I’ve watched India replace China as the fastest growing emerging economy. While on the surface this seems like good news, it is important to recognize the giant disconnect between GDP growth and job growth going on in India.
India’s cumulative GDP growth in the 2005- 2012 period was a remarkable 54%. During that same period India’s net new cumulative job growth was only 3% or 15 million net new jobs, about 2.5 million per year. This is an extraordinary disconnect, especially since the workforce was growing by 7-8 million job-seekers annually. Given India’s current trajectory, economic growth is not the primary challenge for India’s policymakers, job growth is, a challenge that will grow dramatically in the next ten years.
The number of jobs is only one indicator of the challenge. The quality of the jobs is another major factor. The increasing transition from rural to urban and the growing aspirations of youth to take part in these growing vocations, jobs that command family-supporting wages (INR 15,000/month) will need to be created at scale.
An equally important challenge is the lack of preparedness of India’s notoriously unskilled and poorly educated labor force for Quality Jobs. As 80 million job seekers join the labor force in the next 10 years, India’s need to skill its workers for quality jobs is going to increase dramatically.
If these gaps in job creation and quality skilling are not addressed, the once in a lifetime opportunity of a demographic dividend will go wasted, and the risk of a demographic disaster will be all too real. The jobs situation in India is a powder keg that, unless addressed in time, will not just perpetuate widespread economic hardship but could destabilize political order.
Strategies and policy actions are needed across both dimensions: job creation and job fulfillment through quality skilling. A new white paper from the Wadhwani Foundation lays out a strategy and policy plan for the Indian government that would allow India to create and fill 50 million high quality jobs in the next 10 years. My post today presents a topline summary of the paper’s main points. (Contact Wadhwani Foundation for a full copy of the report.)
Drivers of the Disconnect
There are many factors that have exacerbated this GDP growth-jobs disconnect, including the following significant drivers:
- India’s economic growth planning and policies are largely divorced from job growth planning and policies.
- Capital intensity of the manufacturing sector: Increases in labor costs combined with low productivity, compounded by high inflation, have led to an overall increase in the capital intensity of the manufacturing sector.
- Inverted tariff policy is a deterrent to manufacturing sector.
- GDP growth in sectors that produce few jobs e.g. financial services: Overall, the Services sector in India has made a significant contribution to employment growth in the post-reform period. However, employment growth in Financial Services is miniscule compared to its impact on GDP.
- Too much emphasis on micro-enterprises. There are insufficient policy incentives to encourage medium size companies to become globally competitive, grow rapidly and create large numbers of Quality Jobs.
- Failure to remove multiple obstacles to entrepreneurship & growth of SMEs.
- Failure to provide adequate infrastructure for existing “Modern Industry” clusters.
Envisioning a Policy Solution
We propose a two-fold solution:
- Make India a world leader in job creation, especially for quality jobs by empowering startup entrepreneurs & enabling small and medium businesses (SMEs) to grow without shackles.
- Make India a nation of skills by making skills education an important and ubiquitous aspect of secondary and college education.
Based on this vision, the Government of India should adopt formal and stated policy goals to create 50M additional quality jobs, and to skill and place 50M additional workers in quality jobs, above the current baseline trajectory, over the next 10 years.
Bringing this vision to reality will require the government of India to deploy the following combination of strategies:
- Strategy 1: Build and Execute an Integrated Policy Framework: One of the best ways to achieve this would be to create an office of a Jobs Advisor to the PM, based in the PMO.
- Strategy 2: Enable Startup India: From the startup through growth phase, there should be an integrated set of policies and investments for specially empowering startup entrepreneurs.
- Strategy 3: Unleash SME India: Make small and medium businesses (SMEs) India’s primary growth engines. Innovation & skilling in SMEs would certainly take India a long way in realizing major initiatives such as Make in India, Smart Cities and Digital India.
- Strategy 4: Create an Integrated Vocational Training & Education (VTE) Ecosystem: Create skilling ecosystems across high schools, ITIs, community colleges, polytechnics, vocational training providers (VTP’s) and employers.
- Strategy 5: Leverage Technology to Accelerate Job Creation and Skilling at Massive Scale: Leverage platforms of Massive Open Online Courses (MOOC) for vocational education and apprenticeship programs.
How to Grow Jobs
India needs a million growth-focused startups and several million of its small businesses to become dynamic growth businesses, each adding 10, 20 or 50 jobs. GOI should play the role of an enabler and facilitator with an integrated policy framework that encourages and enables business growth at all stages of the business lifecycle, from startup to small to medium businesses, rather than penalizing businesses with ever stricter rules and regulations as they grow. We recommend a policy framework to include the following policies:
- Make Entrepreneurship Education Ubiquitous: India needs a world-class entrepreneurship education curriculum, which should ideally be blend of both online and experiential learning.
- Make it Easy for Startups. Presently, the startup system is very complicated. So, there is an immediate need to introduce a whole package of policies that makes it easy to do businesses. The new Start-up Policy is a good start, but a lot more needs to be done.
- Reward Small and Medium Enterprise (SME) Growth: In all other developing economies SMEs are the primary engines of growth. Yet India’s policies favor micro-enterprises, many of which are subscale and have low productivity, and penalize SMEs. There is a need to eliminate the archaic MSME boundaries that classify businesses as “micro” and then provides direct and indirect incentives to just micro and certain small businesses.
- Increase Funding to the Small & Medium Enterprise Modern Clusters with the Highest Growth Potential: The existing Cluster development program (CDP) aims at addressing the needs of the industries, through well-defined clusters and geographical areas to enable them to achieve economies of scale in terms of deployment of resources as well as focusing on the specific needs of similar industries.
- Establish a Startup & SME Growth Corporation: A Public-Private partnership (PPP) model based corporation can be formed to help startups and small and medium businesses (SMEs) grow, especially those outside the technology sector.
How to Skill Workers
Many economists talk about India’s skilling needs in terms of hundreds of millions of workers. Yet the reality is that India created only 15M net new jobs in a recent 7 year period, about 2.5M/year. So it is not the large numbers that are critical. It is about making sure that we are providing the right skills to the right people and then placing them in sustainable quality jobs. Policy ideas to achieve this objective include the following:
- Vocationalization of High Schools: There are important lessons to be learnt from China’s successful Technical and Vocational Education and Training (TVET) initiative and its continuous improvement to respond to changing market-driven, localized services and manufacturing industry needs. India needs to make vocational education as aspirational as college education, starting by adding one or more vocational education streams in each and every one of the 36,000 public high schools starting in the 9th grade
- Reinvention of ITIs: ITIs in India have failed their mission of skilling market-ready workers at large scale and placing them in high quality jobs. Thus, India needs to massively transform the ITIs to make them more market responsive to local needs and expand to the services sector where majority of jobs will be created.
- Focused Expansion of Community Colleges/Polytechnics: The community college program introduced by MHRD in 2012 is a great initiative that needs to be rapidly scaled.
- Worker- and Employer-Centric Engagement with VTPs: GOI should provide incentives to students, employers and VTPs based on the actual long-term placement and retention of VTP graduates in quality jobs.
- Massive Apprenticeships Initiative: Apprenticeship opportunities in India are presently insignificant when compared to the size of the economy, unlike China which has a large and effective apprenticeships program. The scale of India’s apprenticeship program needs to be vast, at least 2-3 million/year.
Deployment is Imperative
The policy journey for achieving job creation and fulfilment through skill development at massive scale will not be easy. Some of the policies and initiatives proposed are new, while some are refinements of existing policies or ideas. They span multiple ministries and require coordination between the central, state and local administrations as well as partnership with the private sector and other facilitating stakeholders. These are serious challenges in the current policy process. The key to success here will be policy integration, simplicity, effective execution and continuous improvement based on measuring outcomes.
We need to do it, we can do it, and we must do it.
Romesh Wadhwani is founder of the Wadhwani Foundation and founding chairman and CEO of Symphony Technology Group. Contact the Wadhwani Foundation for a full copy of this policy white paper.