The next administration must focus on two key employment objectives: increasing the total number of jobs and expanding the share of formal jobs. These issues require distinct solutions.
Increasing the Total Number of Jobs
To facilitate the transition from agricultural to non-agricultural employment, it is crucial to boost manufacturing jobs, which currently constitute only 12% of total employment, and reduce self-employment from 50%. This shift is vital as informality, which has dominated job creation over the past two decades, severely hampers productivity. Informal jobs are akin to modern-day slavery, with sub-scale enterprises lacking credit access and career growth opportunities. Therefore, the primary objective should be to increase the overall number of jobs.
Infrastructure Development: The first priority is enhancing manufacturing infrastructure, including uninterrupted power supply, efficient highways, deep-sea ports, and a revitalized rail network. India must capitalize on China’s dwindling agricultural workforce, a chance currently seized by Vietnam due to India’s infrastructural shortcomings.
Urbanization: The second priority is urbanization. India has only 50 cities with populations exceeding one million, compared to China’s 400. With 600,000 villages, 200,000 of which have fewer than 200 residents, job creation efforts must focus on relocating people to urban job hubs. Unlike China, where mass migration occurs during the Chinese New Year, India does not see similar migration during major festivals like Diwali, Eid, or Christmas. This trend should change to better align people with job opportunities.
Regulatory Reform: The third priority is tackling regulatory complexities that hinder entrepreneurship. India’s regulatory environment is burdensome, making it difficult to start and run businesses. This is evident in the large proportion of small companies that remain small; 84% of manufacturing employment is in firms with fewer than 49 workers. India must transition from having numerous ‘dwarfs’ (small companies with no growth potential) to fostering ‘babies’ (small companies with growth potential). This requires not only labor law reforms but also easing the numerous inspector, compliance, and permission requirements that have remained largely unchanged since 1991.
Regulatory Predictability: The fourth priority is ensuring regulatory predictability. Investments, often with long payback periods, are deterred by uncertain taxation and unpredictable regulations. Sixty percent of China’s exports come from multinational companies with established market linkages, driving job creation and domestic consumption. India needs a similar stable regulatory environment to attract and retain investment.
Macroeconomic Stability: The fifth priority is maintaining macroeconomic stability. High inflation over the past five years has driven up interest rates, creating a disparity between real and nominal wages. This not only hinders rural-to-urban migration but also disrupts the investment cycle. Ensuring economic stability is crucial for fostering a conducive environment for job growth.
Focus on Manufacturing, Construction, and Services
The next 3-5 years will see significant job creation in manufacturing, construction, and services. India’s workforce is currently misaligned, with only 12% in manufacturing and 50% in agriculture. Farm workers, despite their large numbers, have low productivity and face poverty. For example, India employs 75 million workers to produce 120 million tonnes of milk, whereas the US uses 100,000 workers to produce 60 million tonnes. India must leverage its scale to benefit from China’s rising labor costs, aiming to increase manufacturing employment to 25% of the labor force. This requires implementing the five interventions mentioned above.
In the short term, the fastest-growing job sectors will be sales, customer service, and logistics, reflecting India’s burgeoning domestic consumption. Sales, in particular, serves as a crucial entry point for non-farm employment. Key industries poised to be major employers include construction, consumer goods, healthcare, tourism, and education.
Conclusion
Transforming formal employment from a privilege to a right involves a multifaceted approach. By focusing on infrastructure development, urbanization, regulatory reform and predictability, and macroeconomic stability, India can significantly increase the total number of jobs and the share of formal employment. Manufacturing, construction, and services will play pivotal roles in this employment expansion, driving India towards a more productive and prosperous future.
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