Calling underemployment as probably the biggest economic challenge faced by the country, Niti Aayog vice-chairman called for devising strategies to make small enterprises larger and to shift labour from agriculture
Giving a presentation at a meeting of the chief secretaries of states, Panagariya said spending on social priorities such as education, health and infrastructure can be raised only by enhancing economic growth.
He said according to the sixth economic census, only 20.8 million out of a total of 470 million workers were employed in enterprises with 10 or more workers.
"Therefore, as many as 442 million workers or 91.2 per cent of the total were employed in agriculture
or enterprises with 9 or fewer workers," he pointed out.
Looking at it from other perspective, only 1.37 per cent of a total of 58.5 million establishments employed ten or more workers, he said adding that enterprises in the country are excessively small and they have remained so.
"Raising productivity requires creating a policy environment that will help our enterprises grow larger. We do not lack enterprises. What we lack is larger enterprises. We must specifically look for policies that keep enterprises small. Micro must grow into small, small into medium and medium into large," he said.
Pressing for shifting labour to industry and services from agriculture, Panagariya said if the output per worker in agriculture
is equal to 1, then it is 5 in industry and 3.8 in services. "In other words, even at the current productivity levels in each sector, moving one percentage-point workers out of agriculture
into industry can increase the GDP
by 1.5 per cent," he observed.
Even larger gains can be made if workers can be moved out of micro to small, medium or large enterprises.
He said if the total expenditures, including both public and private, is to be increased on education, health and infrastructure, we have only two options, either to cut expenditure on something else or increase the GDP.
Unfortunately, ability to cut expenditures on items other than education, health and infrastructure is extremely limited, he said, adding that raising the GDP
is the only practical option.
"But once we return to raising the GDP, we are back to looking for ways
to moving workers out of agriculture
into industry and out of small into larger enterprises. There is no escaping this conclusion," he said.
He further said that enhancing growth is the only solution for alleviating poverty. Redistribution works only when growth is higher, he said, adding, "Bihar has far less room for redistribution than Kerala. But even Kerala has limits to how far it can rely on redistribution. Politically, redistribution is a lot more feasible if the overall income is growing rapidly."
Panagariya said each ministry in the government is focused on details of what it must do and how it can best do it.
"But while desirable, this has the unintended side effect of the neglect of overall strategy and direction of the economy. It is therefore essential for us to step back and pay attention to the broader strategy," he said.