After 75 years of existence as an independent nation, India’s greatest challenge remains the need to create more ‘good jobs’ for its people. The shift from the government’s original development strategy of occupying the “commanding heights” of the economy, along with the goals of self-reliance and import substitution, to “economic reform” which, by and large, means greater dependence on the private sector and markets , has led to higher growth rates in GDP, the standard measure of economic output. But employment growth, particularly employment growth in sectors where productivity, wages and working conditions justify the “good jobs” label, has been insufficient. Aggregate growth without enough good jobs means greater economic inequality (India is home to the second richest person in the world and also extreme poverty and deprivation), lower well-being (India performs poorly on self-reported measures of life satisfaction, commonly known as the Happiness Index), and ultimately a greater risk of social unrest and a return to slower growth rates.
Perhaps India’s service sector has done relatively well in creating good jobs, not just in information technology and finance, but also in sectors like hospitality and tourism. But manufacturing has stubbornly resisted the kind of growth that has helped propel some East and Southeast Asian countries to high per capita incomes and others to at least high middle-income status. One doesn’t have to look at manufacturing as the sole source of good jobs to admit that it is an important potential source. Recently, Kunal Sen and I, inspired and spurred on by the late Ashok Kotwal – an economist dedicated to finding ways to understand and improve the lot of everyday Indians – co-edited an e-symposium that invited a range of economists to do so analyze how the challenge of good jobs could be addressed by Indian politicians (bit.ly/3LW0DHH).
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The six contributions to the symposium provide a compact and coherent set of analyzes and policy implications that form the core of a strategy to finally overcome the obstacles to the rapid growth of good jobs. One topic is planning for the growth of Indian cities. Cities offer agglomeration economies and, if well designed, can attract private investment and new good jobs. Good design means paying attention to the infrastructure: transport, electricity and sanitation, as well as cultural and ecological facilities. Digital infrastructure will also be an important part of India’s future and can be deployed more efficiently in urban environments.
Another form of agglomeration is industrial clusters, which can create economies of scale beyond what may be available to individual firms. Industry clusters support and benefit from denser labor markets, reduced transaction costs for buyers, more efficient delivery of ancillary services, knowledge sharing (intentionally or unintentionally), and so on. Industry clusters are often geographically anchored, but with good digital infrastructure some traditional distance constraints can also be relaxed.
One reason effective clusters or networks are so important to India is that many of the country’s firms are relatively small. Small and medium-sized enterprises (SMEs) in India often do not have good access to formal financing, relying instead on retained earnings or informal sources, neither of which support robust, let alone optimal, growth. Banks don’t end up with working capital, and small businesses are often pressured by large corporate buyers. Digital technology can support a major restructuring of the financing system for SMEs and regulation needs to keep pace with these opportunities.
India missed out on the post-World War II wave of globalization that enabled rapid export-led growth. While being a late mover has disadvantages, particularly as global value chains (GVCs) have become complex, transnational production networks, demographic and geopolitical shifts also offer new opportunities. As the new GVCs involve extensive trade in intermediate goods, tariff structures need to be carefully designed – ‘self-sufficiency’, beyond a certain point, can be a self-defeating goal. Clusters, financing and agglomeration are also gaining in importance. All of these topics play a role, for example, in the design of special economic zones if they are export-oriented but have feedback to the domestic economy.
While the greatest untapped potential for good jobs in India’s current situation lies in manufacturing, services can also benefit from the same combination of policy measures. Tradable services such as those based on information technology or involving domestic tourism (particularly for sightseeing or medical services) can also benefit from many of the policies that would create good manufacturing jobs.
The lessons of the e-Symposium analysis, then, are that the challenge to decent jobs in India is achievable but requires an integrated package of policy changes, policy coordination and a strategic focus for implementation. Underlying all of this, of course, are the deficiencies in India’s education and training systems. But one could argue that these systems will also respond as the supply of good jobs and the demand to fill them grow. Three decades of “reform” hasn’t given this growth enough impetus, but new policy focuses may finally create good jobs for many more Indians.
The author is an economics professor at the University of California, Santa Cruz
