Wednesday, March 12, 2014

Job creation should focus on rural sector, not manufacturing

Most economists writing about India have a standard prescription for job creation: unleash private manufacturing by changing labour laws, reducing approvals and getting rid of inspector raj. The comparison made is with China, which was able to generate a large number of jobs in light manufacturing. As long as manufacturing's potential is suppressed, the argument goes, there isn't much hope on the employment front.

Rajiv Lall, writing in BS, has a refreshingly different point of view. India's planners want to raise the share of manufacturing employment in the labour force from 11 to 22 per cent over the next 15 years. Lall thinks this is a trifle too ambitious because the corresponding share in China today is just 12 per cent, and even at its peak was only 15 per cent. India missed the light manufacturing bus over the past couple of decades and is unlikely to catch it because technology is changing the future of light manufacturing:
However, technological developments in the field of digitisation, robotics and 3-D printing are going to have profound implications for the future of low-cost manufacturing around the world. Such technologies are replacing low-skill labour and making it possible, to cite just one example, for toy makers in California to profitably relocate their manufacturing operations from Asia back to the US. The same is likely to happen to consumer electronics. So if we are imagining that we will be able to replicate the experience of the Asian Tigers in generating jobs and raising incomes by focusing on low-cost manufacturing, we need to think again.
So, solutions to boost employment through manufacturing are unlikely to yield much. What should we do? Lall sees useful pointers in where jobs have come from in recent years. The share of agriculture in employment dropped by eight percentage points in 2000-2010. Of this eight per cent, nearly two thirds were absorbed in the rural, not urban, sector. Where did they go? Into construction and services in the rural areas. "So, in fact, it is the rural non-farm, non-manufacturing sector that has emerged as the largest job creator in India - it has added as many as 35 million jobs since 2000."

The rural, non-farm, non-manufacturing sector, is, therefore, where the focus on job creation must be in the coming years:
Employment opportunities are, therefore, likely to grow fastest in the rural non-farm sector, which has undoubtedly contributed to the impressive fall in rural poverty that we have seen over the past decade. This poorly understood segment of our economy needs to be empowered to allow millions of self-employed and casual workers to take advantage of the spillover effects of rising urban and farm incomes in order to find more stable and gainful employment opportunities in the future. 


Anonymous said...

Refreshing view. Has MNREGA played a major role in the generation of rural non-farm jobs?

sc said...

I agree with this point. If one reads Stephen Roach's book on Asia, he argues that manufacturing jobs will always fall prey to innovation and technology that will find cheaper and more efficient solutions to achieving higher output.
And I also agree with more emphasis on rural job creation. To believe that urbanisation is a natural consequence of growth is being stuck in a mindset of economic thought of the 70s.
the need of the hour is to think creatively to create an India model of growth not to import some Chinese or American model.