There is a backlog of minimum 6 crore persons waiting to be employed. In addition, one crore youth are entering the work force every year. Creation of about 2 crore jobs every year is required so that the backlog can be cleared in about 6 years. Number of jobs being created in the organised sectors, however, is paltry. According to the Economic Survey published by the Ministry of Finance, about 5 lakh jobs were added in the organized sectors every year between 2008 and 2012. We needed to create 2 crore jobs; we are creating 5 lakhs— despite our growth rate being respectable at 7.7 percent in the same period. This establishes that pursuit of growth itself will not create jobs.
Increasingly, automatic machines are being deployed in the factories. Few highly skilled jobs are created in maintenance and operation of these machines while a large number of unskilled workers are thrown out of jobs. It is profitable for companies to use more machines and less labour. This is the natural trajectory of development. “Development” means that people are rich. More capital is available. Consequently, interest rate becomes low. On the other hand, wage rate becomes high as people attain higher standards of living. Consequently it is profitable for companies to use more machines and less labour as an economy develops. More production takes place, growth rate is high but there are few jobs. This is a global phenomenon that is afflicting all developed and developing countries alike. Attaining a high growth rate is obviously not a solution. High growth rate means more production from automatic machines and more jobs being eaten away.
The problem cannot be solved by programmes like MNREGA. Creation of more jobs under MNREGA requires more expenditure; more taxes to be collected; more number of profit-making factories to be established; more use of automatic machines; and more unemployment. 100 workers employed under MNREGA will come at the cost of 200 workers rendered unemployed by the use of automatic machines. We need to change gears.
The way forward is to divide the economy into two sectors—the “growth” sector and the “employment” sector. The former would comprise of industries such as petroleum, steel, railway and construction. Automatic machines may be freely used in this sector. This sector will provide high production, high growth, and high taxes. The objective of this sector will be to attain highest rate of growth of GDP—irrespective of number of jobs created. The latter, on the other hand, would comprise of areas such as weaving, soft drinks, apparel, bicycles, leather, gems, jewellery and the like. The explicit objective of this sector will be to create jobs—even if the cost of production is high. Use of automatic machines in this sector may be banned or heavily taxed. A heavy tax imposed on power looms will lead to a hefty increase in the price of machine-made cloth and spontaneously make handlooms competitive and create millions of jobs. A heavy tax imposed on soft drinks will lead to a hefty increase in the price of bottled soft drinks and spontaneously make street corner drinks competitive. Sectors where a large number of jobs are created and the increase in cost due to ban on use of automatic machines is less should be placed in the “employment” sector. For example, the increase in cost will be huge if bore wells are taxed heavily and water is to be drawn from 500 feet manually. Therefore, bore wells may be allowed to be made. But the increase in cost will be nominal if harvesting is to be done manually instead of by harvester combines. Therefore, harvesters may be banned.
The Niti Ayog must be directed to make a study of all sectors of the economy and come up with a blueprint of the restrictions that may be imposed to create 3 lakh jobs a year with least cost to the economy. Similarly, a target wage can be fixed. More number of restrictions on automatic machines will lead to more demand for labour and an increase in wage rates. Let there be no doubt that this job creation will entail a cost. Cloth and soft drinks will become expensive. That is a cost people of the country must pay to provide jobs to our brothers and sisters.
The trick is to tax job-eating machinery instead of subsidising it. Presently, incentives like accelerated depreciation, tax holidays, and Special Economic Zones are provided to industries making large capital investments. In effect, we pay industries to eat jobs. Instead, we must tax job-eating machines. Job-creation will then become a revenue earner instead of requiring huge revenue expenditures as in MNREGA. By taxing job-eating machineries we will be generating revenue as well as jobs. Schemes like MNREGA can then be dismantled and monies being spent on them saved.
The bigger problem is of the World Trade Organization. Let us say a T-Shirt made from handloom cloth in India costs 200 rupees while that made by machines in China costs 150 rupees. Banning the use of power looms in India will then lead to huge imports of machine-made cloth from China. The handloom will not be able to survive. Therefore, it will be necessary to place equivalent import taxes on machine-made cloth. It is time that the Government gets real and faces the problem of unemployment head on.
The potential of skill development, being promoted by Prime Minister Narendra Modi, has to be assessed in this backdrop. A study by Indian Council for Research on International Economic Relations done for the Government of India has pointed out that unavailability of skilled labour was a major bottleneck in the expansion of employment in labour-intensive sectors like sports goods, apparel, leather, bicycles and gem and jewellery. Indeed skill development is required. But these sectors cannot solve the gigantic problem of unemployment that is staring at us.
The skill development programme can create large number of jobs if it is focused on the global services market. Large number of services can be supplied to the global consumer via the net. These include translations, architectural designs, legal research, processing of medical records, etc. It is entirely possible for an Indian national to translate a manual from Japanese to German. The Government must implement a programme to teach foreign languages to our youth. A “Center of Foreign Languages” must be opened in every district of the country. It should be made compulsory for every graduate in the country to learn a foreign language as in American universities. Modi should be congratulated for taking up skill development. The need is to push it towards the global market.
Author was formerly Professor of Economics at IIM Bengaluru
