Vijay Kumar Gaba

“Policy paralysis” of the preceding Dr Manmohan Singh led UPA government was one of the main planks of PM Modi’s election campaign in 2013-2014. The business community, middle classes, and poor, all were convinced that the UPA government suffers from a severe degree of inertia in policymaking and is therefore responsible for the poor growth of the Indian economy. It was alleged that large-scale and blatant corruption, nepotism (lack of meritocracy), and weak leadership are the primary reasons for the “policy paralysis” and poor execution.

Last month the incumbent NDA government completed nine years in power with BJP having full majority in the Lok Sabha on its own. In the 2014 general election, it was after three decades (post the landslide win of the Congress party led by Rajiv Gandhi in 1984) that a single party (BJP) had secured over half the seats in the Lok Sabha. Obviously, the people had great hopes from the new government that has won their confidence on the promises of a corruption free regime with equal opportunities (Sabka Saath Sabka Vikas).

For the 5years (2014-2019) the Indian economy (Real GDP) grew at a CAGR of ~7.4%, slightly better than the CAGR of ~7.1% during the previous five-year term (2009-2014). In 2019, the BJP returned to power with an even larger majority. During the first four years of the current term, the Indian economy has grown at a CAGR of 3.1%, the slowest pace of growth achieved by any government in the post liberalization (1991) era.

The best growth trajectory was seen during UPA-1 tenure when the economy managed to grow at a CAGR of 8.52% (2004-09). This was perhaps the outcome of massive reforms implemented by the preceding NDA-1 government (1998-2004); in which monopolies of the government over the core sectors like power, mobile telecom, coal, roads, oil & gas, airports, ports, etc. were divested. NDA-1 also implemented massive investment-oriented policy initiatives like SEZ, NHDP, PMGSY, Missile & GPS development, UMPP, NELP, etc. that led to accelerated investment and growth in the following decade.

The UPA government (2004-2014) earnestly took forward the reforms initiated by the NDA-1. It substantially liberalized the FDI regime; signed the Civil Nuclear Deal to usher a new era of strategic partnership with NATO & NSG; and introduced the first universal basic income scheme in the form of MNREGA and food security scheme in the form of National Food Security Act 2013.

Most important, it laid the foundation of complete digitization of the Indian economy in the ensuing decades by creating robust platforms like UIDAI (Aadhar) and NPCI (UPI, Fastag etc.); and laying an aggressive roadmap for financial inclusion in the budget speech of FY11 in accordance with the recommendation of the Rangarajan committee (2008).

The financial inclusion roadmap required banks to reach 73,000 rural habitations with a population of over 2000 by March 2012, using information and communication technology-based models and banking intermediaries (Business Correspondents). RuPay – an Indian domestic debit card, introduced on 26 March 2012 by the NPCI was a key landmark in this journey. Basic Savings Bank Deposit Account (BSBDA) along with BC proved extremely successful in increasing the total number of banking touch points from ~67k in FY10 to 586k in FY16 (RBI Annual Report FY17). (BSBDA was rechristened as Jan Dhan Yojna- PMJDY with enhancement of scope to include some other financial services within its ambit.)

The UPA government also introduced The Constitution (115th Amendment) Bill, 2011 to implement a common nationwide GST based on Ajit Kelkar committee (year 2000) recommendations; though the bill could not be passed due to opposition from other parties. The UPA government also introduced The Real Estate Regulatory Authority (RERA) Bill in August 2013. The bill was referred to the standing committee of the parliament, which submitted its report after considering public comments in February 2014. The Bill therefore could not be passed during UPA-2 tenure.

It could be argued that sub-optimal performance of the economy in the past four years is primarily due to the impact of Covid-19 pandemic that shutdown the economy for almost 6 months in 2020. In my view, however, the argument could be accepted only as partially valid. Most previous regimes had also witnessed massive disruptions and displacements like the financial sector crisis (failure of UTI, ICICI, IDBI, ICICI etc.); Asian currency crisis (1997), global economic sanctions post 1998 nuclear tests; dotcom burst; global financial crisis (2008-2010); energy inflation due to wars in the Middle East Asia; banking crisis due to collapse of infrastructure sector that was used to stimulate the economy since 1998 with numerous unsustainable projects; political instability (three election in three years 1996-1998); Kargil War; incoherent political alliances (especially UF, NDA-1, UPA-1) etc. Despite all this, most governments could achieve a higher growth rate than what we have seen in 2019-2023.

It is evident from the pace of highway construction, digitization of the economy, financial inclusion, and extension of universal basic income schemes, etc., that the incumbent government has pursued the programs and policies initiated by the previous governments and continued to build upon the platforms created by his predecessors. Schemes like PLI have also set ambitious targets; even though the results so far have not been encouraging.

However, we have not seen any transformative policy initiative that can lend the necessary velocity to the economy to catapult it into a higher orbit. There is little progress in the areas of agriculture reforms, disinvestment etc. Fiscal sustainability has remained compromised, as the debt burden has continued to increase. The private capex has mostly remained evasive due poor demand conditions and risk averseness of banks. Though the situation has shown marked improvement in the past 15-18months. The price situation has remained volatile, mostly governed by external factors like global prices of commodities and weather conditions. There is little evidence to show that the government and/or RBI have any plan in place to control the volatility in prices.

In my view, however, the worst aspect of the current regime has been the failure to ensure adequate employment, especially in the manufacturing sector. More on this tomorrow.

Last week, I mentioned that unemployment in India is a multidimensional problem and it would require a multipronged strategy. The traditional “industrialization” strategy may not yield much significant results in the modern Indian context as the industries are now mostly capital and technology intensive and offer significantly lower opportunities for unskilled and semi-skilled workers, which form a large part of the Indian workforce. Implementing the traditional Keynesian model of creating employment through public spending is also challenging due to stressed fiscal conditions, focus on privatization of public enterprises, and diminishing labour intensity of construction activity.

In the past fifteen years MNREGA (Rural capacity building) and PMGSY (Rural roads to improve accessibility) have been extremely successful in generating rural employment. These two schemes have not only supported the rural economy during the period of stress, but also created much useful capacities in the rural areas. Especially, the connectivity provided through roads built under PMGSY has been transformative for the economy of numerous villages in hinterlands and remote hills. However, these jobs are mostly seasonal and meant for unskilled rural labour. Their productivity and sustainability has been questioned by various studies.

Surfing through social media for a couple of hours, one could easily find out how the youth of our country are dissipating themselves in frivolous activities. It is therefore imperative that more productive and sustainable solutions are found to solve the unemployment problem of the country.

I would like to make the following three suggestions for improving the employment situation in India. Admittedly, these are random thoughts based on my personal explorations and understanding of India’s socio-economic milieu. In a typical bureaucratic manner, these ideas could be rejected as impractical or even flimsy. Else, these could be evaluated as starting points for developing something useful.

1.  Bring factories to farms

The employment elasticity of growth in manufacturing, agriculture and construction sectors has been decreasing consistently. This trend shall only accelerate in future. Most of the growth shall come from higher productivity through automation, innovation and consolidation. Elimination of redundancies and economies of scale shall lead the growth effort. The number of jobs, especially unskilled and low skill jobs shall remain limited.

Implementation of a common GST, nationwide agriculture market, ecommerce, automation (AI) etc., is leading to business consolidation in a major way. This may also potentially eliminate millions of unskilled and low skill jobs in the next decades or so.

The historical transition of farm workers to industry during the developing stage of growth may not work in the current Indian context. The so-called developed economies have transited the labour from farm to factories, when industry and mining were still labour intensive and global competition was not much. The productivity gains were immediate and tangible. It is no longer the case. The industry in India is already capital intensive. Even traditional labour intensive industries like gems & jewellery, textile, leather, mining and construction are becoming increasingly automated to stay viable against the global competition.

The ambitious 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, viz., everyone should do what they can do best to optimize the resource utilization.

Emulating China model may not work in India, as our political and economic model is entirely different. Moreover, the skill and training requirements for modern industry do not allow a straight farm to factory transition. So the options get limited to unskilled construction sector jobs and building industry around farms where the skill of the farmers could be suitable employed.

While MNREGA and the ambitious rural road program is taking care of unskilled construction jobs, there is little effort to take factories to farms. Encourage industry to partner with farm cooperatives to set up food processing units at the farms. The farmers' cooperative allots land and provides farm produce, whereas the entrepreneurs contribute capital and undertake marketing and sales responsibilities. Both share the profit in pre-agreed ratio. This should maximize profit of both the industrial enterprise as well farmers, and create ample employment opportunities close to villages.

Allow corporates to develop waste and barren land for farming purposes. For example, many corporates from India and the Arab world may be interested in developing Rajasthan and Gujarat desert and barren lands for growing dates, palm, aloe etc.

2.  Initiate public sector agriculture

Since independence the government has focused on development of industrial infrastructure in the country. It has actively participated in the endeavor through a large number of public sector enterprises; besides offering a myriad tax and other concessions to the private entrepreneurs. Now, the country has a reasonably strong industrial base. Many of our industries are globally competitive. We have a strong set of entrepreneurs and risk takers. It is therefore high time when the government should reset its priorities and turn its primary focus on agriculture. To meet this end, the government may consider:

·         Exiting all industrial and banking activities and actively undertake agricultural activities. It should develop barren lands; develop water bodies and irrigation facilities; develop and use technology for enhancing productivity; give employment to landless farmers; take risk with new technologies & crops; partner with marginal farmers in consolidating their land and do farming on that land - just the way it undertook industrial activities immediately after independence.

·         Undertake, on mission basis, the task to re-skill the underemployed farmers and farm labor. The farmers and their family members may be trained as dairy workers, domestic help, nurses, tourist guides, artisans, etc. Expecting the construction sector to absorb all surplus farm labor is a bad idea.

·         Develop at least 5 very large special agri export zones in rocky and desert areas of central and western India and undertake export of farm produce as a commercial activity. These zones may be developed in public, private or joint sectors. Besides, it may acquire farm assets, especially rice farms, overseas to reduce water intensity of Indian agriculture.

·         Encourage various states to make bilateral or multilateral agreements for procurement, processing and trading of farm produce and movement of labor within states.

·         Nationalize all rivers. Develop a national water grid. Set up a national water regulator, who shall work out a water sharing formula for all states and union territories every three year and maintain adequate provisions for managing droughts. The idea should be to ensure that not a drop of river water flows into sea from India. Develop a water distribution grid on the models of roads and power grids on a mission basis.

It has taken seven decades for Indian industries to reach a stage where the government may consider fully exiting the industrial activities. It may take 2-3 decades for Indian agriculture to reach a stage where the government will be able to exit farming activities completely.

Please note that I am also not suggesting nationalization of the agriculture sector. I am just saying that the government should undertake the activity on a commercial basis to provide the sector with much needed escape velocity in terms of capital, technology, and risk taking capability.

3.  Engage youth in nation building

The government must on priority prepare a comprehensive strategy for engaging youth in the nation development endeavor. A nationwide MNREGA type scheme may be launched for youth, whereby they could be engaged in socially useful productive work (SUPW). Millions of jobs like traffic management, night patrolling in areas susceptible to crime against women, enforcement of cleanliness of public areas, old age care, social forestry, teaching & skilling to unschooled, etc. could be assigned to the youth not having a regular job. This shall help in developing a sense of nationalism, belongingness, and responsibility amongst youth, besides keeping them occupied in productive jobs rather than leaving them on their own to waste time or take to the path of crime and unlawful activities.

Also read

Five shades of unemployment

Unemployment – misdirected policies

Few random thoughts on unemployment in India

The government finally released the broad contours of New Education Policy. The last such policy was formulated 34years ago in 1986. Since then the socio-economic and technology context have completely changed. We are perhaps 25years late in effecting the necessary changes in our education, training and skill development system. Nonetheless, the new policy proposal is a strong positive move and needs to be welcome. In fact, it is arguably the best thing that has happened to India since MNREGA and RTE were implemented more than a decade ago.

The new policy is a "reform" in true sense, as it aims to change the status quo materially. The new proposals mark significant departures from the extant methods & practices of teaching, curricula, learning objectives, assessment procedures, regulatory framework, and other related aspects of the education system. The strong emphasis on accessibility & affordability, vocational training, value system, ethical orientation, nationalism etc. is a great initiative. Incorporation of modern technology in the curriculum is most desirable. The focus on development of creative thinking and solution based approach of young students is also much needed.

The goals of the policy are obviously ambitious, when assessed in the present context of fragmented political establishment, resource constraints and dominance of the vested interest groups who control the present education eco-system in the country. The implementation (particularly within the given timeframe) therefore is certainly going to be challenging. I wish the administration and political establishment will show strong commitment to come over all challenges.

Having said this, I would also like to share the following observations:

(a)  

(b)  

The influence of the American education system is too conspicuous on the policy proposal. This is a good thing as that system has been extremely successful in delivering the desired objective, and admired world over. However, ignoring the basic qualities of that system - uniform education to all desiring students and high quality education in government schools - raises some doubts.

(c)