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P. V. Indiresan

A FEW weeks ago, the Planning Commission put out a paper on employment that contradicted its own recommendations of a couple of a few years ago. For some reason, probably because of the lack of consensus within the Commission itself, the report has not attracted as much attention as it should have. The issues it raises are crucial and can be ignored only at great peril. We have been practising globalisation and liberalisation of sorts for over a decade now. In several respects, the economy has improved. Foreign balances are at an all time high. Inflation is remarkably low. Labour productivity has improved. Scared by the consequences of global competition, labour militancy has come down. Consumer choice has increased significantly. The country appears more prosperous than ever before. However, employment has not increased. What we have experienced is a classic example of jobless growth.

Jobless growth occurs when labour productivity increases faster than economic growth. In the past four decades, labour had been so thoroughly mollycoddled that in every branch of industry and commerce, productivity had sunk to abysmal levels. In the past ten years, that has been corrected to a certain extent. However, even after substantial shrinkage of the labour force, in many organisations, labour productivity remains a fraction of what it is in competing countries. Hence, there has been no increase in employment in organised industry and commerce. The Planning Commission Report has, therefore, concluded that globalisation offers little or no scope for employment growth in the organised sector. As a remedy, it has suggested that agriculture, and the non-formal sector should be targeted to meet the growing employment demands of the country.

It is also the opinion in the Planning Commission that the Input Capital-Output Ratio (ICOR) is much lower in agriculture than in other sectors of the economy. That means that for a given investment agriculture is the best bet for maximising growth. That has reinforced the view that agriculture and craft industries alone can maximise growth and employment.

Though plausible, these arguments raise uncomfortable questions. First, will this emphasis on agriculture support rapid growth — let alone the 8 per cent growth sought for the next Plan? Second, considering that a grain mountain already exists, can the country absorb further increase in agricultural production? Third, will agricultural employment satisfy the aspirations of modern day youth who are relatively better educated and dream of white-collar jobs? Fourth, is it really impossible for industry and commerce to increase employment? Fifth, does the assumed scenario truly address the real weaknesses of the Indian economy?

As matters stand, farmers are able to produce enough food for themselves and for others too. Yet, a number of non-farmers are starving because their earnings are too little to afford the price at which the surplus grain of the farmers is being sold.

Farmers have no incentive to lower prices because the Government buys their surplus at relatively high prices.

If the suggested solution of the Planning Commission is accepted, non-farmers will produce even more food for themselves — and for others too. It is not clear where these new entrants to agriculture will find the land to cultivate. If they do succeed, the market for the existing farmers will shrink. In that case, either the Government will have to spend more on subsidy, or let existing farmers become poorer.

Alternatively, the additional produce may be exported. Unfortunately, grain prices in the world market are low. Even if 10-20 million tonnes of grain are exported, the realisation will be much less than what the Indian software industry is generating.

Hence, if globalisation has resulted in jobless growth, the suggested solution is likely to generate growthless jobs. It will be redistributing poverty rather than creating prosperity.

The logical solution in this case is for non-farmers to raise their productivity in sectors other than agriculture, to earn enough to absorb the agricultural surplus that exists already. Implausible as it may appear, the solution to India's unemployment conundrum is to create well-paid jobs in industry and services, not more ill-paid ones in farming and handicrafts.

The world-over, prosperity has increased only when employment in agriculture shrinks and not when it increases. The lack of capital is not the problem why the formal sector is not generating jobs. Banks are flush with funds and no takers.

The problem lies with entrepreneurs who are virtually on strike. Those few who like to expand, often prefer to do so in China and elsewhere rather than in India. Like talented professionals, industrialists too are voting with their feet and moving out of India.

That is the true cause of tardy economic growth in India. The table summarises the reasons why Indian industrialists find costs in India so high that it is worth their while to move out of the country.

The issue is not that there is little scope for industrial (and commercial) expansion, but that the prevailing political and administrative environment obstructs such expansion. Hence, the remedy for India's problems does not lie in better economic models but with efficient and honest politics and administration.

Being an arm of the Government, the Planning Commission is not in a position to speak of such unpalatable truths. All the more reason why other commentators should emphasise them.

Perhaps, the true remedy lies in pressurising politicians, bureaucrats, workers, entrepreneurs, even judges, in such a way as to induce all of them to promote employment generation, and not obstruct the same. Then, consider:

MPs/MLAs, in whose constituencies the employment growth rate becomes less than half the national/state average, will be ineligible to contest elections for a year.

In locations where employment growth is less than half the national average, government servants will not be eligible for increments or promotions.

Labour, in whose firms the ratio of net profit to wage bill is less than half the industry average, will be ineligible for bonus.

Directors of firms with the ratio of net capital formation to capital deployed is less than the industry average, will not be eligible to seek re-election to the board.

Judges, whose average gross adjournment time per case is more than twice the average, will have their names prominently displayed.

These penalties are only indicative and may be refined. They are all based on the principle that the penalty should be transparent, mild, temporary, and should apply only to very poor performers.

The aim is not to hurt, not to demand impossibly high standards, but to apply a mild shock to those who perform really badly. That is why half the average has been selected for cut-off in each case. With that condition, normally, only the bottom 20 per cent will be penalised.

Even then, measures such as these can exert considerable pressure, inducing all those concerned to act efficiently. There is no need to be sceptical or cynical about measures such as these. People are getting tired of the corrupt and the incompetent.

Political leaders themselves have realised that as fact. That is why both contending parties have chosen non-politicians to contest the Presidential election. Who would have imagined such a denouement only a few months ago! Stranger things can happen; disciplinary measures such as the above may get accepted.

(The author is a former director, IIT Madras.)

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