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Leaving a legacy of jobless growth

Rigid labour laws and complex regulations were the clear job-destroyers during the UPA regime

Fresh investments by the manufacturing sector in India plummeted to all-time lows in the December 2013 quarter, data released in the first week of 2014 by the Centre for Monitoring Indian Economy (CMIE) showed. With just 69 new projects worth R59,615 crore announced, the manufacturing sector is languishing. Reacting to the data, the Prime Minister said, ?I am concerned that we have not been as successful as we need to be in generating employment in the manufacturing sector. This is an aspect of performance which we are working hard to correct.?

The UPA-2 had a golden chance to develop the manufacturing sector, and help it emerge from the shadow of the services sector and seize more of the global manufacturing market. Rising domestic demand, together with US and European multinationals? desire to diversify their production to low-cost plants in countries other than China, could have helped India?s manufacturing sector to grow rapidly to the $1 trillion mark, and in the process create up to 9 crore jobs in the country.

It is pretty difficult to fathom how the UPA, which was dealt a pretty good economic hand in 2004, could end up making a major mess of it by 2014. It is as if the UPA was bent on committing suicide by jumping from the basement! The government could have helped the manufacturing sector by dismantling barriers in markets for land, labour, infrastructure and some products such as base-metals, petroleum and power generation industries. The present government would have had significant political benefits from the huge number of jobs it could have created but has almost managed to miss the road to a third-term by turning onto a dead-end street. Recently, the Congress vice-president apparently roped in advertising and communication firms Dentsu and Burson-Marsteller to strategise the 2014 Lok Sabha polls campaign for a whopping R500 crore. If they had done their basic job well, they wouldn?t have needed a R500 crore PR exercise to make a U-turn and backtrack over the terrain of fictitious progress. The puzzling thing is that this is not the first time the UPA veered into an economic cul-de-sac.

It is said that only barbers learn on other people?s heads, but the UPA was not able to learn even from its own experience. Under the UPA, over seven years from 2004 to 2011, there were only 5.2 crore new jobs created. In contrast, during a shorter period of five years of the NDA government, there 6.2 crore jobs were created.

The UPA government has been shouting from roof-tops over all these years that manufacturing sector and its resulting job creation is a top priority for them. But, employment elasticity of manufacturing, defined as the percentage increase in employment for every percentage point increase in manufacturing GDP, deteriorated sharply to an average 0.17 in the seven years to 2012 from 0.68 in the seven years to 2005. Put another way, it took four times as much investment to create one job during the UPA than it did during the NDA. The clear job-destroyer during the UPA has been rigid labour laws. It is estimated that one or two people in IT/ITeS can produce R10 lakh worth of real value-added GDP, whereas the higher job-creating sectors in manufacturing have been recruiting less by increasing automation. The reason is obvious: the IT/ITeS business is not constrained by labour laws, while the manufacturing sector is.

Apart from rigid labour laws, complex and burdensome regulations seem to have held back investment in manufacturing and, hence, job creation and growth. Despite government steps to address them, there is, quite simply, still too much red tape. According to the World Bank, in India it takes 27 days to start a business, 44 days to register a

property, 67 days to get electricity, and 168 days to get a construction permit. For South Korea, the same procedures take 7, 11, 28 and 29

days, respectively.

The UPA has not only managed to shoot itself in its foot but is also leaving a burdensome legacy. As they prepare to leave office over the next three-four months, the UPA will be leaving behind not only a decelerating economy with untamed inflation and weak government finances, but one that will be unable to produce jobs in the quantities required over the next five years.

During the next five years from 2014 till 2019, the number of people entering the workforce will be over 8.5 crore. Demographically, India has the largest youth population in the world. It is the largest number of workforce entrants that any country has ever had at any point of time. Never before has any country faced a challenge of such a large population entering the workforce over a five-year period. For the new government, whichever party or coalition combination that might be, it is critical to convert this challenge into an opportunity than a problem.

The author, formerly with JP Morgan Chase?s Global Capital

Markets, trains finance professionals on derivatives

and risk management

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First published on: 13-01-2014 at 10:25 IST
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