Both manufacturing, services need push for jobs
Former RBI Governor Raghuram Rajan has suggested that India should avoid the traditional route of manufacturing-led growth and leapfrog directly into a services-led economy. His proposal is timely given that the country is searching for solutions to get back to normalcy in economic activity. He is on the right track when he says that services are the biggest strength right now. In fact, it seems clear that the economy has willy-nilly moved from being predominantly agricultural to a services eco-system, without going through the time-tested intermediate process of manufacturing as the primary activity. Currently, services account for a whopping 54 per cent of the country’s GDP. The surprisingly rapid rise of this sector meant that even economic experts were baffled over the undeniable data as this figure shot up over the past decade.
Manufacturing, in contrast, now accounts for only about 17 per cent of the GDP while agriculture is less than 20 per cent. Employment presents a different picture. According to the Centre for Monitoring Indian Economy (CMIE), only 40 million people were employed in the manufacturing sector as against 140 million in agriculture. Another roughly 140 million are in the services sector, though accurate data on this segment is difficult to source. But it is clear that a disproportionately large percentage of jobs remain tied to agriculture despite its vastly lower share in the overall GDP.
Rajan’s comments on the need to push the services economy rather than manufacturing have been made by others as well but so far there seems to be reluctance to accept this thesis among government policy-makers. One of the reasons is that creating employment by expanding manufacturing may be a more difficult task, but jobs here provide more sustained livelihoods. In contrast, the services sector relies greatly on contractual and short-term employment. What is known as the gig economy, for instance, gives jobs to many but these can vanish in an instant, as happened during the pandemic. The lack of reliability in such employment is a lacuna in the services sector. Jobs in the manufacturing sector have always been considered more stable and sustainable in the long run.
On the other hand, studies have shown that wages and salaries in the manufacturing sector have remained stagnant for many years. One of the reasons is the huge reliance placed by industry on contractual workers. The aim is to avoid attracting the provisions of the country’s stringent labour laws which make it difficult to hire and fire employees. This also makes it easier to keep wages at relatively low levels. Thus the scenario of short-term contractual jobs, that is given as an argument against the services sector, is actually the same now in the manufacturing arena.
The fact is, India really does not have a choice on whether to opt for manufacturing-led or services- led growth. It has to adopt both models for the time being, if it is to make a dent in the critical area of employment as well as in triggering higher growth. It cannot be simply one or the other. As far as manufacturing is concerned, there is no doubt that the production-linked incentive scheme will generate millions of jobs when it is under way in many industries. On the plus side, there is already data to show a rising trend in employment in the organised sector in the latest report of the third round (October-December 2021) of the Quarterly Employment Survey.
Yet one cannot take the focus away from the small and medium enterprises. There is need to provide a congenial environment for them, especially those in the export sector, to help them expand and aid creation of more jobs. These are labour-intensive industries that can absorb many semi-skilled workers and provide sustained employment, especially given the export boom of the last two years.
Industrialist Naushad Forbes recently pointed out that the government can only enable job creation, it cannot create jobs itself. Pointing to countries like Bangladesh which employ up to 30,000 people in just a single garment producing unit, he felt it should ensure that labour laws support the employment of people by thousands. But after that, it needed to leave it to the companies to get on with creating those jobs.
A similar approach is needed for the services sector which has enormous potential to create more value as well as provide jobs. The information technology industry is a classic example, oft cited, of the hands-off approach by the government that led to flourishing of new ventures and ultimately the creation of an entire new eco-system in this sector. Enabling environments need to be created in other growth segments of services like tourism and hospitality which clearly have a major scope for growth. It is these areas that can provide jobs in the long run.
The troubling issue of contractual labour in the manufacturing sector, and the transient nature of jobs in the gig economy, however, needs to be paid greater attention. It was the lack of permanence in jobs that forced workers even in large factories to make the long trek to their villages during the lockdown. The gig economy was even worse as wages were halted abruptly without even a day’s notice. In the former case, there is need to ensure that employers are not put off by the rigidity of labour laws in terms of hiring and firing. But things should not swing to the other extreme of allowing factories to have inordinately long shifts which could mean exploitation of labour.
In the case of services, there is need to recognise that workers employed by aggregator apps cannot be treated in the same way as similar workers in developed countries. For instance, cab drivers attached to Uber and Ola are not independent entities as envisaged by the creators of these disruptive start-ups. Similarly, delivery workers are not working several jobs like abroad, and on the contrary, lack flexibility in working hours. All such workers are critically dependent on income from the app-based companies.
These vital employment issues need to be resolved firmly and without delay. If these are tackled in the right way, there should be no need to worry whether India is a manufacturing-led or services-led economy. Both segments are equally important to achieve a higher growth path and pull the masses out of the slough of poverty.
