The blogmaster listened recently to an extract from a speech by Minister Ryan Straughn where he emphasized the importance of Barbados investing in our youth because this is where future growth will have to originate. He was quick to clarify for those that would assume the obvious the older demographic will not be neglected given such a focus. The preamble serves to introduce the following article.
|The Jobs Problem in India
Posted: 08 Oct 2019 07:00 AM PDT
One of India’s biggest economic challenges is how new jobs are going to be created. Venkatraman Anantha Nageswaran and Gulzar Natarajan explore the issue in “India’s Quest for Jobs: A Policy Agenda” (Carnegie India, September 2019). They write:
India’s jobs in the future aren’t going to be in agriculture: as that sector modernizes, it will need fewer workers, not more. A common assumption in the past was that India’s new jobs would be in big factories, like giant assembly plants or manufacturing facilities. But manufacturing jobs all around the world are under stress from automation, and with trade tensions high around the world, building up an export-oriented network of large factories and assembly plants doesn’t seem likely. As Nageswaran and Natarajan point out, most of India’s employment is concentrated in very small micro-firms in informal, unregulated business. The challenge is to add employment is small and medium formal firms, sector often in industries with a service orientation.
To put this in a bit of context, India’s Census is finding employment of 131.9 million workers, mostly in very small firms. But India as a country has a workforce of over 500 million, and it’s growing quickly. The other workers are either working for subsistence, in agriculture or cities, or in the informal economy.
Why has India had such a hard time in creating new small- and medium-sized firms? Part of the answer is a heavy hand of government regulation.
This regulatory environment offers a powerful incentive for small firms to remain informal, off-the-record, under-the-radar. A related issue arises because payroll taxes in India are very high–for workers in the formal sector, that is.
Yet another issue is that there are many programs providing support and finance to very small firms. An unintended result is that these firms have an incentive to remain small–so they don’t have to give up their incentives.
Nageswaran and Natarajan argue that most of India’s informal firms are “subsistence” firms, unlikely to grow. They cite evidence from Andrei Shleifer and Rafael La Porta that few informal firms ever make a transition to formal status. Instead, the goal needs to be to have more firms that are “born formal,” and which are run by entrepreneurs who have a vision of how how the firm can grow and hire. In India, this doesn’t seem to be happening. They write:
What’s to be done? As is common with emerging market economies, the list of potentially useful policies is a long one. Reforming government regulations, payroll taxes, and financial incentives with the idea of supporting small-but-formal businesses, and not hindering their growth, is one step. Nageswaran and Natarajan also point out that the time needed to fill out tax forms is especially onerous in India.
Ongoing increases in infrastructure for transportation, energy, communications matters a lot. Along with overall support for rising education levels, it may be useful to take the idea of an agricultural extension service–which teaches farmer how to use new seeds or crop methods–and create a “business extension service” that helps teach small firms the basic managerial techniques that can raise their productivity. India’s government might take steps to help establish an information framework for a national logistics marketplace, which would help organize and smooth the movement of business inputs and consumer goods around the country: “Amounting to 13 percent of India’s GDP, the country’s logistics costs are some of the highest in the world.”
But in a broad sense, the job creation problem in India comes down to a more fundamental shift in point of view. Politicians tend to love situations where they can claim credit: a giant new factory opens, or a new power plant. Or at a smaller scale, politicians will settle for programs that sprinkle subsidies among smaller firms, so those firms that receive such benefits can be claimed as a success story. But if the goal for India’s future employment growth is to have tens of millions of firms started by well-educated entrepreneurs, this isn’t going to happen with firm-by-firm direction and subsidies allocated by India’s central or state governments. Instead, it requires India’s government to be active and aggressive in creating a general business environment where such firms can arise of their own volition, and it’s a hard task for any government to get the right mix of acting in some areas while being hands-off in others.