Modi govt didn’t address jobs crisis in the first term. India’s progress depends on it now

India needs a National Employment Strategy with ministries made to submit to PMO annual action plans on how they will realise the goals.

A worker melts scrap metals in a crucible at a Sargam Metals Ltd. aluminum recycling facility in Chennai | Prashanth Vishwanathan | Bloomberg

India’s labour market is ailing, and Prime Minister Narendra Modi’s first term bore the brunt of the debate on the nation’s employment crisis. In the last five years, all efforts to generate a debate on how best to address the crisis have ended up in controversy — be it over the scale of job creation, the data on unemployment, or about the sources and indicators that accurately reflect the state of the job market (is it unemployment or productivity and wages?). The Modi government’s second term has an opportunity to acknowledge what ails the labour market, and take measures to address the crisis.

The challenges

Only one in two Indians of working age – 15 years and above – participate in the labour force. Only about one in four women (23.3 per cent) of working age enter the labour market. Female labour force participation has been declining since 2004. Low labour force participation is a loss of precious productive potential, as is unemployment.

While unemployment is a matter of concern, arguably more pressing in terms of scale is the issue of underemployment.  Most people in India cannot afford to be unemployed.

Another challenge is that Indian youth, particularly those from vulnerable backgrounds, lack opportunities, and studies have shown that the inequality of opportunity in one’s younger years manifests in an inequality of outcomes in adulthood.

Moreover, while enrolment rates have increased, learning outcomes remain weak, especially for youth from vulnerable backgrounds. Skills training, especially short-term programmes, cannot compensate for years of poor-quality education.

If these challenges go unaddressed, the nation will squander its demographic advantage in approximately two decades from now.

Addressing these challenges

India needs a National Employment Strategy (NES), and ministries should submit annual action plans on how they intend to realise its goals. The plans should follow a standardised template specifying four things — concrete actions, resourcing, metrics for success, and timelines – and then submit them to the Prime Minister’s Office.

In the next five years, the National Employment Strategy should focus on achieving the following three goals:

1. Productive, well-paid jobs in sectors that absorb more labour

Agriculture is the most labour intensive sector, covering 44 per cent of the employed people. But it is also the least productive. The sector needs structural transformation, and one realistic way to achieve that would be toimprove productivity (and consequently wage levels).

Short-term cash transfers to farmers address the symptom, not the cause. More effective would be investments in irrigation, energy and transportation infrastructure for rural areas (which will alter cropping patterns toward more labour intensive and higher value crops); programmes to ensure competitive pricing of inputs such as fertilizer; revising skewed subsidy structures; addressing price volatility to give farmers fair compensation for their produce; a regulatory framework that ends the culture of labour contracting and middlemen in farm employment; and finally, providing access to land records and real crop insurance, especially to small-scale farmers.

India also needs an industrial policy that fosters labour-intensive manufacturing. Sectors such as agro-processing can boost both agriculture and manufacturing, but this requires developing domestic value chains and associated infrastructure. The industrial policy should address issues like land clearances, access to power, and tax incentives to help bolster manufacturing firms, especially small ones with potential.

The industrial policy should ascertain how to support export capacity of firms and encourage participation in global value chains. This calls for a reassessment of current tariff structures, especially the inverted duty structure, to make manufacturers more competitive.

The latter investments in manufacturing will spawn services in sectors such as logistics and transport. These sectors will be increasingly critical for job creation in the coming years.

2. Investments in human capital 

A National Employment Strategy should plan for enduring, long-term investments in human capital through good quality education, followed by skills and on-the-job training.

The human resource development and the skills development ministries should be merged to create an effective school-to-skills-to-work continuum. Spending on education should be increased to six per cent of GDP.

But more importantly, the existing system should be reformed to cultivate employability in school in age-appropriate ways – soft skills from hygiene to confident communication from early ages; exposure to trades like growing food to cell phone repair to woodworking and beauty & wellness through secondary school. All children in school – regardless of gender or other social groupings — should be exposed to a multitude of similar trades. Gender stereotyping in skills training is a disservice to the individual and to the mission of creating better employment for more people.

Another gap to fill is reforming supply-driven training to be better aligned with labor market demand, along with effective private sector engagement.

There are two ways to fix this. First, there is a need to map market demand in detail that goes beyond identifying high-growth sectors and anticipating their human resource needs at the national level; and also, to map demand in a multitude of small businesses that are job generators. This is possible if mapping is done in smaller administrative units such as districts or cities, rather than at the national level. Second, there is a need to reform the Sector Skills Councils (SSCs) to more effectively engage the private sector. The functions of the SSCs need to be clearly delineated, including their specific role in assessments, certification and utilisation of the Qualification Packs and associated National Occupational Standards.

3. Strong labour market institutions

The National Employment Strategy must also seek to simplify India’s labour laws to have a clear and consistent labour code for business and investment; a national minimum wage (first instituted in 1996 but remains non-binding because it has no statutory backing under the Minimum Wages Act) to ensure that all workers can afford to meet their basic needs; and the provision of social protection — universal healthcare, pensions, maternity, death and disability benefits.

That public spending on health, for a country of over 1.3 billion, is barely over one per cent of the GDP is unconscionable. Millions are one healthcare emergency away from crushing debt and poverty. A National Employment Strategy should call for a simplification of the wide web of existing social insurance schemes and pave the way toward government support for universal healthcare – this is imperative for a healthy and productive workforce.

Data and evidence must underpin the National Employment Strategy. “The lack of reliable estimates on employment in recent years has impeded its measurement and thereby the Government faces challenges in adopting appropriate policy interventions,” wrote the Modi government’s then Chief Economic Advisor Arvind Subramanian in the 2016-2017 Economic Survey.

Efforts to gather more data more regularly with a consistent methodology, corroborated by qualitative insights from the field, are central to the success of a National Employment Strategy. Such a strategy also needs political will and resources. The NES cannot be held hostage to an arbitrary fiscal deficit ceiling. Beyond how much a government spends, the composition of spending matters – expenditure on the basics like education and healthcare will have long-term returns. To this end, there is a need to reassess existing tax and subsidy regimes.

Suchha vikas will take work. Whether salaried or self-employed, whether on family farms or in manufacturing facilities, people across India’s culturally and politically diverse landscape rely on their work to earn a living, to fulfil family and social obligations, and to satisfy the aspirations that drive and motivate them daily. Politics and policy must take the necessary measures to deliver just jobs; India’s progress depends on it.

The author is Senior Visiting Fellow, Centre for Policy Research.

This is the fifth in a series of articles titled “Policy Challenges 2019-2024” under ThePrint-Centre for Policy Research (CPR) collaboration. A longer version of this piece is available on the CPR website at https://www.cprindia.org/. The full policy document on a range of issues addressed in this series will be available on CPR’s website from 4 June.