Binit Agrawal speaks with economic author and commentator Vivek Kaul
in an exclusive interview for LSPR.
This is the 5th installment to our special series on General Elections 2019
Vivek Kaul is an economic commentator and writer who has worked at senior positions with the Daily News and Analysis (DNA) and The Economic Times, in the past. He is the author of the Easy Money trilogy, a bestseller series on global finance. His latest book is called “India’s Big Government: The Intrusive State & How It’s Hurting Us“. His writings regularly appear across various publications in India. These include, inter alia, Livemint, The Times of India, India Today, Business Standard, Business Today, Business World, The Hindu, The Hindu Business Line, Forbes India, and Huffington Post.
In this exclusive interview, LSPR asked Mr. Kaul a series of questions dealing with increasing unemployment rates, the prevalence of jobless growth and failing demographic dividend, the missing manufacturing sector, on skill shortages and failure of our education system, basic income guarantee and data manipulation.
LSPR: As per reports, India’s unemployment rate has risen to its highest levels in almost 45 years. What has gone so terribly wrong, even when the economy seems to be coming back on track?
Vivek Kaul: What has happened over the years is that the correlation between economic growth and job creation has severely weakened. What it basically means is that the economy is growing but it’s not creating jobs. This is what we call Jobless Growth. This happens when businesses expand but instead of hiring people they rely on machines and increased productivity. For example, look at the textile industry. It is one of the largest employment generating sector in the country. However, in the last few years, there has been a severe fall in the jobs created by the sector.
The second part of this issue is what we call India’s Demographic Dividend. It’s a term which has been used over the years to sell the Indian growth story to foreigners. Demographic dividend, simply put, refers to those years or decades, in which a country’s working population grows at a faster rate than its population. When these working people earn, they spend their income, and this increased spending creates a ripple effect which pulls a lot of people out of poverty. In India’s case, even though we have reached the peak demographic dividend, we don’t have the jobs to take benefit of it. Hence, the idea of demographic dividend working in India’s favour seems to have fallen flat.
LSPR: Could you elaborate a little more on this?
Vivek Kaul: When a developing economy works towards becoming a developed economy, the two sectors which matter a lot are Real Estate and Construction. They matter because you have people, a lot of them, who are entering the workforce but have limited skills. Hence, you need to create jobs which require limited skills, which they can do. Real Estate and Construction sectors provide a bulk of these jobs for any developing economy. What has happened in the last 8-9 years in India is that activity in these two sectors, particularly real estate, has been down.
Another interesting thing to note is that, while the overall unemployment rate, at 6.1 per cent, is not very high, youth unemployment is extremely high. Currently, it is somewhere between 13-27%. This has caused a shift in India’s labour force. When youngsters cannot find jobs, they tend to move out of the job market and stop looking for jobs. As a result, lots of people are getting left out of the unemployment statistics.
LSPR: According to studies, increasing investment in capital has eaten into salaries and jobs in the manufacturing sector. In this, and the coming decade, automation in the manufacturing sector is going to be at unprecedented levels, and given that the service sector has been a laggard in creating large-scale jobs, what are India’s options? How do we survive this so-called fourth industrial revolution? Where will the 100 million and more jobs that we need come from?
Vivek Kaul: India has been moving away from labour towards capital for a while now. There was this interesting research paper published a couple of years back analysing the Annual Survey of Industries from 1980 to 2015. It found that while the average rate of growth for employment (labour to be precise) in Indian industry was a mere 2 per cent per year, the average rate of growth for capital was an impressive 14 per cent per year.
What it shows is that the Indian industry has expanded over the years by employing more and more machines and not labour. So, the mechanisation of the Indian industry has been happening for quite some time. Over and above this what should worry us is the problem of premature deindustrialization.
If we look at the economic history of the developed world, we find that countries typically start with being an agrarian economy and then moving to one based on manufacturing and then to one based on the service sector. However, in India’s case, there has been a premature deindustrialization. That is to say, more or less, we have missed the manufacturing bus and have been unable to reach our maximum possible potential in the manufacturing sector. If you see states like Maharashtra, Tamil Nadu, UP, etc. all of them reached their manufacturing peak almost 20 years back. Thereon the share of manufacturing as part of their economy has been decreasing.
In the recent past the idea that as China becomes richer and moves out of being the global supplier of low-end goods, India can capture that space, has been floating around. However, this has not happened. Instead, countries like Vietnam and Bangladesh have captured that space.
Now, why did this happen? The answer is that we don’t incentivize industries to grow and generate employment. Our laws, especially labour laws, dispute resolution system, land ownership and exchange framework, and excessive bureaucracy have come together to de-incentivize industrial growth and cause what is called the middle trap. So, we have these industries which employ like 40-50 people, and then we have those which employ upwards of 200 people. We don’t have anything in between. This is because once that mark of 50 employees is reached businesses simply don’t want to grow further. There are these rules and regulations, imposing a barrage of conditions and requirements, and complying with them is simply not worth the trouble. As a result, businesses are trapped at those low levels. So, I don’t think we are in a situation wherein we have any plan in place to create the required 10-12 million jobs a year. We need to start by dismantling the current bureaucratic setup more than anything else if we want to achieve even the bare minimum.
Now, one idea which has been floating around is that tech start-ups can be our answer. People cite the likes of Uber and Ola to argue how millions of jobs can be created by these start-ups. However, these ideas are flimsy. If you look at who these cab drivers are, we find that almost all of them were auto and taxi drivers or drivers of private cars who have now moved to work with Uber and Ola. I don’t think there was a creation of a sizeable number of new jobs, as is often made out to be these days. So, while it is good that we promote these start-ups, we need to start with the basics. That is, changing the regulatory and bureaucratic setup before banking on other ideas.
LSPR: India faces a paradox when it comes to the question of skills and education. While we have a severe shortage of educational opportunities and skilled individuals, it has been observed that skills and education are not of much help in finding work. How do we address this paradox? Is it irrational to invest more in education when it is failing to yield results? How do we structure education and skill development, so that skill mismatches are avoided and income and employment can be generated?
Vivek Kaul: In India, the focus of education is misplaced. Education for most of us implies spending these many years in schools and colleges and not on learning and picking up skills. So, if you look at engineers, India produces more engineers than China and USA put together. Now, this in itself is a joke, because India’s economic activity is minuscule when compared to that of China and USA. This implies that it is much more easy to become an engineer in India compared to China and USA. This is happening because the quality of education being given to our engineers is sub-par, and hence, the graduates are unemployable. Also, there are not enough engineering jobs going around as compared to the number of engineers graduating. Now, what happens is, when you are an engineer, you are not going to come down to doing say an electrician’s job or a mason’s job, which is where the actual demand is. So, the first point is that we need our education system to impart skills for the jobs, where there is actual demand.
The next issue is that we have a host of reports showing how our students, even in secondary schools, cannot display basic skills like ability to read or undertake simple calculations. What this shows is that our teachers are not doing their jobs properly. Hence, we need to re-skill our teachers before we can skill our students.
Thirdly, we have this thing called the Right to Education. What happens under Right to Education is that there is no detention till class eighth; we have free and compulsory primary education; and there is a mandate on the teacher to complete the syllabus. The result is that our teachers are not interested in teaching. They are interested in completing the syllabus. By the time the student reaches 8th, she is not at all capacitated with the necessary skills to take the sudden pressure to perform and pass. As a result, you have this high dropout rate post-primary schooling. All this results in a scenario where when people go around looking for jobs, they don’t find one and employers don’t find the employees they need. To turn this around, we need to do three basic things: ensure that our students are taught how to read, how to write, and how to calculate. Once our education system is structured to do this, the wheels to create employment and employability will be set in motion.
LSPR: It has been claimed that the Modi government is involved in fudging, hiding, and all sorts of manipulation of data on employment. Do you think Modi government is involved in manipulation of data?
Vivek Kaul: While I wouldn’t completely agree that the Modi government is manipulating data, what is very clear and funny is that they have been sitting on that data, as it doesn’t show their government in a very good light. I find it funny because ultimately no one is going to vote for you or not, on the basis of what data you are showing. If someone is unemployed, she knows she is unemployed, her family and friends know she is unemployed, and if they feel that it is something you failed to do something about, they are going to vote against you. No government in the past has tried to hide data because it hardly has any electoral implications.
LSPR: While the entire country is reeling under the pressures of unemployment, some states are especially disadvantaged. India is marked with acute regional disparities. As per data, Maharashtra, Tamil Nadu, Andhra Pradesh and Gujarat alone account for 50% of the employment created in the manufacturing sector. As against this, Bihar accounted for a mere 0.8% of the jobs added. Why has India been a complete failure in distributing wealth and employment geographically? What are some of the steps which can be taken to generate employment in economically backward regions?
Vivek Kaul: There is no doubt that we have failed in distributing economic activity equitably geographically. We have lots of people from Bihar and UP migrating to states like Delhi, Maharashtra, etc. looking for jobs. However, it is near to impossible to turn this around in short-term. This is because there are lots of factors behind the economic growth of any region. First, you need a government which incentivizes industry and has business-friendly policies. Most of our backward states lack such a government. Secondly, businesses thrive and cluster around places where there is a presence of base industrial and financial facility. You have all these software companies in Bangalore and Gurgaon because they had the base requirement of good universities, financial services, global connectivity, land availability, etc. Similarly, you have the auto industry in states like Gujarat and Tamil Nadu as they already had a full-fledged auto parts and machinery industry. States like Bihar have no such base industries to support their industrial and economic growth. So, I don’t see any measure which can quickly turn this around.
However, one policy which can start the process of some correction is that of Basic Income Guarantee. Basic income will mean that huge sums of financial resources will flow into these backward regions. This will spur economic activity, consumption, trade, low-end manufacturing, financial services, etc. This will cause the cycle of poverty and stagnancy to stop and create that basic financial setup required for growth.
LSPR: Our job market is characterized by unparalleled gender imbalance. The female labour force participation rate in 2015 was a dismal 27%. At the beginning of the century, it was at 33.8%. ILO projects that it will further fall down to 24% by 2030. At a time when we need more females to join the labour market to improve our population’s productivity rate, the facts say that more and more women are being kept out of it. Why is this happening? Can India achieve double-digit growth with its females being kept out of jobs? What are the immediate measures we must take to turn around this trend?
Vivek Kaul: While economists have been trying to find objective reasons behind this trend all we have is mere speculations. What I feel is that this is a result of the deep-seated patriarchy combined with an overall lack of jobs. Because we don’t have enough jobs the job givers will have to pick and choose from amongst those wanting a job. Now because it is mostly men who have the authority to decide on who gets the jobs they tend to choose other men. The result of this is that more and more women are unable to find jobs and tend to drop out of the workforce.
Now, how do we turn this around? To be frank it is difficult and will take time. While we can have policies incentivizing hiring of females by firms, those can have only so much impact. Especially in our country, where the informal sector provides a bulk of the jobs. The only permanent solution to this is a dismantling of the patriarchal system we have in place, which is something which will take time.
LSPR: What are your expectations from the next government? Please suggest three steps which you feel the next government should prioritize in order to create a sustainable and stable job market.
Vivek Kaul: One thing they can immediately do is to simplify the Goods and Services Tax system. It is something simple and easily doable. We should replace the multiple slabs with a single tax rate. Further, we need an efficient and quick return filing process. Right now it is too cumbersome and results in a wastage of financial and time resources, which can be channeled into more productive activities.
The next thing is, as I have mentioned earlier, overhaul the entire framework of labour laws. It is something which has not been touched over the years and needs to be reworked.
Thirdly, the government needs to cut itself down. One thing we don’t realize in India is that the government is into way too many things. For example, the central government runs more than a thousand schemes. It is very easy to launch these schemes but no government has or can have the capacity to implement, sustain and evaluate these many schemes. So, you need to rationalize and figure out which all schemes have been working properly, are important, and then focus only on those while stopping the rest. Similarly, the government needs to cash out of most of its business ventures. There is no point in the Government of India running an airline, manufacturing condoms or running some twenty-one banks. It is not something the government is meant to do. So, the government needs to rationalize the activities it is undertaking. It should focus on creating an environment where jobs are created.
Image Source: IIM Bangalore, Washington Post