Is Modi late in realising that manufacturing can lead India’s growth?


The economists have been talking about this for a long time — even before the Coronavirus hit and everything came to a standstill. Here's why Modi realised it late

Prime Minister of India Narendra Modi on Friday said that India needs to step up its manufacturing game. This, in turn, will increase jobs and help boost India’s growth which already on a recovery path. But is Modi late in realising that manufacturing can lead India’s growth?

The economists have been talking about this for a long time — even before the Coronavirus hit and everything came to a standstill. India’s economy was not in very good shape even then — the growth rate was dwindling, there were no jobs, people had less money in their hand. The suggestion was simple. The first step, give people some money in hand. Second, strengthen the manufacturing sector which will in turn help the service or tertiary sector to prosper as well. But we’d better be late than sorry.

Is Modi late in realising that manufacturing can lead India’s growth?

The Narendra Modi-led central government had, in March last year, declared a new scheme. How would it work? The production-linked incentive (PLI) scheme would provide companies with incentives for incremental sales of products that were manufactured in domestic units. “Provisions worth around Rs 2 lakh crore for the PLI scheme has been made. The scheme for textile and food processing will also help the entire agriculture sector,” said Modi.

But then when COVID hit us and the entire world ecosystem collapsed, the economy took a bashing as well. But the Prime Minister refuses to see this as a catastrophe. While his Aatmanirbhar Bharat is still in the pipeline no matter how much all the companies go vocal for local. He said that India needs to take bigger steps to fulfil that dream. And the manufacturing sector’s development is foremost. “We need to take big steps and increase our speed and scale in the manufacturing sector. After Covid’s experience, I am convinced that it’s India’s responsibility to move fast in this direction. Manufacturing transforms every segment of the economy,” said the Prime Minister. “Every stakeholder associated with the development of the country should have an effective engagement in it,” he added.

Is the unemployment rate recovering?

Now, let’s take a moment to consider the job situation in India. The country’s unemployment rate in February came down to 6.9 per cent. Which is about a percentage point lower than what it recorded in February 2020 — 7.8 per cent. This can only suggest one thing. That the unemployment rate has gone down to where it was before the COVID-19 pandemic had hit us. But that is not too reassuring. Also because the rate of labour participation and employment rate continued to below. This only goes to show that there has been an exodus of labour from the markets because there is a lack of jobs and all this is according to the CMIE data.

But what the CMIE data or numerous surveys by agencies fail to provide a clear picture about is the condition of underemployment in the country. So when do we suffer from underemployment — when we do not find jobs that we are trained for or meant to do but are forced to take up something that is below their level of education or expertise and also pays way less. What does this cause? The total income of a country decreases, their propensity to spend comes down and if no one is capable of buying anything why would people produce it? This decreases employment as well. But you are technically employed. The degree od underemployment is also important and at the same time almost impossible to detect with the current framework of surveys and studies.

The unemployment data that we have at present does not talk about much but just the level of unemployment. It does not even talk about if you are at a job that really matches your acquired set of skills in the best way possible. So what do you need for that? A survey. This survey has to match the employed population with the qualification the possess and accordingly assess the jobs that they should be doing. The issue is that we do not have any data source that is already there which could tell us the underemployment that is presenting in the society at this very moment.

Is Modi late in realising that manufacturing can lead India's growth?
Image for representation | Source: PTI

What will boost growth?

Modi has spoken about how manufacturing will boost job growth. But what would be the use of it if you graduate from engineering schools and then get a job which is technically suited for an engineer but pays you no more than Rs 10,000 a month? It would not be some riff about-of-the-mill riffraff job but proper industrial employment which are generated through the various layers of informal dealings and equally precarious payment arrangements in these sectors.

But then again, we have only heard what the PM has to say, we have not seen him at work. It is possible to turn things around. And in his speeches, he seems to believe it wholeheartedly. “Our government is bringing back-to-back reforms in this field. Our policy and strategy are clear. We believe in minimum government and maximum governance. Our expectation is zero effect, zero defect. To make our companies globally competitive, we will have to strive day in and day out,” he said on Friday.

But will just an incentive scheme help boost n=manufacturing? What about the government providing support for the industries? How does the government plan to create domestic demand for goods and services? Many economists including Nobel Laurette Dr Abhijit Banerjee had suggested that the simplest way to create demand is to transfer funds to the public. The lockdown economic packages were the right time to do so. The inflation that would have caused could have been avoided by the surplus push of the agrarian produce that we had already stocked upon. But what the government has planned for the journey during the recovery is what we need to watch out for.


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