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Rediff.com  » Business » India needs to create jobs in industrial sector

India needs to create jobs in industrial sector

By Business Standard
June 13, 2011 12:00 IST
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Prime Minister Manmohan Singh's recent go-ahead to prepare the final draft of the new manufacturing policy comes not a day too soon.

The draft Bill to be tabled in Parliament ends months of wrangling among various stakeholders who were (legitimately) seeking to ensure their respective interests were safeguarded.

While further debate can be expected, the central government has done well to provide the policy impetus to revive a sector that currently contributes just 16 per cent to India's gross domestic product - that is way below potential.

The policy's dominant objective is to reverse the decline in industry's share of GDP and ensure that the manufacturing sector alone accounts for at least 25 per cent of GDP by 2025, generating 100 million jobs in the process.

For that, the policy envisions a series of steps such as a comprehensive exit policy, fiscal support to develop indigenous technology, labour reform (that makes flexible labour contracts possible), skill development programmes, support for small and medium enterprises and the establishment of National Industrial and Manufacturing Zones, among others.

The policy's goals are laudable. India needs to rapidly generate gainful employment for millions of young men and women expected to join the workforce in the coming decade.

An inability to do that would soon result in the vaunted demographic "dividend" morphing into a demographic "curse", with unimaginable social and political consequences.

A higher share of manufacturing in GDP is more than a mere statistical artefact; it lays the foundation for sustained, rapid economic growth and in the process offers the possibility of "reallocating" surplus labour from agriculture, as China did successfully in the 1980s.

In
short, a robust manufacturing sector is a must if India is to add substance to its vision of inclusive economic growth.

The document in its current form is short on specifics. For example, while the document mentions the need for a social security net to go with an exit policy, it does not discuss how such a programme needs to be structured.

As seen with China, it is easier said than done to professionally rehabilitate millions of workers displaced from work.

The "xiagang" programme in China, a sequenced combination of unemployment insurance and worker retraining for "eligible" displaced workers, is by official admission only a modest success, even after years of fine-tuning.

Second, the skill augmentation is to be effected as a "partnership between public and private institutions".

How will this burden be shared?  What about quality control? Currently, almost three-fourths of technically trained graduates are deemed professionally unfit by potential employers.

Third, it is unclear whether adequate thought has been paid to the adverse consequences of the "enclave" approach to development, as epitomised by the planned setting-up of NIMZ.

The decision to establish exclusive industrial zones in east and southeast Asia was dictated by prevailing local conditions that do not necessarily apply to India.

While evolutionary policy fine-tuning is welcome, implementing the new policy needs to be undertaken with urgency.

A sub-continental agrarian economy like India, with a large semi-skilled and unskilled workforce and a young population looking for employment, cannot fancy itself leapfrogging the industrial stage of development and moving straight into a services-led economy.

India needs manufacturing and manufacturing needs a policy.

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Business Standard
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