A Matter of Skill

THE BIGGEST conundrum of India’s political economy is jobs. Often, in govern­ment, it is the elephant in the room. The first Budget of Prime Minister Narendra Modi’s third government has tried to address it directly via the announcement of three employment-linked schemes and a programme for paid internships on a large scale. While all of these are very good steps, they are unlikely to fully address what is a deep structural issue.

Before any solution is posited, it is important to know what precisely the problem is. In India, it is not quite about jobs. Actually, there are plenty of jobs being creat­ed, as the relatively low unemployment rate suggests. However, too many of these do not come with a decent wage, either in low pro­ductivity agriculture or low-end services. What India has is a challenge of creating suf­ficient good jobs or decently paying jobs. An additional problem is that where good jobs are available, there are not enough people who have the necessary skills to take up those jobs.

One of the challenges is our understanding of what a good job is. It is apparent what a not-so-good job is. It comes with subsistence wages, no benefits (like leave) and no social security (like insurance). However, for too many people in India the definition of a good job is a govern­ment job. For low-income groups in particular, it is a Class IV/Group D government job. This is the lowest rung of government employment (usually a peon, now called Multi-Tasking Staff/MTS) which commands a high wage, benefits (leaves, housing), social security (free healthcare, pension), and job security. Significantly, it is a white-collar office job. The fact is that this distorts aspirations. There may be unfilled vacancies for jobs at the lower end in gov­ernment, but this is primarily because these services and personnel are no longer required. The job of an MTS, primarily to move files from one office to another, has been made obsolete by a system of e-files.

That said, there is a huge potential to create many more well-paying jobs in the private sector. These have to come from an expanding manufactur­ing sector. While these may not be ‘white collar’ and as easy going as a low-rung government job, they can pay well, provide benefits (leaves, housing facilities) and a social safety net (contributory pension, health insurance). The employment-linked incentives announced by the government in the Budget may help create lakhs of additional jobs in existing manufacturing facilities. However, they are unlikely to create millions of jobs at a mass scale, which can help absorb much of the 40 per cent of the workforce in agriculture producing just 15 per cent of GDP—the core of the under-employment/low wage issue.

It is actually quite well known what needs to be done to create millions of good jobs, but the political economy is stacked against the reforms required. The Budget has promised an economic policy framework and reforms in factor markets, namely land, labour, and capital. The intent is right. But is the political economy conducive for such reform?

Essentially, there are only three reforms that are necessary. First, larges­cale manufacturing requires large tracts of land. Land acquisition has been a vexed issue for a decade-and-a-half and any effort to amend the rigid and impractical Land Acquisition Act of 2013 is met with political opposition and accusations of favouring the wealthy at the expense of the poor. In fact, it is a pro-poor reform because it will create better jobs for those who need them most. There are other options to move ahead on land. The good thing is that digitisation of land records has progressed remarkably well in most states and that has given clear land titles to owners. India’s outstanding public digital infrastructure system can be extended to create a platform for the buying and selling of land without any human intermediation or middlemen. The buyer and seller themselves can settle the right price. Alternatively, ambitious state governments can create land banks from land that they already own for big factories.

Second, reforms on labour. Too often, we get stuck on hire-and-fire. There is so much emphasis on the latter that people forget that it leads to little or no hire. India’s competitive advantage is its relatively cheap labour force. Instead of worrying about firing and what is an appropriate minimum wage, laws should be made flexible so that hiring gets priority. The fretting over firing is because there is a scarcity of good jobs in the economy. Paradoxically, present laws only promote scarcity. Flexible laws will lead to the creation of so many good jobs that people will have options to move jobs or move factories rather than fall into unemployment.

Third, largescale manufacturing needs quick decision-making on the part of government on statutory clearances. Few investors will wait one year or two years or even longer to get basic environment and forest clearances to start their operations. Time is money. The government is committed to a quicker system within a 90-day window. Nothing should stop the govern­ment from moving to a system of self-certification in which it lays down pre­conditions for operations and then conducts an audit to check compliance. In the event of violations, hefty fines can be imposed. This does not happen because there is a lack of trust, that somehow, regulations will be violated. But if conditions and clearances are simple, there is very little incentive for anyone to even try to circumvent the system.

In parallel, the government can give serious consideration to Andhra Pradesh Chief Minister N Chandrababu Naidu’s idea of a skill census. It is ap­parent that there is a mismatch between the kind of workers industry wants and the ones who are available. It is, of course, a matter of the right kind of skilling of the workforce. But there is also a larger societal question related to the earlier point about what is a good job. Too many Indians are still ori­ented towards doing basic college degrees in the hope of a white-collar job, preferably government, but that leaves them unemployable in terms of the many other options that exist. A skilled job in a factory will likely come with a higher wage and bene­fits than a low-rung government position, but it is viewed as a blue-collar job and therefore not aspirational. Mindsets need to change. No job is a bad job. Innovative solutions such as giving skilling programmes a university-degree status should be considered as this may help people overcome their inhibitions and prejudices. Needless to say, any skilling effort needs government and industry to work together. It is time to move beyond the outdated Industrial Training Institutes (ITI).

The task to create good jobs and skilled peo­ple is not Mission Impossible. However, it does require a degree of realism, practical thinking and changed mindsets.

About The Author

Dhiraj Nayyar

Dhiraj Nayyar is chief economist, Vedanta Ltd, and the author of Modi and Markets: Arguments for Transformation

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