" The
reason why worry kills more people than work is that more people worry than
work."
—Robert Frost (American, 1874-1963)
Word for the day
Ebullient (adj)
overflowing with fervor, enthusiasm, or excitement;
high-spirited.
Malice towards none
Should NaMo file a defamation suit against RaGa for calling
him corrupt?
First random thought this morning
JT: Sir, should we consider merging Canada with Punjab. That way
all Punjabis will automatically become Canadians and the ghost of Khalistan
shall also rest in peace for ever.
Capt: My leader will be the PM of united country.
JT: Hmm....hmmm....hmmm, let me go back and revert!
(It's a joke. No intention to hurt anyone's feelings!)
Household savings - paradigm shifting
I have written this before. But I find it totally pertinent to
reiterate.
The unfortunate fact remains that Indian growth in past two decade
or so has miserably failed in creation of adequate productive jobs for the
burgeoning workforce of the country. MNREGA has helped to some extent, but had
been constricted by fiscal constraints, leakages and lower productivity.
Disguised and underemployment also continue to impact the productivity and
earnings potential.
The incumbent government has focused on two key programs for
creating job opportunities — (a) encourage investment in fresh manufacturing
capacities through "Make in India" initiative; and (b) promote self
employment through schemes like MUDRA, Startup India, Standup India and Skill
India, etc.
In this context it is pertinent to note the working paper published
by the Reserve Bank of India in 2014, highlighting many interesting facts about
the status of employment and its elasticity to the GDP growth in India. In
particular the change in occupation structure of the economy in past 15years is
worth noting; because it helps setting up the agenda for future growth.
The working paper found that aggregate employment elasticity
(change in employment due to economic growth) of Indian growth has fallen
considerably in post 1991 period. In this period for every 10 per cent change
in real GDP, there had been about 1.8-2 per cent change in employment. The
current statistic is even poor.
Moreover, elasticity varies considerably across sectors. While
agriculture has witnessed negative elasticity, services including construction
have generally been employment intensive. Manufacturing employment elasticity
has hovered in the range 0.29-0.33.
Within manufacturing, the employment elasticity for organized
manufacturing sector based on various estimates seems to be higher, in the
range 0.42-0.57 for 2000s and it has risen over the previous two decades.
Given the huge productivity and wage differentials between
organised and unorganised sectors, greater employment generation in organised
manufacturing is crucial as it has larger multiplier effects.
Subsequent to 2011, India has seen significant moderation in its
GDP growth rates. Labour Bureau quarterly surveys as well as various private
agencies’ information hints that we might see some changes in employment
elasticity depending upon the relative pace of moderation in employment
generation vis-à-vis growth.
The working paper suggests that going forward, it is the relative
cost of capital vis-à-vis labour and the nature of investment demand that will
determine to what extent growth would be job-creating.
Paradigm shifting, though slowly
In a classical economic recovery (a) consumption rises, usually
led by rise in wages and/or lower interest; (b) prices rise as demand growth
outpaces supply; (c) demand for investment rises as producers rush to create
additional capacities; and eventually (d) employment rises leading to further
rise in consumption.
Whereas in a pump primed recovery driven by government stimuli,
rise in employment leads the cycle. To begin with usually the rise in
employment is at the cost of productivity.
Hence, if the rise in employment induced by fiscal incentives
fails to kick start the virtuous cycle of income—consumption—investment—income,
there is a risk of economy getting pushed even deeper into slowdown.
In Indian context, arguably an economic turnaround is taking shape
here. Though these are still early days, but I strongly feel that the recovery
is not taking the Classical path.
In my view, the economic recovery in India is taking a detour to
the Classical path. Some of the key highlights of the recovery, as I see it,
are as follows:
(a) The consumption level in the economy is rising,
but it is not rising in the classical Maslow evolutionary style. The
consumption rise is more aspirational in nature.
Accordingly, the demand for services is rising much faster than
the demand of products. The capacity addition therefore is more likely in
"seats" rather than "machines".
(b) Productivity gains are likely to play major role
in the growth. The recovery may therefore not result in creation of much real
assets.
(c) Faster and wider redistribution of wealth is
the key underlying theme of the growth strategy.
Higher taxation, exploitation of high savers through low real
rates, elimination of middlemen, and higher social sector spending are amongst
the key features of the growth cycle.
The good part is that efficient social sector spending (minimum
leakages in subsidy distribution, emphasis on building quality human capital
through better education, health and training) shall add to productivity gains
achieved through better use of technology and management of redundancies.
The flight of capital is a real risk in the short term as the rich
try to protect their wealth from being snatched by an aggressive regime. But I
am not worried on that count. I feel that the new businesses will generate
enough resources to compensate for the withdrawal by traditional businessmen.
Besides, foreign capital will also be encouraged by an open, transparent and
receptive regime.
Make in India
The apparent motive behind "Make in India" mission is to
alleviate poverty through creation of large number of employment opportunities.
This objective, the protagonists claim, will be achieved by acceleration in
economic growth through higher industrialization.
I am not sure if there is much evidence to substantiate this
optimism. To the contrary, there is some evidence to the effect that during
high growth phases in past couple of decades the employment opportunities in
industrial sector have remained mostly stagnant. Most employment growth has
occurred in services sector, notably construction.
Moreover, Make in India program mostly aims to substitute imports.
We are trying to compete with manufacturing powerhouses like China, Vietnam,
Taiwan, etc. This defies the basic principle of making economic decisions.
A 200kms drive away from any metropolitan area would tell you
which business is the largest unskilled and semi-skilled employment generator
in the country – yes it is mobile telecom. While textile industry traditionally
believed to be largest employment generator has historically received
humongous, often undeserved, support from the government, the telecom sector
has remained at the receiving end! Have you heard anyone talking about
subsidizing telecom industry for generating more employment?
Industrial growth has in fact mostly added to economic and to some
extent regional inequalities, rather than creating material employment
opportunities.
The popular illustration cited by the Prime Minister is that if
more tourist come to India, tea vendor will get more business. He needs to
think, whether we want more tea vendors chasing tourists and more construction
labor constructing large factories and massive physical infrastructure for
foreigners without acquiring any meaningful skill that would keep them employed
post construction period or we want more research scientists, better equipped
farmers and entrepreneurs.
In my view, the focus of government should be on "better
life" for all Indians rather than the banalities like 8% GDP growth,
Indian companies in Fortune500 club, number of Indian billionaires, rising
graph of Sensex etc.
I feel one Noble prize in Mathematics, physics, or chemistry can
achieve what a thousand Olympic gold medals or Cricket world cups would not.
Similarly, 10% higher crop yield and 10% less wastage of agri produce can bring
more prosperity to India than 100 smart cities or 100 Industrial zones. Potable
water to every home will alleviate poverty much faster than 3000 airports.
Self employment
In past two decades, since 1995, India’s economy has grown at an
average rate of 6.9%. However, the total employment in economy during this
period has grown at just 0.3% CAGR.
In this period the number of self entrepreneurs has certainly
increased in the country. This has coincided with the sharp fall in public
sector employment. The aggregate private sector employment level has not been
able to compensate for fewer opportunities available in public and
unincorporated private sector. Consequently, the total number of employees on
live payrolls has fallen sharply since early 2000’s.
The combination of two – lower employment opportunities and
liberal business rules – has perhaps forced people towards entrepreneurship
that keeps them underemployed for most of the time.
The number of self owned enterprise has swelled in past one
decade. As per 67th round of NSSO survey (June 2011), there
were 58million unincorporated enterprises in India (excluding agriculture,
construction and those registered under Factories Act).
Over 85% of these enterprises are run by the owner himself,
without any hired worker. 44% of these were run from the residence of the
owner. These enterprises employed 108mn people against just 39mn on the live
payroll in organized sectors, including 11mn in private sector. (Source: RBI,
NSSO)
There has been a definite shift in employment away from agriculture
towards manufacturing, construction and service activities. The share of
agriculture has declined continuously from 59.9 per cent in 1999-00 to 48.9 per
cent in 2011-12 whereas the share of construction sector has consistently risen
from 4.5 per cent in 1999-00 to 10.6 per cent in 2011-12.
From my experience I know that most of these business
establishments may not exactly be "authorized" from civic and town
planning view point. This creates number of problems from everyone. Grocery and
other daily need shops operating from homes; tailoring shops; automobile repair
shops create nuisance for the neighborhood; pose environment and safety hazard;
put pressure on civic amenities like power, water and sanitation; motivate
corruption; and above all lead to serious problem of child labor,
underemployment and disguised unemployment. Town planners, civic
administrations, and government must recognizes & accept this phenomenon to
find acceptable solutions.
The point to ponder is whether the recent policies of the
government do favor this cottage industry or the policies are oriented more
towards elimination of these mostly irregular and non-compliant businesses!
If the idea is to migrate all informal, irregular and
non-compliant self employed to the formal sector, the transition management is
extremely important. Unfortunately, so far the transition has been chaotic,
unmindful and rather cruel....to continue next week
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