Create jobs and incomes, the need for ‘freebies’ will disappear

A debate is on currently about whether political parties ought to or ought not to dole out ‘freebies’ as they reduce ability to spend on development. These ‘freebies’ are mostly given as free or subsidised education, healthcare, water, power, etc.

They have been in vogue ever since independence in a bid to overcome destitution and poverty and ameliorate inequalities. While implementation has always been patchy for want of funds, political parties have for long competed with each other to provide these ‘freebies’. We have witnessed elections being won or lost on these grounds.

Why such ‘freebies’ are politically attractive is best understood in the backdrop of another ongoing debate -- the ‘lack of jobs’ debate. India has never been able to create enough jobs and dignified income streams despite the development efforts of the past 70 years. Narratives of increasing inequality and poverty and destitution continue to circulate despite the heroic efforts (including subsidies and incentives) made to develop both Agriculture and Manufacturing. As a consequence, politicians resort to freebies to divert attention. We need to understand why this jobs deficiency has continued no matter which party is in power.

Read | Why neoliberal India rages against ‘freebies’

Let us begin by appreciating the scale of development efforts already made. By 2017, central/state governments had created the world’s largest irrigation (groundwater and river waters) network, apart from investing in widespread mechanisation and use of fertilisers. As a result, agricultural production has consistently grown. Farm exports have increased over 10-fold, making the country an agri-powerhouse.

Separately, to promote Manufacturing, over 1,850 industrial estates/parks/coastal and special economic zones spread over 4 lakh hectares or 4,000 sq km -- 2.7 times the size of Delhi – have been set up, apart from hundreds of major and minor ports and airports.

Additionally, the private sector had also been permitted to create SEZs/industrial parks over large chunks of land. All this has enabled over 2.5 lakh industrial units in the organised sector (employing 10 workers or more) to come into operation, apart from an extremely large number of MSMEs in the unorganised sector, thereby making us the fifth largest industrial economy in the world. Despite this, we have a jobs problem. Political parties still win elections by offering ‘freebies’.

The standard official reflex action has been to place the blame for the present paucity of jobs on the still inadequate size of Indian Manufacturing and commit additional resources to this sector, believing that it would solve the jobs problem. While there is no doubt that Manufacturing needs further boosting and the current focus in promoting manufacturing needs to continue, the belief that this will solve the jobs drought is misplaced. The increasing use of automation/AI in all manufacturing, including the so-called ‘labour intensive’ fields, has severed the age-old correlation between firm size and employment.

If we look at the World Bank/International Labour Organisation’s labour employment statistics, manufacturing employment has been stagnating/declining in several countries, including China, through the past decade or so. India is one of the few countries where manufacturing jobs are still growing but not at a pace that could satisfy the clamour for
jobs. How then should we tackle the jobs’ drought?

The solution for this jobs drought is contained in the same World Bank data tables. To illustrate, the UK has one-twentieth of India’s population, 67 million vs our 1.38 billion. The UK employs over 8 million people in the Health and Education sectors -- about 24 per cent of its aggregate jobs are in these two sectors. This employment percentage is mirrored, with some variation, in all the advanced countries. India employs about 25 million, or just 5 per cent of the total workforce, in these two fields. A large part of our current jobs drought is because of the lack of focus in developing these two vitally important social infrastructure sectors. The current national (central/state government) spend of 1.15 per cent of GDP on Health and 3.1 per cent on Education is far below global benchmarks. Even our developing peers like Brazil, spend much more and thus enjoy much higher (double digit) job market shares.

Interestingly, there is near-universal acceptance in some sections of officialdom that more needs to be done for Health/Education. To illustrate, the National Health Policy (2017) and National Education Policy (2020) both stated upfront that existing expenditure levels were below optimum. A doubling of expenditures to 2.5 per cent (Health) and 6 per cent (Education) was committed. However, there has always been a lack of budgetary follow-through at the executive level because of insufficient appreciation of the economic impact of these labour-intensive sectors: the jobs potential and the consequent tax-generating potential.

The majority of the sector employees (teachers/doctors) would inevitably be higher bracket taxpayers. Creation of additional tax potential benefits the national economy, while skill formation benefits society as a whole. We must appreciate that countries like the UK and the US are not spending more on Education and Health just because they can afford it. Rather, they have become or are considered to be ‘developed’ countries because they have created well-developed Health/Education sectors, which in turn provides them bandwidth to generate sustainable economic growth!

(Disclaimer: The views expressed above are the author's own. They do not necessarily reflect the views of DH.)