JOIN USThe recent official announcement that ‘employment creation’ would be the basis for evaluating the progress of governmental schemes, needs to be welcomed. The past three years have witnessed energetic action across several sectors.
Stalled infrastructure projects have started moving. The drive for digital governance has speeded up the issuance and management of a variety of licences and permits. The ‘Make in India’ focus for reviving manufacturing has witnessed policy realignments regarding labour regulation, procurement process for governmental purchases etc. A revealed intent to promote technology via focus on indigenisation of defence goods is also evident.
However, despite all these measures, the labour markets are not ‘humming’ whether measured in terms of campus placement experiences of our prestigious IITs or at the hearsay evidences of the graduates of our multivariate schools/universities. Undoubtedly, not just the rapidly transforming automation systems, but also the upward shifts of the quality preferences of the average consumer are both playing a role.
This lack of ‘good cheer’ is despite positive movements in several important economic indicators. Equity markets (index up by over 5,500 points from 24,700 to 30,000), retail inflation (down from 9+ to below 5% year on year and below 3% on month to month change), fiscal deficit (down from 4.9 to 3.5), FDI (up from $20 billion+ to $40 b+). The balance of payment is comfortable with a current account deficit down from 4% to 1% and reserves moving up from $300 b to $360 b. It is therefore encouraging that the government has recognised the disconnect and plans to do something about it.
Against this backdrop, attention is invited to an analytical survey titled ‘Technology Works: High Tech Employment and Wages in USA’ brought out by the Bay Area Council Economic Institute in 2012. The report had been inspired by the works of Enrico Moretti, Professor of Economics, University of California, Berkley and especially his article ‘local multipliers’ in the American Economic Review, May 2010 and his recent book ‘The New Geography of Jobs’.
Moretti introduced the concept of local job multipliers — the concept of a job creating the requirement of additional support jobs. He demonstrated the concept of job multipliers — ‘every time a local economy creates a new job by attracting a new business, additional jobs might also get created mainly by increased demand for local goods and services’.
Further, different types of jobs have different multipliers and finally, high-tech industries (relating to the fields of science, technology, engineering and mathematics or ‘STEM’) have significantly higher job multipliers than the medium and low-tech industries. The main reason could be the relatively higher income levels of STEM workers. Most of the additional jobs are created in the non-technology areas in all walks of life, which include professionals (not just doctors/lawyers but also sportspersons/artists) and non-professionals (taxi drivers, waiters, carpenters etc).
The Council report studied the high-tech sector and found extensive support for the local multiplier idea. ‘Apple employs 12,000 people in Cupertino city and at least 60,000 jobs are related to Apple in the Silicon Valley. High-tech jobs are the cause of local prosperity and the doctors, lawyers, roofers and yoga teachers are the effect’.
An interesting aspect of high-tech industry, apart from the job multiplier, is that it is logistics neutral but located in relatively dense clusters. Colorado (deep in US Midwest dessert, 800 km from the sea) and Chengdu (Midwest China more than 800 km from sea) both had thriving high-tech manufacturing clusters. High-tech zones do not themselves use much land area but act as a nucleus for rapid growth: for example, the Chengdu high-tech zone is in an area of 13,000 hectares.
Some 16,000 firms including 250 foreign companies operate there. In 2001, that state exports were $1.5 b on a GDP of $14 b. In 2010, their exports were $14 b but the state GDP had jumped to $493 b. Similarly, in the US, Colorado had historically been a poor cousin to the neighbouring state of Arizona, but post the 1990s, had overtaken it after their focus in incentivising high-tech industries. In India, software boom resulted in exponential growth being experienced by Bengaluru, Pune etc, in the last 10-15 years. But that period growth is unlikely to now be equally eventful for other cities given the increase in protectionist movements across the globe.
Bengaluru boom
In other countries, historically, defence and space/aero industries had acted as the initial nuclei – it is quite possible that the Nasa facility at Colorado may have been the trigger. While Isro may well have contributed to the Bengaluru boom, defence and other aero industries have never received adequate state attention. As a result, technology products never found a manufacturing home in India.
The United Nations Conference on Trade and Development has since long being analysing the nature and direction of international trade, using nomenclatures of ‘high-tech’, ‘medium-tech’ and ‘low-tech’ goods. Indian export performance has been astoundingly good, post-liberalisation, but mainly consists of ‘low,’ ‘medium’ tech goods. ‘High-tech’ goods amount to only 7%-8% of our exports but approximately 25% of our imports in a normal year. They also have a 25% share in internationally traded goods.
In other words, while we have a consumption pattern like the rest of the world, our production pattern has so far been deviant. The recent policy shifts, and revealed home demand, thus create a large window of opportunity in a demand starved world.
But to achieve this, pronounced governmental efforts may be required in several unrelated areas to create ambient conditions to attract high-tech investment. The software boom had leveraged upon the high quality of life earlier available in Bengaluru/Pune. But now, most urban infrastructure creaks due to overloading.
Perhaps combining the ongoing smart city initiative with the high traffic industrial corridor development initiative along with the stated intent to attract high quality foreign universities and the health ministry’s initiative for new world-class hospitals — all into a coherently executed ‘Indian Belt and Road’ drive could provide an answer.
(The writer is former chairman, Exim Bank of India)