'India's Jobs Crisis Is An Opportunity To Create An Economic Miracle'
The biggest single driver of growth and prosperity is the movement of people from lower productivity jobs into higher productivity occupations. We still have this opportunity before us in India, says Naushad Forbes
Mumbai: India has an unemployment, quality of jobs and quality of income challenge, data show. Unemployment in India stood at 8.1% in February 2022, per Centre for Monitoring Indian Economy (CMIE) data. While this is an improvement from the near 12% unemployment during the peak of the second Covid-19 wave in May 2021, only 40% of Indians were employed or looking for work, compared to about 60% in other countries.
Around 26% of Indian males between the ages of 20 and 30 years, with at least 10 years of education, were not working, while the figure is 2% for those aged above 30. Data also show that there are millions of jobs in India's informal services and contract labour sector, but less than 5% of the workforce is formally skilled, compared to 75% in Germany and 96% in South Korea.
Further, India now has one of the lowest female workforce participation rates in the world, which has declined from about 35% in 2005 to 21% today, while the world average is 50%. Many jobs that returned with the post-Covid-19 economic recovery went back to male workers, while female workers continue to lose out.
We discussed all these data points and the challenges they indicate for India with Naushad Forbes, who talks about solutions to these issues in his book 'The Struggle And The Promise: Restoring India's Potential'. Forbes is co-chairman of Forbes Marshall, India's leading steam engineering and control instrumentation firm.
Forbes received his Bachelor's, Master's and PhD degrees from Stanford University, California, where he also taught an occasional course for 20 years. Forbes has written widely on innovation and developing countries and higher education in India and is on the board of several educational institutions and public companies.
Many of these employment data points I quoted, except for the first one from CMIE, are from your book. In the context of jobs, what is the struggle and what is the potential in India?
The struggle is exactly what you've outlined. Jobs is our biggest public policy question, the biggest challenge for our country and also our biggest opportunity. The book's title applies perfectly to this topic that you've very correctly focused on.
The struggle is [evident in] the data points you mentioned. First, we have very low labour force participation in India. The 40% number is low by international standards. Then, India has the lowest female labour force participation ratio among the top 20 economies, much lower than Bangladesh and even lower than Saudi Arabia, which is not a country that you would want to compare with for female employment prospects.
Third, the great bulk of jobs in India's labour market are informal. In policy circles, a lot of time is spent focusing on policies needed for formal jobs, such as labour rights, etc. But formal jobs account for well under 15% of the total employment in the country; over 85% are informal jobs. This includes agriculture, but also big sectors like retail. It's small, owner-managed shops with two or three assistants, it's someone making tea on the roadside, a fruit vendor with a handcart, a security guard. These are the types of jobs that make up [most of] the hundreds of millions of jobs in India. That's where the struggle comes from, the fact that we have low labour force participation, particularly low female labour force participation, and a highly skewed labour market where the bulk of jobs are informal.
Now, where's the opportunity, the promise? Around the world, economic history says that the biggest single driver of growth and prosperity for a country as it develops is the movement of people from lower productivity occupations into higher productivity occupations. We have this opportunity still before us in India. We have 120 million people employed in agriculture, but we don't need that.
Take the reverse migration of workers in the early days of the pandemic. They moved back because they had no choice, not because suddenly there were opportunities in their villages, but because at least they had a family there that would support them when they were left with nothing. They had lost those informal jobs in cities. But by moving back to villages, they actually subtracted from India's overall gross domestic product (GDP) growth because they would earn less, and that would show up as a minus. My estimate is that the reverse migration of 10 million workers subtracted about 0.5% from India's GDP. Those 10 million workers have still not returned to the cities. We've seen an increase in agricultural employment in these last two years, which is remarkable, unheard of, and not a good thing for a country like ours, because India now has over-employment in relatively low productivity agriculture. We've added to that over-employment because [migrant workers] had no other choice. All that is part of the struggle.
All of this is an opportunity too, because the moment those 10 million workers come back to cities, you will see GDP growth pick up. People will become more affluent, spend more money, and these multiplier benefits will start getting the economy motoring in an effective way again. So the promise is this: If we can put millions of people to more productive work in good quality jobs, we have the potential to create an economic miracle that will sustain for 30 years, and it will sustain all of Indian industry and all of the world's industry. It's really in everyone's interest.
You've pointed out in your book that the problem is not that India isn't creating jobs, but that there are millions of people in informal and contract jobs. But if this is not a problem for the people who are in these jobs, then for whom is it a problem?
It's a relative point. These individuals love the fact that they've got these jobs. We in cities have this view of rural life that is somewhat glorified. If it was so, why would so many millions want to move to cities and live in slums, just so that they can access better quality jobs? Those better quality jobs are informal, but are a lot better than the jobs they're leaving behind. These are better than being an extra pair of hands on a field that already has enough hands working on it. So relative to that, informal jobs are attractive.
Relative to what we need as a country for the long run, however, [these jobs] have limits. Take a job as a security guard, for instance. How do you grow productivity in a security guard's job? It's very difficult. In manufacturing, we know how to grow productivity. That's what we've done for centuries. We know how to manage the process such that you grow productivity year on year on year, and then you can grow wages year on year on year. Those are what I would call good quality jobs, where by improving people's skills and capabilities, you can grow productivity in the long run. In some of these informal jobs, you struggle with that productivity dynamic.
What does productivity mean, thematically, as well as empirically, in the context of India?
Output per person. Typically, you measure output in value terms. It's difficult to do this in unit terms in, say, the output of a service occupation, like a barber. You can count haircuts, but how do you add haircuts to textiles produced in a factory? You can't, so you add them in terms of value. For most practical purposes, the metric of value-added per person is a pretty powerful productivity metric. At the level of a country, value-added per person is nothing other than GDP per capita, which says how rich a country actually is.
How does a country like India with a large workforce and population move towards greater productivity without putting lots of people out of work?
The way this has happened over time, and in India as well, but not by enough, is by moving people from low productivity occupations to high productivity occupations. The classic move is someone who works in agriculture moving into modern manufacturing, where the jump in your value addition in India is around 30 times. This gives two benefits. First, the benefit of a big jump in productivity. Second is the point that I made earlier, that productivity in manufacturing can be grown more easily, we know how to do that over time. So you not only get the benefit of that big initial jump as you move to a new occupation, you can then keep growing productivity year on year, for decades. That is a nice dynamo to have, that powers the economy and takes it forward.
You've argued that we need lots more manufacturing jobs if we are to raise the contribution of manufacturing to India's GDP. It seems that we've hit the perils of the passage of time because while we've been chasing a manufacturing target, other countries have moved in. So how do we chase scale targets in manufacturing? And is manufacturing the only way out to create higher-paying, better quality jobs for India's millions?
A quick answer to the second question first, is that manufacturing is not the only answer. I'll come back to that later.
On how to create millions of good quality manufacturing jobs, in India, manufacturing as a share of GDP has been around 15% for the last 30 years. The current and previous governments had goals of raising that share to 25%, but though it goes up or down by a percentage point or two, it stays around 15%. So then, how to create growth in employment in manufacturing? For various reasons, we have more skill- and capital-intensive manufacturing than most countries at our level of wealth. We have a per capita GDP that is quite similar to Vietnam and Bangladesh, for example. But in Bangladesh and Vietnam, manufacturing has a much higher share of GDP than for India, and manufacturing employment has a much higher share in total employment there than for us. The reason is they have tended to specialise in labour-intensive manufacturing, in [sectors] like garments, footwear and food processing. These are the labour-intensive sectors that have really been the source of industrialisation and economic growth for countries ever since Britain went through its first industrial revolution 250 years ago. It started with textiles and garments and moved from there, and this has been true for every country that has industrialised since. That's something that we have tended to wrestle with.
For various historical reasons, we chose more capital-intensive industry, to invest in steel plants and capital goods, and so on. We tended to neglect those consumer goods that are much more labour-intensive. We almost sneer at that sort of low tech consumer goods manufacturing. But that low tech stuff puts millions of people to work. It's highly productive for us as a country, if we can employ people by the millions in making garments, footwear, rubber products, or processing food, then exporting those products around the world. It's an opportunity that still exists for us.
The regulations that govern, for instance, the size of firms which can manufacture garments or footwear are no longer as restrictive as earlier. So what stops private enterprise in India from doing exactly what Bangladesh is doing? You've shared an anecdote in your book where you say that a garment manufacturer in India may have 3,000 to 5,000 employees but in Bangladesh, it's more than 30,000 employees. That also demonstrates the difference in scale.
Exactly. Indian manufacturers tend to see large numbers of labour as a problem, as something to be avoided. It's a legacy of decades of policy that, in a sense, supported formally-employed labour at the expense of capital. I sympathise with the objective. The motive was right. The motive was, how do you provide people who don't have that much with more in the way of rights, etc. I sympathise with that, but the net effect was that it tended to discourage the creation of high employment sectors like garments.
We might, with justification I think, look at Bangladesh's garments industry and point to terrible working conditions, etc. But the solution is not to bring in the kinds of laws that then disincentivise the creation of high labour-intensive sectors. The solution is to raise the rights of people in those sectors, to try and pressurise firms to improve working conditions, which is exactly what's been happening in Bangladesh. Ten years ago, working conditions in the garment industry in Bangladesh were much worse than they are today. They've improved very significantly, even though the labour laws have not changed that much. What's driven it is that buyers in international markets pressure their suppliers in Bangladesh to improve working conditions. So people have the choice of getting a job that's better. You take the worst garment company today, it's still a more attractive job than working as a security guard for a low wage, which doesn't rise year on year, in working conditions that are not attractive. These aren't any better than the working conditions of the garment factory worker.
We still have this legacy. Even though laws are being improved and there has been significant progress in reforming labour regulations, Indian industrialists have the sense that employing a lot of labour is a bad idea. It took decades for that belief to get built up, it will take a long time for it to go away. We'll need a few examples of success, of people who make a lot of money by going into labour-intensive manufacturing, that will then inspire many others to do the same thing.
Coming back to your question of whether manufacturing is enough. There is a lot else that we can do in the services sector. Around a month back, [former Reserve Bank of India governor] Raghuram Rajan said India may have missed the manufacturing export opportunity, but there's a services export opportunity that we can still tap. He's right. For example, there's a huge opportunity to provide good quality jobs in tourism, jobs where growth in productivity will be possible, jobs where people learn how to operate in a modern environment, and have all manner of benefits.
The number of foreign tourists that we attract every year is very small for a country of our size, given what we have to offer in terms of tourist attractiveness. We attract one-third the number of tourists that Thailand does, and one-sixth or one-seventh the number that France does. There's no good reason why. We can attract many more tourists and put many more millions to work in good quality jobs related to the tourism industry. That's a services opportunity. It's export of a different kind. You're exporting your services by having foreign tourists come and spend their money in the country. That's a great way of actually exporting more. I agree entirely with Raghuram Rajan that those kinds of opportunities should be tapped in full.
Coming back to the supply side of the unemployment problem, one thing you've talked about is skilling and how the workforce should gear itself up for better opportunities. Who should be driving this? The central or state government, or the private sector alone?
A very small proportion of our workforce, around 4%, is formally skilled. We set ourselves a very good goal when we set up the National Skill Development Corporation almost 15 years ago. The original objective was to skill 500 million people in the long run. At some point, that 500 million became 200 million people, then reduced further and finally came down to 10 million. So we've scaled back our ambition in terms of formally skilling the population and that's a mistake.
Who should we skill, and what skills should we provide? The skills that we know how to provide are, again, in manufacturing where there are few jobs. The skills that we need to provide are for informal occupations. The single profession where we've created the largest number of jobs is in construction. So let's really focus a lot of our skilling activity around construction, because we've created more jobs in construction in these last 30 years than in any other sector. And the opportunity is huge. You just have to look around our towns and you'll see really ugly construction taking place, sometimes in really beautiful landscapes. We can skill people so that we can improve the quality of construction, make our towns much pleasanter places to visit, to live or work in.
There are big opportunities in other service occupations too. If we want travel and tourism to be a huge opportunity for us, let's focus our skilling there. We know how to skill people in machining and assembly operations, etc. Let's learn how to skill people in the softer areas of dealing with customers, as tour guides etc., where we potentially can create millions of good quality jobs.
Are there other inputs on the supply side where the government has a role to play? Or is it up to individuals to fend for themselves?
There's a major role that industry can play. The National Skill Development Corporation was set up as an independent body where the government would own a share, industry associations would own a share and it would be run in an independent, professional way. It started off that way but somewhere along the way, it's wobbled. It needs to go back to its original objective of being professionally run and operated as an independent corporation with a lot of industry input and oversight.
All the skills councils tend to be chaired by people from industry, so that's something we got right. The skills themselves need to be broadened to services in a much more focused way.
On the policy side, the other big objective has to be primary and secondary education. The new National Education Policy has the right objective for schools, to focus on second standard outcomes as one of the key objectives of school education. If we don't get every student up to the 'second standard' level where they can read and do basic arithmetic, if they are still struggling to get those basic skills, they won't benefit from more advanced education. We should be putting a lot of resources into just that 'second standard' outcome. The Union government should be incentivising the state governments for this. We should be monitoring state government performance on improving school outcomes. We should use the Annual Status of Education report done by the NGO Pratham to grade state governments on how effectively they are running a good 'second standard' outcome programme so that those basic skills are being learned by children.
Industry already spends about 35% of its corporate social responsibility (CSR) funds on education, but we need to focus that CSR spending on these primary education outcomes. In the book, I estimate that if Confederation of Indian Industry members alone were to work with around 30,000 schools in the country as part of our CSR, and if we simply focused on that single outcome of 'second standard' skills, we could improve skills for around 1.5 million children a year. That's not a small number. That's 15% of all children going through the school system. It could potentially have a very transformative impact over the years.
On the demand side, who should be really driving job creation? Should it be entrepreneurs, large firms, small firms? You've said earlier that the natural tendency is for people to gravitate towards small enterprises, informal conditions.
You framed the question exactly right, not in terms of how should the government be creating jobs, because it's the wrong way of framing the question. The government can enable job creation; it can't, beyond a small limit, create jobs itself. It can create jobs by awarding large infrastructure projects which create construction jobs and so on, but that's it. Beyond that, it can only enable wider job creation in the economy. The government's role should be to ensure that those sectors which are employment-intensive, like garments and food processing, can thrive through creating the right kind of policy environment. Ensure that labour laws support the employment of people by the thousands. After that, leave it to companies to get on with creating those jobs.
We're such a large, diverse country. We need to create many more jobs in large industries, including large service industries, but also many more jobs in small industries, both in services and in manufacturing. We need it all. So, at the end of the day, it's about how vibrant the overall economy is. That's what will determine whether or not we create the millions of jobs that we need.
In your book, you've talked a lot about protectionism, the role of free trade historically and currently, and how that could contribute to a fast-growth economy and job creation. We're presently seeing a big shift in geopolitics, in the India-China equation and with the Russia situation, and how this is directly affecting not just oil prices, but also causing firms to relook at supply chains and think about a world where there's greater self-sufficiency. India has seen import tariffs rise for the first time in decades. How does this stack up in the world we are heading towards?
The world has been moving in a more protectionist direction, but that doesn't necessarily make it a good thing for us to do. I argue that it doesn't. We've increased tariffs on over 3,000 items, over half of our imports, in these last five years. If we were actually to reduce tariffs in a very scheduled, clear, transparent way, saying that if we're at 20% today, next year we'll be at 15%, the year after 10%, the year after at 5% and the year after that zero, then firms will ensure that they do [what it takes] to be competitive without tariffs in the long run. This helps domestic consumers because costs come down.
A tax on imports is also a tax on exports. In other words, the more we want to integrate with and sell to the world, the more competitive we will have to be. And we will only be competitive if we have lower tariffs on our imports, because high tariffs on imports end up making our exports less competitive. Take the garment industry again, which operates on really wafer-intensive margins. When you're making garments for export, you can import the fabric free of duty. But you don't bother with trying to get the thread, buttons, etc., on a duty-free basis as well, especially if you're buying these from some supplier just down the road. So you end up paying more for all of those in-between input items, which makes you less competitive in export markets. There's huge potential in export markets even in the current geopolitically strained world that we live in now.
The United States is the world's largest market. Whatever the US does, I don't see a future where it's going to go back to making its own shirts, trousers and underwear, and so on. Maybe they'll stop importing all of that from China. but they'll instead import from Vietnam, Bangladesh, Mexico, or Guatemala. Why shouldn't they import from India? They'd be perfectly happy doing so if we are competitive in those fields. So there's a bigger opportunity for us in these labour-intensive sectors and in more skill-based sectors as well as in export markets even now.
We, as a company, are a medium-sized firm. We focus on emerging markets, on Southeast Asia. We're very competitive in all of those markets, in terms of what we sell. And we're not alone. There are hundreds of firms like us, but there need to be thousands of firms like us that choose to invest in overseas markets, to develop whatever it takes, whether it's branding, a local presence, local engineering, or a local subsidiary, to build that kind of an international outlook. So while I buy the geopolitical stress that we're currently under, the disruption to supply chains that we're seeing in semiconductors and everything else, I think there's still a huge opportunity in world markets for us. Remember that India accounts for about 1.6% of total exports worldwide. It's a very small share. China's share is around 15%. If you're at 15%, to grow to 20% is tough. To go from 1.6% to 3% is much less tough, and that means that you've doubled your exports. So it's a big opportunity that we have.
You've quoted the example of personal protective equipment (PPE) and mask manufacturers in India after Covid-19, and how they scaled up so dramatically.
Yes. We're the world's second-largest supplier of PPE kits now where we used to make zero two years ago. That's a relatively low tech area, but it's a great area, with zero tariffs. We're very competitive in making PPE kits to sell around the world.
Your book articulates quite well the problems of the lack of jobs and the fact that we don't have enough high-quality jobs, that many jobs are informal and offer no security. Are we cognizant of this problem at a broad policy level? If not, what should we be doing?
We are cognizant of the problem. It's one of the issues that tend to be raised, especially around election time, for instance saying that the government promised so many jobs but hasn't delivered on those promises, etc. Unfortunately, those arguments tend to be almost entirely political.
We also tend to base our jobs arguments in the absence of good quality data. We need a data-based approach to debating vital issues of public policy. We can have a discussion about services jobs, manufacturing jobs, so that we can arrive at the right answers. These are the big questions that we need to ask ourselves and debate. And when you debate, it helps to have good data. For employment, we have very poor data.
The best employment data in the country doesn't come from the government but from CMIE, a private institution. They provide both the most accurate and the most up-to-date data, every month. Even the government, when it talks about employment issues, often will refer to CMIE data. I think we can improve the quality of data that we have on employment really effectively. We should be able to say what happened last month with employment. Countries around the world do this. Only CMIE does it for India. That's fine, let's get our employment data from CMIE. Let's give them more resources, maybe even from the government, so that they produce even better quality data and make it publicly available so that everyone can fall over the same data and discuss these kinds of questions that are so vital to our future. Let people at least agree on the data. They may draw different conclusions of policy, but at least they are starting from the same point. Then, hopefully, they'll even end in the same place.
In the book, you've suggested that many of these data sourcing or gathering functions could be handed out to different organisations, like Pratham in the context of education, CMIE in the context of employment, economy and jobs.
CTIER (Centre for Technology, Innovation and Economic Research, Pune) in the case of technology data. Because we're a country that has relatively low state capacity. We have the ability to formulate good policies but struggled to deliver them on the ground, in terms of last-mile delivery. The same applies to our data and our statistics. So state activity should be limited to funding others who are doing data production. The state should just play a quality control role of ensuring that the data that's being put out are accurate and cover the areas that are important for the country.
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