Two-Year in power, the Modi Government needs greater clarity of purpose

Dr. Devendra Kothari

Population and Development Analyst

Forum for Population Action

India needs to be as wary of unlocking human potential as it is, rightly, of economic development

PM Narendra Modi assumed charge two years ago, on May 26, 2014. It is a good time to undertake an assessment of how Modi has fared so far; have the promises he made been realized or not?

 

No doubt, it is evident that much has changed. Policy paralysis and the pall of gloom that hung over the economy have lifted. PM Modi has been pushing the new policies with vigor and zeal. Inflation has been tamed and public finances have been strengthened. Consumer inflation which was 9.5 per cent   when Modi assumed office is now 5.4 per cent. The economy is expected to grow 7.6 per cent in 2015-16 as compared to 5.6 per cent three years ago. Yet, the proverbial green shoots have not yet broken into flowering buds. The jobs are flagging and ‘acche din’ still seem far away.

 

In coming year Modi’s job should not be confined to dealing with immediate challenges. It must be extended to bringing about an institutional transformation which will enhance India’s long-term economic prospects. It is because more than   10 million young people enter the workforce every year. But our policies have been unable to address the issue of adequate job creation. In fact, India has been witnessing jobless growth.[1] For reversing the trends, the Modi government has to “acquire greater clarity of purpose”, noted TOI Editorial.

 

Few can dispute the fact that the first decade of this millennium saw the fastest rate of growth ever for the Indian economy. Even fewer would question the fact that this was also the period that witnessed an abnormally low rate of growth in job creation. Take the two together and what we have: “jobless growth”, as noted by ILO based on the National Sample Survey Office data. The 66th round of NSSO data on employment in 2011 revealed that only 1 million jobs were added per year during 2004-10; in a period when the economy averaged a record 8.4 per cent growth annually. In this period, 55 million people joined the labour force. So, another way of looking at it is that a staggering 50 million failed to find employment—a vexing political/social/human challenge indeed. It appears that the high economic growth is not backed by high job creation.

Now question arises why jobless growth?  One of the most important reasons behind this piquant economic reality is low level of human productivity. Productivity, a measure of the efficiency of the human capital, can be measured by per capita Gross Domestic Product (GDP). [2]  In their book - Beyond 2020: A Vision for Tomorrow's India, A.P.J Abdul Kalam and Y.S.Rajan analyzed this fact. [3]  They write: “The GDP per capita standings are the true indicators of how much India has been able to empower its citizens” (p 244). Table 2 makes it crystal clear how much progress India needs to make to even be par with Brazil, China and Indonesia. India has become the tenth largest economy in the world in terms of GDP but still has a very-very low per capita GDP. The country placed at the 148^th position among the 189 countries, as per the World Bank. This is perhaps the most visible challenge. GDP per capita in India averaged 462 US$ from 1960 until 2012, reaching an all time high of 1499 US$ in 2013 and a record low of 228 US$ in 1960. The table shows that China’s GDP per capita value in 2013 was more than four and half times that of India. As such, how India could become world’s manufacturing hub through its “Make in India” initiative?

  Table 1: Per capita GDP, selected Countries, 2013

Country	World Rank	GDP per capita (In US$)
1	2	3
Monaco	1	163,036
Norway	4	100,819
USA	13	53,143
Germany	22	45,085
Japan	28	38,492
South Korea	33	25,977
Russia	51	14,612
Brazil	65	11,208
China	84	6,807
S. Africa	89	6,618
Indonesia	119	3,475
Sri Lanka	124	3,280
Vietnam	137	1,911
India	148	1,499
Pakistan	152	1,299
Nepal	170	694
Somalia	189	150
World		10,472
Source:  World Bank National Account Data, 2013.

The current pool of India’s labour force has very low employability mainly due to low productivity. If the labour productivity is low, then employers do not hire workers. And that is happening in India. India graduates more than five million graduates every year. Engineers comprise a small (but significant) part of it at around six hundred thousand, whereas the rest take up a variety of three or four year bachelor degree programs. The National Employability Report 2013   reveals that a significant proportion of graduates, nearly 47 per cent were found not employable in any sector, given their poor English language and cognitive/analytical skills. The report also indicates that only 17.4 per cent of technical graduates (engineers) in the country are ready to be employed. What this also means is that the rest, that is, 82.6 per cent, engineering graduates are unemployable. Again, their lack of English language knowledge and cognitive skills were identified as the major obstacles to their suitability in the job market. [4]

This shows that economic growth, even when it takes place, does not create as many jobs as it is skewed towards capital - or skills-intensive sectors rather than labour intensive manufacturing. The state of Gujarat itself confirms the picture – it is a manufacturing powerhouse that specializes in capital intensive products such as petrochemicals, drugs and plastics. As a result, jobs are not available. For example, when the Government of Uttar Pradesh advertised for the post of 368 peons on August 11, 2015, it could not have guessed the response would be so overwhelming.  Over 2.3 million candidates applied for these posts (over 6,250 per post). The minimum qualification for the post was Class V pass but only 53, 000 of the  candidates who had applied has not studies  beyond Class V. Rest of applicants include those with degrees like BTech, MSc and MCom, besides 255 youths with PhDs.

It appears that problem of unemployment/underemployment has taken a serious turn and there is apprehension of its becoming still grim in the future. There is an urgent need to build skills with an industry/market focus to avert demographic dividend from turning into demographic bomb. The Patel/Jat unrest whose intensity took the country by surprise could already be one manifestation of this. Clearly, India is frittering away the opportunity of capitalizing on the 'demographic dividend'.

During the last two year, the Modi Government has embarked on ambitious structural reforms to revive growth, including significant efforts in the agricultural sector to boost productivity through irrigation, insurance, and access to markets, a strong push to deregulate business, especially for startups, and important efforts to improve the governance of public sector banks, as noted by the RBI Governor Raguram Rajan.   In addition, PM  Modi has taken several significant decisions, resulting in initiatives such as Make in India, Swachh Bharat (Clean India), Skill India, Jan Dhan Yojana (People’s Bank Plan), Beti Bachao, Beti Padhao (to addresses the issues of women empowerment), Ujjwala Yojana  (make availability of cooking gas to very poor   households),  and several more.

Are these initiatives aimed to enhance human development geared enough to meet the problem of low productivity?  One cannot be too optimistic about considering the Modi Government’s piecemeal approach. In other words: Is the piecemeal path down which our country is currently headed to handle core issues of  sustainable   development  a dead end, or can it lead to lasting and rational reform? No doubt, India needs comprehensive policy package in place of incremental piecemeal approaches to unlock human potential?

India’s vast young population (currently, around 900 million people are under 35 years of age) is its strengths and therefore one has to mobilize them to go forward fast. So what need to be done to unlock India’s potential? In other words, what should be agenda for enhancing human capital?  No doubt, putting the economy back on track should be the government’s first priority. It is because India’s demography is such that we have to create a million additional jobs every month. This can only be done by making it easy for job-creating businesses to run, facilitating not just big companies but more importantly small scale industries which create the most jobs. However, for sustainable development it is equally important to focus on human capital. Central to the human development approach is the concept of capabilities. For this, it is must to build skills with an industry focus to avert the demographic dividend from turning into a demographic disaster.

India needs comprehensive human development policies which include ensuring quality education especially school education, enhancing primary and reproductive health, strengthening decision making power of women or  empowering women, improving living conditions  better including sanitation and water supply, and shifting access labour force from agriculture  to non-agriculture sectors.  Among these first two need urgent but special attention.

India does well to keep ninety six per cent of children between 6 and 14 years of age enrolled in schools but the problem is now of quality, not quantity. More than half our students are being classified as functionally uneducated and unskilled or simply half educated.  Unless education is rescued from the quagmire of mediocrity, all talk about realizing India’s demographic dividend will be without substance. If India is to meet the more ambitious development goals in a more challenging external environment, the post-2015 agenda needs to focus on ensuring a structural transformation of education system. That will enable labour to shift towards higher value-added sectors and more knowledge-intensive activities, thereby improving labour productivity relative to other developing countries. It is argued that the enjoyment of the right to education could be enhanced if there is an acknowledgement of the problems that beset our educational system and if there is a willingness to solve such problems. [5]  In other words, the government must focus on quality education, infrastructure rather than attempting to introduce controversial issues in the education system.

India’s demographic bulge needs not only a sustained does of quality education from top to bottom and practical skills for employability and productivity but also sincere efforts to minimize the incidence of unwanted fertility through proper health policies  to harness the demographic dividend. The World Bank estimates that the prevalence of underweight children in India is among the highest in the world with dire consequences for mobility, mortality, productivity and economic growth.[6]   

India’s population has grown from 846 million in 1991 to 1210 million in 2011- that is by 364 million  in the last  twenty years,  and is still growing by around 17 to 18 million every year. Current population growth is mainly fuelled by unwanted fertility.   More than four in ten pregnancies are unintended/unplanned or simply unwanted by the women who experience them and half or more of these pregnancies result in births that spur continued population growth.   Today 26.5 million babies are born each year and out of this about 6 million births could be classified as unwanted or unplanned. It is estimated that around 450 million people out of 1200 million in 2011 in India who were result of unwanted pregnancies and most of them are from the lower economic strata.[7]  The consequences of unintended pregnancy are serious, slowing down the process of socio-economic development as well as process of change, and is being reflected in widespread hunger, poor health, poverty, under educated labour force, unemployment,  regressing governance as well as increasing scarcity of basic resources like food, water and space despite concerted developmental efforts since 1991.

In addition, government policies have to be redrafted or reviewed to empower women, improving living condition including sanitation and water supply and shifting access labour force from the agriculture to otter sectors.[8]

In short, India’s aspirational youth are an amorphous mass; however, they are desperate to see the Modi Government succeed, if only because it is India’s last chance at getting on the high growth track which can help   to achieve an overall development. The main concern today is the impairment of human potential, which is not allowing India to reap its rich demographic dividend. It is high time that Modi Government and political parties focused on improving people’s ability to earn more rather than dolling out subsidies that make people dependent on the political class and system.  For this, Indian policy makers need a sense of self confidence and clarity over the direction where we want to reach. As of now we have a slogan: ‘Make in India’. It must be supplemented by another slogan: ‘Enhance Human Capital’. For this we need an agenda, as noted in my earlier post entitled:  “Growth with structural transformation: A development agenda for India”.

I will like to conclude in the words of N.R. Narayana Murthy,  author of highly acclaimed book: A Better India: A Better World,  “Economic growth and prosperity require not just growing population, but also what economists call ‘good human capital’ – a population equipped with the skills and resources to participate in the economic. With limited progress in human development, India’s large population can become a liability rather than an advantage. In other words, the demographic predictions are loud and clear: that the promise of demographic dividend will not last long, in any case beyond 2030. Can India take advantage of this demographic window in the next couple of years and garner its benefits by adopting right type of human development policies?

Hope policy makers/experts are listening!

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[1] “Jobless growth” means a situation where the flow of output increases without a proportionate increase in employment opportunities.

[2] The measure is especially useful when comparing one country to another because it shows the relative performance of the countries. A rise in per capita GDP signals growth in the economy and tends to translate as an increase in productivity.

[3] A.P.J Abdul Kalam and Y.S.Rajan. 2014.  Beyond 2020: A Vision for Tomorrow's India, Viking, New Delhi.

[4] For details, see: The National Employability Report Graduates 2013 at: http://www.aspiringminds.in/docs/national_employability_study_IT_aspiringminds.pdf. Also see: The National Employability Report (NER) for Engineers by Aspiring Minds at: http://www.aspiringminds.com/research-articles/exploring-national-employability-report-engineers-2014-part-i .

[5] Kothari, Devendra. 2016. Education in India needs intensive care, not a quick fix, RAEA Policy Paper No. 6. Rajasthan Adult Education Association, Jaipur. 

[6] Refer:  World Bank, India Malnutrition Report, 2009 at: http://siteresources.worldbank.org/SOUTHASIAEXT/Resources/223546-

[7] Kothari, Devendra. 2014. “Managing Unwanted Fertility in India: Way Forward”, Institute of Economic Growth (ed.):   National Rural Health Mission: An Unfinished Agenda, New Delhi: Book Well, pp.25-36.  

[8] For remaining components of human development agenda o, read my article entitled:  “Growth with structural transformation: A development agenda for India” at: http://kotharionindia.blogspot.in/2015/01/growth-with-structural-transformation.html. Also refer, Kothari, Devendra. 2014. “Empowering women in India: Need for a Feminist Agenda”, Journal of Health Management, 16 (2), pp 233-43.