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Insights into Editorial: The shape of growth matters

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Insights into Editorial: The shape of growth matters


Introduction:

A growth rate of 9% is essential to generate enough jobs and achieve universal prosperity, according to a vision document released by NITI Aayog.

Towards this, the ‘Strategy for New India @75’ document recommends a number of steps, including increasing the investment rate, reforming agriculture, and codifying labour laws.

“This will raise the economy’s size in real terms from $2.7 trillion in 2017-18 to nearly $4 trillion by 2022-23”.

 

Weakness of Indian Economy:

  • A big weakness in the Indian economy’s industrial infrastructure is that middle-level institutions are missing.

 

  • Rather than formalising small enterprises excessively, clusters and associations of small enterprises should be formalised.
  • Small enterprises cannot bear the burden of excessive formalisation which the state and the banking system need to make the informal sector ‘legible’ to them.

 

  • Professionally managed formal clusters will connect the informal side of the economy with its formal side, i.e. government and large enterprises’ supply chains.
  • It is not the size of the manufacturing sector that matters but its shape.

 

  • Labour-intensive industries are required for job creation. If the manufacturing sector is to grow from 16% to 25% of the GDP, which the strategy states as the goal, with more capital-intensive industries, it will not solve the employment problem.

 

  • NITI Aayog’s plan for industrial growth has very rightly highlighted the need for strong clusters of small enterprises as a principal strategy for the growth of a more competitive industrial sector.

 

NITI Aayog emphasized the meaning of growth (Shape of the Growth matters than Size):

  • Employment and labour reforms, mentioned in the strategy, have rightly been given the highest priority.

 

  • Indian statistical systems must be improved quickly to measure employment in various forms, formal as well as informal.

Overall growth is also emphasised by NITI Aayog:

  • “Besides having rapid growth, which reaches 9-10 per cent by 2022-23, it is also necessary to ensure that growth is inclusive, sustained, clean and formalised.”

However, it is the shape of growth that matters more than size:

  • The employment-generating capacity of the economy is what matters more to citizens than the overall GDP growth rate.
  • There is no joy for citizens if India is the fastest-growing economy and yet does not provide jobs and incomes.

The growth of industry and manufacturing is essential to create more employment, and to provide bigger opportunities to Indians who have been too dependent on agriculture so far.

The strategy does say that labour-intensive industries must be promoted, but the overall goal remains the size of the sector.

Therefore, the goal must be clearly set in terms of employment, and policies and measurements of progress set accordingly.

 

Increasing Tax Base much more for Human Development:

The strategy highlights the urgency of increasing the tax base to provide more resources for human development.

It also says financial investments must be increased to strengthen India’s production base.

If tax incentives must be given, they should favour employment creation, not more capital investment.

 

 

Reorienting labour laws:

The strategy on labour laws appears pedestrian compared with the ambitious strategy of uplifting the lives of millions of Indians so that they share the fruits of economic growth.

It recommends complete codification of central labour laws into four codes by 2019.

While this will enable easier navigation for investors and employers through the Indian regulatory maze, what is required is a fundamental reorientation of the laws and regulations they must fit emerging social and economic realities.

First, the Nature of work and employment is changing, even in more developed economies.

  • It is moving towards more informal employment, through contract work and self-employment, even in formal enterprises.

 

  • In such a scenario, social security systems must provide for all citizens, not only those in formal employment.

 

  • Indeed, if employers want more flexibility to improve competitiveness of their enterprises, the state will have to provide citizens the fairness they expect from the economy.

 

  • The NITI Aayog strategy suggests some contours of a universal social security system. These must be sharpened.

 

Second, in a world where workers are atomised as individuals, they must have associations to aggregate themselves to have more weight in the economic debate with owners of capital.

  • Rather than weakening unions to give employers more flexibility, laws must strengthen unions to ensure more fairness.

 

The NITI Aayog strategy mentions the need for social security for domestic workers too.

This will not be enforceable unless domestic workers, scattered across millions of homes, have the means to collectively assert their rights.

 

Third, all employers in India should realise that workers must be their source of competitive advantage.

  • India has an abundance of labour as a resource, whereas capital is relatively scarce. Human beings can learn new skills and be productive if employers invest in them.
  • Employers must treat their workers whether on their rolls or on contract as assets and sources of competitive advantage, not as costs.

 

Conclusion:

The shape of the development process matters more to people than the size of the GDP.

Development must be by the people (more participative), of the people (health, education, skills), and for the people (growth of their incomes, well-being, and happiness).

How well India is doing at 75 must be measured by the qualities of development, as experienced by its citizens, along these three dimensions. GDP growth will not be enough.