Challenges ahead

Last Updated : 19 May 2014, 17:50 IST

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There appears to exist a consensus on some of the steps to be taken by the new government.

This includes increasing public investment in infrastructure especially agriculture, instituting a transparent process of auction of natural resources like coal and spectrum, implementing legal reforms and GST and improving the functioning of PSUs.

These steps are welcome but they will be able to increase the growth rates only marginally and also not provide jobs to our teeming millions.

We are reaping demographic dividend at this time.

Numbers of workers entering the economy is large. It will be necessary to provide productive jobs to these entrants if we want to take the growth rate to 10 per cent or more.

The consensus also appears to be in favour of deeper global integration.

It is suggested that Foreign Direct Investment (FDI) should be allowed in all sectors except multi-brand retail.

It is said that this will create jobs and enable us to access frontier technologies.

Simultaneously it is proposed that import tariffs should be reduced in order to provide low cost imported goods to our people. Exports should be facilitated so that we can gain from our comparative advantage in areas such as pharmaceuticals and spices.

That will create jobs.

Indeed these fortuitous impacts will take place.

Large numbers of middle class jobs have been created in the services sectors like call centres, software programming, research, medical transcription, processing of insurance claims, etc. courtesy global integration.

But question is whether this will be adequate for begetting us 10 per cent-plus growth rate and to provide jobs to our youth.

This model has been implemented across the world under the aegis of the World Bank and International Monetary Fund during the last two decades.

The net result is not encouraging. The International Labour Organisation has pointed towards the worsening of the global employment situation in its report titled Global Employment Trends, 2014.

It has reported that young people are not getting jobs: “The global youth unemployment rate has reached 13.1 per cent, which is almost three times as high as the adult unemployment rate.

Indeed, the youth-to-adult unemployment ratio has reached a historical peak.… the lack of formal employment opportunities is likely to constitute a barrier to a sustainable further reduction in poverty.”

Stats provided by the Government of India confirm these trends.

There has been a net addition of only 11 lakh jobs in the organised sectors in our economy between 2000 and 2011.

About nine crore workers have entered the job market in this period.

Only one out of hundred entrants has got a job in the organised sectors. The beneficial impacts of global integration are proving grossly inadequate for meeting the aspirations of our people.

The lack of employment opportunities is a logical result of the FDI-cum-free trade model.

Large-scale production is undertaken by few highly skilled workers on automatic machines.

These workers are paid huge salaries of Rs 1-2 lakh per month. They employ three maids and two gardeners in their homes.

Direct conflict

Let me clarify that this problem is not restricted to FDI.

Domestic big industries contribute to it as much.

There is a consensus that small and medium industries should be provided encouragement.

But it is not recognised that there is a direct conflict between big- and small industries.

They operate in the same market. If a big industry starts making eye glasses; the small industries have but to close down.

It is like inviting a trained wrestler and saying that encouragement will be provided to the village youth suffering from malnutrition.

The wrestler will invariably win. The mainstream economists do not have a solution to this problem.

I am not arguing for a disconnect from the global economy.

I am seeking calibrated globalisation which is in conformity with our circumstances. There is a need to invite only that FDI which leads to net creation of jobs or to the transfer of advanced technologies.

Say a MNC wants to open a furniture manufacturing facility in the country. Let us assess how many jobs will be created directly in that factory. 

We can assess the loss to our people from employment as well as gains from cheaper furniture.

If the gains are huge then we must allow the big business to operate otherwise require it to shut down.

We may similarly assess the impact of free trade—item by item.

Free trade in spices may be good while that in bicycles may not be so.

We should adopt only such of globalisation that is beneficial for us and reject the rest.
The WTO will be a big hurdle in such calibrated approach.

The WTO comes in a package. Either we accept free trade in toto or we are out of WTO.

This is only the larger picture, however. There are many provisions in the WTO that allow us to move in calibrated integration.

There is a livelihood clause. We are permitted to impose restrictions where livelihood of large number of our people is affected.

We can impose non-tariff barriers on grounds of quality etc. Other ways have to be found.

We should even be prepared to quit the WTO if we find that the net impact on our people is negative.

We will be reaping the demographic dividend in the next decade or so.

The only way to attain 10 percent-plus growth rates is to convert this huge labour force into a productive asset instead of the liability that it is becoming increasingly.

We will be saving huge expenses in welfare programmes like providing subsidised food to BPL, MNREGA, Right to Education, etc.

The money saved can be invested in infrastructure which will then jump start our economy.

The challenge before the new government is to adopt calibrated globalisation instead of the mindless integration with the global economy pursued by both UPA and NDA governments in the last two decades.

Published 19 May 2014, 17:50 IST

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