 2012 statistics states some disturbing facts. 410 mn as part of labor force fell in the working age population. Of these 12 mn or 2.9% stood unemployed. But of the 398 mn employed, only 34 mn or mere 8.5% had good jobs. Good jobs are the ones with higher wages, allied benefits and social security entitlements. And the rest have informal and relatively lower wage jobs. Not just that! A fourth of the employed workers fell below the poverty line.

Therefore, lower unemployment rate is not good news. That's because a massive percentage of populace is either underemployed or do not have remunerative or productive jobs. Hence employment challenge is one of the biggest for the new government.

But merely creating million jobs every year cannot improve the employment scenario. Instead there is a dire need to create productive and remunerative jobs. Jobs of good quality and security! And what requires doing that? The answer is as simple as this. Only manufacturing-led growth can create productive jobs in the economy. It's the labor intensive manufacturing sector that has enormous capability to absorb the large labor pool. While the services-led jobs are meant for the high skilled, manufacturing-led growth can create quality jobs for the low skilled labor too. Moreover manufacturing has linkages with all the sectors of the economy. More importantly infrastructure provides a strong impetus to the manufacturing activity. But India's manufacturing industry's Achilles heel lies in its poor infrastructure. India needs large investments to bridge the infrastructure deficit. Hence the government should play a bigger role now. It needs to fix up the transport and power sectors, eliminate barriers for new business setups and step-up the manufacturing activity. Red tape needs to be cut. And quality of public education needs to revamp. Moreover, the labor laws and the regulatory framework need to be addressed on a war-footing. The UPA government was accused big time for its failure to create jobs in the manufacturing sector for over a decade. It remains to be seen whether the Modi-led government can drive the manufacturing engine.

Remember, higher the jobless growth, lower would be the GDP. Hence, growth with quality should be the mantra for the government now we reckon. Moreover, India is blessed with an abundant and inexpensive labor force. Capitalizing on this and accelerating manufacturing growth can create a prosperous India. We leave you here with the words of Peter Drucker. "The best way to predict the future is to create it."

Will the new government succeed in improving the employment conditions in India? Can they help create quality jobs in the system? Share your views on Equitymaster Club.