Towards growth with jobs

Towards growth with jobs

The first Budget of NDA 3.0 should focus on job-creating growth, with incentivised labour-intensive sectors, trade policy steps, and linking MSMEs with global supply chains

Written by Guest | July 17, 2024 | Financial Express

By Nagesh Kumar

Having laid a path for capex-led robust economic growth in the post-Covid era, the National Democratic Alliance (NDA) 3.0’s first Budget should now turn attention to fostering job-creating growth by harnessing the potential of labour-intensive sectors. This would not only need their incentivisation but also trade policy measures and linking micro, small and medium enterprises (MSMEs) with global supply chains.

Assessments made by different organisations corroborate the dynamism of the Indian economy, stimulated largely by the huge expansion of infrastructure spending by the government. This has made India the world’s fastest-growing large economy. The macro-fundamentals also remain sound, with bulging forex reserves and a modest current account surplus in the last quarter of FY24. What continues to remain a concern for policymakers, however, is the declining employment elasticity of India’s economic growth, or economic growth generating fewer decent jobs. The inability of growth to create an adequate number of decent jobs, in turn, is responsible for pervasive informality and persisting poverty. The widening inequalities of income are also an outcome of the inability of growth to trickle down through decent job opportunities.

The compulsions of job creation have led the government to focus on the manufacturing sector, including ease of doing business, efficient logistics (Gati Shakti), and the production-linked incentive (PLI) scheme, among others. However, the focus of PLI has been on 14 strategic sectors. While they tend to be capital- and technology-intensive and are important for strategic reasons, they may create jobs mainly for skilled workers.

Going forward, it is also critical to put a massive thrust on labour-intensive consumer goods sectors such as textiles and clothing, leather goods, food processing, furniture, kitchenware, gems and jewellery. These are the sectors generally dominated by MSMEs and other informal sector enterprises. Their expansion would help to spread the effects of economic growth through creation of direct and indirect jobs and this, in turn, would foster MSMEs.

Despite India’s natural advantage in labour-intensive sectors arising from its abundant labour, Indian-made goods are increasingly giving way to imported goods. A visit to any of the shopping malls or departmental stores would show how their shelves are now dominated by goods not Made in India — whether it be garments, including simple shirts and trousers, or artificial flowers, glassware, crockery, plastic ware, furniture, decorative items, among other household goods, often sold under Indian brand names. These are products of rather simple technology, which have been made by Indian MSMEs and larger firms for decades. What has happened to them?

In an effort to become the “factory of the world”, China has built huge capacities for production of all kinds of manufactured goods, especially labour-intensive consumer goods. However, the rising protectionist backlash against Chinese goods, coupled with the slowdown of the global economy, has affected the ability of China to export them to advanced economies. Hence, they find a convenient option to dump their goods in India’s fast-growing markets, with the expanding middle class becoming an easy target. The threat of dumping to destroy the local industry, especially the MSMEs and millions of jobs, is real. The government needs to act not only to protect these industries but also to foster them to create more jobs, taking advantage of growing demand.

Some of the policy actions would include simply limiting imports of labour-intensive consumer goods through tariffs and non-tariff barriers. The multilateral trade rules provide for trade remedies for import surges and injury to domestic players. India has been acting on the complaints of domestic players for injury and taking anti-dumping action. However, the relatively unorganised structure of MSMEs that are the affected parties in the case of consumer goods do not have an effective organisation to plead with the government for recourse to trade remedies.

Governments around the world are becoming aware of the threat of dumping and are taking action. The US, generally a champion of free trade, followed by the European Union, have recently imposed 100% tariffs on imports of electric vehicles, among other goods from China to protect their domestic firms from possible dumping by the dominant producer.

As organised retail is the conduit for the imported consumer goods, these chains could be imposed certain performance requirements in the form of export of MSME-made products for every dollar of imports of consumer goods. This would also help in linking MSMEs with the global supply chains of organised retail players.

The government may also consider extending the PLI scheme to labour-intensive sectors to foster more production and jobs. The innovation focus of the industry is critical for overall growth and competitiveness. The neglect of R&D by the Indian industry has been a key concern and needs to be addressed. Besides accelerating the implementation of the `1-trillion corpus for long-term zero-coupon loans for R&D by industry, announced in the Interim Budget, the government could consider restoring weighted tax deductions of the past and provide for utility models or petty patents to encourage incremental innovations by MSMEs.

The first Union Budget of the NDA 3.0 government should herald a new focus on job-creating economic growth that will foster inclusive, balanced, and sustainable prosperity for all.

The author is the Director of the Institute for Studies in Industrial Development (ISID) in New Delhi.

https://www.financialexpress.com/opinion/towards-growth-with-jobs/3555730/