Skill sets need to improve through reforms in training programmes and lesser government role in primary education

India’s demographic dividend is both an opportunity and a challenge. By 2020 its estimated average age of 29 and dependency ratio of 0.4 will be the lowest in the world. But finding jobs for 12 million young people entering the labour force each year, and millions transferring out of low productivity agricultural jobs, is a major and continuing task.

There are controversies on the measurement of employment, but even the most liberal measures do not suggest the increase is commensurate with the requirement. Inability to deliver as many good jobs as required is partly responsible for India’s labour participation rate falling to around 50 — one of the lowest in the world. The world average is 63. Women have dropped out of the labour force in large numbers, and only rarely to study.

Positive trends

There are positive trends also, however. Allocation of labour is improving in areas where it is difficult to measure it. This partly explains why productivity growth continues to be positive in India despite its worldwide slowdown. Moreover, productivity in the informal sector is growing at a higher rate compared to the formal. The informal sector combines services of old and new types, and sometimes you have the old type converting into the new — as internet agencies provide drivers, maids, and geriatric care. Better training, certification and matching improve productivity and salaries. New technologies that leverage youthful skills and reduce prices to target low-income masses can give India a special advantage.

To some extent business is also migrating where labour is — to States and rural areas. The rapid growth in rural non-agricultural employment is one of the most promising ways rural incomes will rise. The rural share of India’s workforce may still be 70 per cent but agriculture now accounts for only 64.1 per cent of rural employment. Unfortunately, the new rural non-agricultural employment is capital-intensive —pointing towards a skills shortage, so that capital substitutes for labour.

India’s urbanisation is also proceeding faster than it is measured or recorded. Rapid growth in so-called census towns again suggests a rapid pace of non-rural employment growth. States have to give the final urban status but they delay because of tax and municipal service provision issues. Towns themselves do not want to lose rural development funds. One reason public services are so poor is that facilities tend to be cut to match funds available, rather than funds raised to provide a uniform level of services. Improving these aspects is essential to enhance activity. Tax regime changes in octroi and GST could be used for a proper devolution of funds that removes such disincentives. Even as land-value appreciation with development is more systematically used to finance facilities, and user charges tied to more accountable provision and quality of public services.

Urgent steps to increase productive employment are essential for social cohesion, sustainable growth, and to constructively harness the energy of youth. The can be divided into short-, medium- and long-term measures.

Shorter-term measures

These need to address current skills shortages, and be flexibly adapted to the nature of the workforce and to industry requirements. While three-month training can equip first-generation literate rural school-leavers for retail malls, three-month nano degrees can also re-train and equip industry workers with new skills. Such short-term training can provide quality ladders, allowing workers to improve from whatever their level is and industry to find the required skills.

But for this to happen two major bottlenecks have to be removed. The completion certificate government programmes require is difficult to get from the informal sector — this seriously reduces the programme’s contribution in general and to upskilling the informal sector in particular. There is a fear that government funds will be misused without formal certification. Flexible big data and aadhaar-based verification should be designed and accepted.

Industry training programmes are less effective because industry bodies do not agree to common standards. They tend to vary with their foreign collaborators’ needs. Regulators must ensure standardisation so that in-house technical training in one industry is relevant in another.

In the medium term

Numbers available for the 2000s show employment elasticity in Indian manufacturing was only 0.09 compared to a world average of 0.3. This is unacceptable. In order to change this, labour laws that induce industry to substitute towards capital need to be modified. Second, relatively low-skill labour-intensive industries could be encouraged. These include textiles, electronics, chemicals and food processing. Third, skill programmes must better match industry requirements.

Apart from manufacturing, construction has a higher employment elasticity of 0.19. Stimulus to low income housing, and signs of revival of construction in general, will improve job creation.

The service industry will continue to be a major employer. Health and education services are severely under-provided. Their expansion at all levels will improve the capability of the workforce even while providing jobs. The Indian Medical Council that creates entry barriers and chokes the expansion in the supply of doctors and nurses needs to be reformed. New teaching facilities should be judged on the basis of accreditation and outcomes rather than infrastructure, and competition encouraged.

Long-term measures

The quality of primary education needs to improve. At present schools are not even teaching the basics effectively. This requires government schools to be freed from state control, and allowed to compete and to innovate in response to community needs. For example, they could offer specific skills.

It is feared automation will destroy jobs especially low-skill ones. For example, robots are being developed to cut cloth so that textile production can also be automated. Answering robots are already replacing workers in call centres.

But historically, although technological change makes some occupations obsolete, it also creates new jobs, and raises income levels. Mechanical jobs get taken away, but new complex tasks are created. Rising levels and quality of education are essential for the mastery and creation of new highly productive jobs that should define the India of tomorrow.

 05 Mar 2018, 12:22 PM