Indian Economy, 5th edition (103 page)
Read Indian Economy, 5th edition Online
Authors: Ramesh Singh
I. Business as Usual
Big aspirations of the ‘demographic dividend’ are not bad provided India goes for the timely and right kind of preparations for it. But if the ‘business as usual’ style of functioning continues, fallouts may be highly ugly.
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Some improvement in infrastructure but only slow improvement in education, and no change in institutional structure such as business regulation and labour laws.
•
Some movement from agriculture to low skill services such as construction and household work, as well as to informal manufacturing, but too few quality jobs.
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GDP growth settles into a comfortable 6-7 per cent, the new “normal”.
•
There is growing presence of unprotected workers in manufacturing and the possibility of rising labour frictions.
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There is immense pressure on education to make students job-worthy, but with organised manufacturing playing little role in training workers and imparting skills on the job, there is a continuing mismatch between employer needs and worker capabilities.
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Growth is slower than it could be and inequality higher than it ought to be.
II. Reforms
In the times of globalising world being in sync with the time and contemporary world will be necessary. There will be requirement of speedier concensus on the fronts of ‘economic reforms’. If the required kind of ‘reforms’ are effected at the ‘right’ times, outcomes may be glorious and historic –
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Vast improvements in infrastructure, education, as well as in business regulation and labour laws.
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As fewer workers depend on agriculture, larger holdings and more investment in capital and technology create a much healthier agricultural sector, with significant rural entrepreneurship surrounding activities like horticulture, dairy products, and meat.
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The manufacturing sector becomes a training ground for workers, absorbing more students with a middle or high school education.
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India moves into niches vacated by China such as semi-skilled manufacturing, even while enhancing its advantage in skilled manufacturing and services.
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India experiences faster and more equitable growth.
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Social frictions are minimized as both agriculture and manufacturing create better livelihoods.
III. Decline
Suppose India fails or lags in the process of putting the ‘required set of things’ in place, so that it can strengthen its position to garner higher demographic dividend – i.e. no improvement in infrastructure, education, or institutions . Just visualise the resulting ugly scenarios –
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As fewer jobs are created outside of agriculture, more people stay in agriculture, increasing the pressure on land and lowering incomes. Small agricultural plots do not provide enough income, nor can they be leased out.
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More families break up, with males seeking work elsewhere, and labour participation increases.
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There is large-scale migration to overburdened cities.
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More supports are given to agriculture and transfers are made to rural areas so as to prevent further migration.
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The strain on government finances increases.
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Income inequality between good service jobs in cities and marginal agricultural jobs in rural areas increases tremendously.
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Social strains/tensions grow.
The above-given scenarios are
clear posibealites
and should be seen as ‘indicative’ rather than conclusive in any way. The key policy message from this chapter is that India has to focus on an agenda to create productive jobs outside of agriculture, which will help it reap the
demographic dividend
and also improve livelihoods in agriculture.India needs to examine carefully whether regulations constrain businesses excessively and, if so, stripping the excess regulation while ensuring adequate protection and minimum safety nets for workers, will be the need of the time. Building infrastructure and expanding access to finance will also help. The government looks clearly engaged in this process, further steps need greater debate and action. Future governments will also be required to follow them. Continuity will be playing a very crucial role in this phase thus it will be advisable that not only the government in the seat of power but the opposition in the Parliament also accepts the delicacy of the moment and tries to build a concensus coming above the petty politics of the past. This becomes even more important when Indian politics is crossing through the phase of coalition governments in the Centre. Together with the Union Government the active support from the State Governments will be the need of the time and the process of planning may be used here tuned with the idea of ‘monitorable targets’, to attain this end.
*
LFP is a measure of the active portion of an economy’s labor force. It refers to the number of people who are either employed or are actively looking for work. The number of people who are no longer actively searching for work would not be included in the participation rate. During recession many workers often get discouraged and stop looking for employment that is why the participation rate decreases.
**
TFP measures how productive the job intrinsically is, capturing aspects such as the technology used, efficiency with which the work is carried out, and use of hard-to-measure aspects of work such as tacit knowledge, organisational capabilities, and trust.
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2.
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3.
Feyrer, J. (2007), ‘
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4.
As is suggested by the
Economic Survey 2012-13,
MoF, GoI, p. 27
5.
IMF (2006) defines the takeoff date for China as the year when major economic reforms began. For Newly Industrialized Economies (which includes Korea) and for ASEAN-4 (which includes Indonesia), the date is defined as the year when the 3-year moving average of constant price export growth first exceeded 10 per cent. Takeoff year 0 is defined as the year the country’s per capita income crossed $500. The takeoff years are defined as 1993, 2003, 1988, and 1951 for China, India, Indonesia, and Korea respectively. Per capita income is measured by GDP per capita in 2000 US dollars. Takeoff year 0 is defined as 1979, 1991, 1973, and 1967 for China, India, Indonesia, and Korea respectively. Per capita income is measured by GDP per capita in 2000 US dollars.
Sources
:
World Bank (2012)
and calculations of the
Economic Survey 2012-13
.
6.
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9.
The criterion of investment in plant and machinery is used to categorize MSMEs—micro enterprises have investment ceiling of 25 lakh, small enterprises of 5 crore, and medium enterprises of 10 crore.
10.
These data are from the Ministry of Micro, Small, and Medium Enterprises and include registered and unregistered units across manufacturing and services (including wholesale/retail trade, legal, educational, and social services, hotels and restaurants, transport, and storage and warehousing).
11.
C. Hsieh and P. J. Klenow, ‘The Life Cycle of Plants in India and Mexico’, Chicago Booth Research Working Paper No. 11-38, 2011.
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13.
Ibid.
14.
Economic Survey 2012-13,
MoF, GoI, p. 40
15.
P. Gupta, R. Hasan, and U. Kumar,
`Big Reforms but Small Payoffs: Explaining the Weak Record of Growth in Indian Manufacturing',
in S. Bery, B. Bosworth, and A. Panagariya (eds.), India Policy Forum, Vol. 5, Sage Publications, Delhi, 2008, pp. 59-108
16.
Presented by the
Economic Survey 2012-13,
MoF, GoI, p. 41 with inputs coming from Amitabh Kant, CEO & MD and Abhishek Chaudhary, Vice-President, DMIC Development Corporation Limited.
17.
Various issues of the
Economic Survey;
Employment and Unemployment Situation in India (various years), NSSO, Ministry of Statistics and Programme Implementation (MOSPI);
Census of India
, as has been presented by the
Economic Survey 2012-13,
MoF, GoI, p. 42.
Notes
: Industry includes manufacturing, construction, mining, and utilities. Organized-sector employment is obtained from the
Economic Survey
. The organized sector consists of non-agricultural establishments in the private sector that have 10 workers or more, and all establishments irrespective of size in the public sector. For the other subsectors within industry, the organized sector essentially refers to all companies and government administrations. Unorganized-sector employment is estimated by deducting estimates of organized employment from total employed workforce. Total employment is generated by multiplying the worker population ratio (from the NSSO Employment-Unemployment Surveys) by the estimated population of India as per
Census
sources.
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S. Dougherty, V. C. Frisancho Robles, and K. Krishna,
‘Employment Protection Legislation and Plant-Level Productivity in India’
, NBER Working Paper No. 17693, 2011. The study has taken data upto 2004 and has applied the silmilar methodology as applied by the economists Steve Davis, John C. Haltiwanger, and Scott Schuhh, Job Creation and Destruction, MIT Press, Cambridge, 1998.
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T. Besley and R. Burgess
, ‘Can Regulation Hinder Economic Performance? Evidence from India.’ Quarterly Journal of Economics,
119 (1), 2004, pp. 91-134.
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World Bank
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, 2013.
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Vol. XLVIII No. 15, N. Delhi, April 13, 2013.
23.
S. Dougherty,
‘Labor Regulation and Employment Dynamics at the State Level in India’
, OECD Economics Department Working Papers No. 624, 2008
24.
As of 2009-10. The informal sector is defined by the National Commission for Enterprises in the Unorganised Sector (NCEUS) as all
unincorporated
enterprises operated on a proprietary or partnership basis and with less than 10 employees.
25.
The incidence of informal jobs in the formal sector is highest among the non-informal household sector – 95 per cent of jobs are estimated to be informal, as has been studied by R. Kolli, A. Sinharay
, ‘Share of Informal Sector and Informal Employment in GDP and Employment’, Journal of Income and Wealth,
33(2), July-December 2011.
26.
National Sample Survey
, ‘Informal Sector and Conditions of Employment in India’,
Report No. 539, January 2012.
27.
R. Nayar, P. Gottret, P. Mitra, G. Betcherman, Y. Lee, I. Santos, M. Dahal, M. Shrestha
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World Bank, 2012.
28.
A. Lewis,
‘Economic Development with Unlimited Supplies of Labour’
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Harper and Row Publishers, New York, 1989.
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S. Djankov, R. La Porta, F. Lopez-de-Silanes, and A. Schleifer
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117(1): pp. 1-37, 2002.
31.
These rough estimates provide an upper bound of the difference in value added across formal and informal jobs, since informal workers may not be as productive as formal-sector workers for reasons unrelated to their employment status, such as lack of education or skills. The causality could also go the other way if firms that are less productive are more likely to employ informal workers.
32.
As per the National Commission for Enterprises in the Unorganised Sector (NCEUS), 2011.
33.
S. Levy, ‘
Good Intentions, Bad Outcomes: Social Policy, Informality and Economic Growth in Mexico’
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34.
National Statistical Commission,
`Report of the Committee on Unorganised Sector Statistics’
, Ministry of Statistics & Programme Implementation, GoI, N. Delhi, 2012, p. 30.
35.
A. Panagariya,
‘India: The Emerging Giant’
, Oxford University Press, New York, 2008.
36.
‘Report of the Working Group on Employment, Planning and Policy for Twelfth Five Year Plan’
, Planning Commission, N. Delhi, 2012.
37.
A. Panagariya,
‘India: The Emerging Giant’
, 2008, op. cit.
38.
An employer must give a notice of three weeks in writing to the workers of any change in the working conditions including change in shift work, grade classification, rules of discipline, technological change that may affect the demand for labour, and changes in process or department. See Datta-Chaudhuri (1996) and Debroy (2010) for details.
39.
T. Besley and R. Burgess, 2004, op. cit.
40.
Studies such as – (a) S. Dougherty, V. C. Frisancho Robles, and K. Krishna,
‘Employment Protection Legislation and Plant-Level Productivity in India’
, NBER Working Paper No. 17693., 2011; (b) P. Gupta, R. Hasan, and U. Kumar,
‘Big Reforms but Small Payoffs: Explaining the Weak Record of Growth in Indian Manufacturing’
, In S. Bery, B. Bosworth, and A. Panagariya (eds.), India Policy Forum, Vol. 5, Sage Publications, N. Delhi, 2008, pp. 59-108.
41.
Krueger, A. O. (2007), ‘
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42.
P. Romer, ‘
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43.
Labour regulations for India’s retail sector are contained in the Shops and Establishment Act (SEA), which includes minimum wages, regulation of hours of work, and rules for employment and termination of service. See Mohammad Amin,
‘Labor Regulation and Employment in India’s Retail Stores’
, Social Protection and Labor Discussion Paper No. 0816, World Bank, 2008.
44.
TeamLease ,
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, TeamLease and Indian Institute of Job Training, Ahmedabad, 2012.
45.
ASER-2012,
as cited by the
Economic Survey 2012-13,
MoF, GoI, N. Delhi, p. 286.
46.
K. Muralidharan,
‘Priorities for Primary Education Policy in India’s 12th Five-year Plan’
, in NCAER-Brookings India Policy Forum 2012-2013, NCAER, New Delhi, 2012.
47.
This part is based on the
‘Consequences & Conclusion’
discussed by the Economic Survey 2012-13, in Chapter-2: Seizing Demographic Dividend, MoF, GoI, N. Delhi, pp. 53-54.