Our economists and policymakers just talk about growth, inflation, and poverty numbers. What they ignore is job creation numbers. No numbers for these are reported by the government. This is the missing link in our development perspectives, and it is associated with the benign neglect of growth of exports of goods and services, mostly from labour-intensive sectors, that I have been writing about regularly in these columns.
We need to focus on four things: creating a level playing field for SMEs (micro should be left out of this group); turning 'Make in India' into 21st century trade and investment reform with SMEs plying a big role; reforming the current antiquated education system; and broadening skill development beyond manufacturing to services.
In SMEs we need to move away from giving incentives to creating a business environment where they have a level playing field. Hence micro enterprises relying on doles should be out of this group, and I don't see any role for the ministry of MSME. We must realise that SMEs create jobs - 43 per cent of jobs created in emerging economies are from SMEs. SMEs are at the heart of connecting to Global Value Chains (GVCs), as they have been for the South East Asian economies and in Mexico. SMEs could attract all efficiency-seeking FDI that wants to help transform India into a hub for GVCs. We need to directly link it with 'Make in India' and with overall industrial and trade policies that should be under a new and enlarged DIPP, perhaps with a more appropriate name.
Global supply chains that define production networks need to be cost-effective, time-bound and certain, none of which can be guaranteed in Indian conditions, with poorly designed and implemented regulations combined with inadequate infrastructure. The integration of Indian SMEs, which have great potential, into such global networks, is especially held back due to such high transaction costs; larger Indian firms are more able to surmount the difficulties posed by working in the Indian environment and credibly signal their ability to do so. Thus, any government that seeks to champion the cause of SMEs, and the growth of employment in manufacturing and services through export development, cannot but take the issues of transaction costs, trade facilitation and improvement in 'doing business' indicators as a high policy priority.
The much-reduced ministries of MSMEs and heavy industries could come under the reformed DIPP. We should also do away with the non-functioning commerce ministry, which has no senior officer with sufficient background in trade policy or trade negotiations. We should scrap the annual Exim Policy and sops to exporters. Hence I also see no reason to have the DGFT. 'Make in India', properly conceived, could outline 21st century trade reforms embracing trade and logistical facilitation to better connect to GVCs; and achieve diversification of services beyond IT and ITES to other professional services like the emerging Big Data, focused regionalism and be prepared for the emerging mega-regionals, and a new institutional framework for trade and investment policies. 'Make in India' could be housed in the reformed DIPP.
Trade policy should come under NITI Aayog, which has an outstanding trade policy expert as its vice-chairman. We need a chief trade negotiator also in NITI Aayog with years of experience in the WTO, bilateral and regional agreements, and a grasp of our stance towards the two mega-regionals (TPP and RCEP) that are likely to dominate global trade.
Our education system needs to be revamped to enable students to easily find jobs. The high school curriculum needs to be changed to make it compulsory for all students to be skilled in the use of computers. At the college level, all students must take optional courses in automotive repair, white goods repair, basic accountancy and computer software. Most school and college graduates will find jobs in non-traditional areas. Simultaneously, vocational training should expand from manufacturing to services sectors.
Drastic changes are also required in skill development, where the focus so far has mostly been on manufacturing. We need to expand it into professional services areas. India must focus on trade reform that diversifies services beyond IT and ITES. Indian trade policy in services became IT-centric with an over-emphasis on liberalisation of the movement of people, a critical demand of the Indian IT lobby. In doing so, it did not focus on the barriers to the take-off of other services, such as behind-the-border regulatory restrictions on accounting, legal, engineering, architecture, or health-related professional services in partner countries.
Global trade in off-shored services is becoming increasingly about trade in tasks, i.e. carrying out specialised functions within the broader accounting or legal service professions. With the emergence of big data as a driving force of innovation and business development, data analytics and management will emerge as a huge area of opportunity in professional services exports for India.
For expanding exports of services we need to immediately create a skill pipeline. The changing landscape of IT and ITES requires far greater emphasis on a diverse range of expertise and domain knowledge than mere programming that call centres ask for. The government will have to come up with a strategic vision that can convert India's large output of natural science, arts, and commerce graduates into employable resources. The private sector or the government working alone cannot do it; success will only come with the two working together. Government would also have to work with the over 1,000 private engineering colleges that over-emphasise programming and coding at the expense of hard-skills in engineering, and help re-orient them to meet the changing demands of industry.
India, with its dynamic professional services sector, is well placed on data management and the 'servicification' of global manufacturing with its emphasis on customisation, technical support and after-sales service. With the right policies, India can ride this wave to create an entirely new generation of skilled citizens that drives export growth and job opportunities.
We need to focus as much on smart villages as on smart cities, with a much greater emphasis on jobs. This is the real inclusive growth that we need.