Sunday, March 22, 2015

Land agitators forget even a farmer’s son needs a job

India elected Narendra Modi to control inflation, restrain corruption and bring back jobs. Inflation has come under control; there has been no corruption scandal in the past ten months; but jobs are nowhere in sight. Modi is banking on his ambitious ‘Make in India’ programme to revive manufacturing and deliver a million new jobs that are needed each month. But the problem is that manufacturing is precisely the sector that has historically let India down. Since 1991, India’s growth has been driven largely by services. Can Modi reverse this unhappy trend and usher in a genuine industrial revolution that has lifted 400 million people out of poverty in China?

Pessimists think not. With the coming of robotics, 3D printing, and digitally controlled lasers, manufacturing is so automated now that it is no longer possible for an unskilled farm labourer to aspire to a factory job. Moreover, manufacturing jobs, which are presently leaving China because of rising costs, are likely to go elsewhere — Southeast Asia, Mexico, and even Bangladesh. India remains unattractive because of its notorious red tape and poor infrastructure — made worse by UPA’s ‘tax terrorism’ and an impossible land acquisition law that has stopped land transactions. Thus, India has missed the bus.

Optimists, on the other hand, believe that even though industry is no longer the royal road to high income, India can benefit hugely from a resurgence in manufacturing. Our manufacturing share in GDP (16%) is so low — roughly half of other emerging economies — that India still has great potential to shift sizeable labour from farms to small, low-tech factories. Recent experience proves this. During the boom decade of 2002 to 2012, an impressive 5.1% workers per year moved to organized-sector jobs and delivered five times higher productivity. This revolution was reflected in all-round rise in labour wages, including rural wages. Because of rigid labour laws, growth in ‘informal’ jobs in the organized sector was greater, but at least informal jobs are better than no jobs.

I am with the optimists. Railways and defence sectors have suddenly emerged as new engines of industrialization in India, thanks to two highly capable men in Modi’s Cabinet. The first evidence came in Suresh Prabhu’s visionary railway budget, which was the best in memory. Manohar Parrikar’s vision of transforming India from the world’s largest arms importer to a more self-reliant military power has already begun to bring Indian companies and foreign technology providers to make defence equipment in India. A third engine is the revolution in e-commerce which holds the potential to create ten million jobs in the next three years, and might result in India skipping the supermarket stage, jumping from the kirana store to online retailing, much in the way many Indians skipped landlines and moved to cellphones.

The most important reason to believe that Modi will succeed is progress in the ‘ease of doing business’ campaign. The Centre and states are working closely to cut red tape to achieve the vision of one paper, one payment, one point of contact for the investor — all online. For imports and exports, the number of forms has been cut from nine to three. Maharashtra has decided to abolish half the approvals for starting a business. Punjab has taken power away from its departments and physically housed all approvals in a single office. But the best in class are Andhra and Telangana. An impressive e-biz portal is already up, tracking 14 different services/approvals. Rivalry between states will culminate this summer when the Prime Minister will announce statewise rankings in the ‘ease of doing business’ based on an extensive survey.

Never before in India’s history has there been so much urgency and determination to create jobs. The Budget has done its bit to kickstart investment in infrastructure. But vested interests are fighting back. So is the Opposition, which has taken to the streets against the land ordinance, pitting farmers versus industry, and forgetting two things: 1) Even the farmer’s son needs a job; 2) The ordinance is mainly trying to undo the red tape in the 2013 law — the hundred-odd signatures and 50 months required to buy an acre of land. If Modi eventually succeeds, two prizes are waiting at the end: India may finally experience an industrial revolution plus a demographic dividend.