That tricky issue of job creation

In the last week of March, Chief Economic Advisor V Anantha Nageswaran said the government could not solve all social and economic problems, such as unemployment. He wondered what the government could do on the employment front “short of hiring more itself”. “In the normal world, it is the commercial sector that needs to do the hiring,” he claimed. India’s gross domestic product (GDP) grew 8 per cent in the December quarter — while the unemployment rate among graduates is over 40 per cent. But jobless growth is not a new syndrome. It has plagued every regime for the past 25 years, including the two Congress-led regimes as well. I remember former chief economic advisor Shankar Acharya pointed out in his columns in this very space even the strong growth in the mid-2000s did not lead to a commensurate rise in employment. The United Progressive Alliance was led by a dream team of ministers and bureaucrats. The finest brains in the government and outside had formulated numerous schemes, including job guarantee schemes. But to no avail. Unemployment remained high. The Modi government has brought in an equally large number of policies and yet joblessness has remained sticky.

When Narendra Modi was campaigning for power in 2013-14, in his election rallies, he often asked the youth: “Aapko naukri chahiye ki nahi chahiye.” In one of the earliest election speeches in Agra in November 2013, he had promised 10 million jobs a year to the youth if voted to power. When Zee TV asked him about this promise in January 2018, Mr Modi instead pointed out street food vendors selling pakodas should also be included in employment statistics; and so, unemployment in the country is much lower. His creative logic drew a few laughs, giving birth to “pakodanomics” while his supporters passionately argued that it reflected his right emphasis on entrepreneurship.

Why is it so hard for government action to create jobs — so much so that even high economic growth under different regimes is not good enough to change the basic picture of unemployment? One, as Mr Nageswaran correctly pointed out, “it is the commercial sector (which) needs to do the hiring”. But then, shouldn’t he ask himself — or ask the commercial sector — why is it not creating more jobs? Businesses don’t hire for the sake of it. They hire when they think they need more hands. Unfortunately, for netas, babus, and job-seekers, they also weigh the advantages of hiring humans versus acquiring machines. Many aspects of manufacturing and construction are now mechanised, which is preferable for businesses. Humans need skilling, careful management, and replacing when they quit. It is challenging but necessary for labour-intensive sectors like textiles, and the services sector. Indeed, there is a shortage of skilled employees in all services like travel, transport, hospitality, health care, software development, maintenance and repair functions, design, finance, and marketing. Anyone with skills in these areas is not jobless.

So can’t government policies nudge businessmen to hire more? Of course, they can. That leads us to the second reason for jobless growth: While Mr Modi promised jobs before the 2014 election, for six years he did nothing to help create them. Between 2014 and 2020, his initiatives were mainly social: Swachh Bharat, Jan Dhan, Digital India, Beti Bachao Beti Padao, Suraksha Bima, Jeevan Jyoti Bima, Atal Pension, Soil Health Card, etc. The “economic” schemes of this period like Make in India, Skills India, MUDRA loans, and Startup India were a lot of sloganeering, with very little impact on job creation. The coup de grace was the Tughlaki scheme demonetisation, which destroyed small businesses and jobs. No wonder India’s GDP growth dipped to 5 per cent before Covid-19 (even after making a 1.5-2 per cent upward adjustment by changing the method of GDP calculation). The economy sank into a morass. The government in panic drastically cut corporate tax rates on September 20, 2019, to make businesses invest and hire. This gamble failed. Businesses refused to step up, given poor demand growth.

However, in the post-Covid period, GDP growth picked up and revenues to the exchequer boomed, allowing the government to launch a set of ambitious policies. This time it was all hands-on development projects and simultaneous initiatives in multiple directions — something never seen before. The government announced Production-linked Incentives during Covid-19 itself. Then came the defence production and exports policy and railway modernisation. In the 2023-24 Budget, the government allocated an unprecedented Rs 10 trillion for infrastructure. Implementation is visible on the ground in the railways, defence production, road transport, urban infrastructure such as metro projects (some of it wasteful), water, power, etc. It has even made destructive changes to the Indian Forest Act to remove hindrances in the path of “development”. I am certain this will lead to some job growth. Does the government need to do more?

If the “commercial sector needs to do the hiring”, the real and frictional cost of doing business needs to be slashed and Chinese dumping at below cost has to stop. Writing on the issue of job creation seven years ago, I had said that successive governments had contributed to making the lives of business persons tougher. The Prime Minister’s Office can have a team whose only job is to listen to business persons’ mann ki baat about the reasons for the high cost and delays involved in doing business. Common and recurring problems could be clubbed and eliminated; this would require working with the states (at least the Bharatiya Janata Party-ruled ones). The team could also monitor a few labour-intensive projects to understand the bottlenecks they face, right up to the implementation stage, and recommend systemic changes. Maybe we will see this happening in Mr Modi’s third term as Prime Minister. After all, he has come a long way from the wasteful publicity of social schemes to the central funding of developmen projects. Freeing job creators from a corrupt and destructive web of policies and practices from the Centre down to the talukas is the third and final step required. Jobs would follow, to the extent possible. Beyond that, we wade into the much more difficult terrain of education and skilling. 

The writer is editor of www.moneylife.in and a  trustee of the Moneylife Foundation; @Moneylifers