THE EXCHANGE. Bright and dark spots in the economy

After two parched years, the rains were labelled near normal — good news for the rural and general economy. There was a mostly successful — even if detractors term it insufficient — outcome on broadening the tax base, with healthy exchequer revenues and signs of better compliance. An effective combination of diplomatic and military actions boosted the reputation of the Government internally and externally. Rounded off by meaningful steps on GST implementation, to make its consequent economic benefits and market unification tangible.

Such positivity is appropriate while mapping future options, even if the analytically inclined but well-intentioned commentators can often moderate it.

Despite India’s improved competitiveness ranking, business performance continues to be largely under pressure and capital/debt servicing concerns are real. This dampens enthusiasm for new private investment and the GDP sustains momentum via capital spending by the state.

The RBI confidence surveys showed mixed perceptions. Improvement in current economic conditions was reported only sparingly, yet the future outlook remained high. Perceptions on current income remained weak, with positive feelings for the future. Most critically, sentiments on employment prospects weakened over the last 12 months.

The overt issues before us are: how business investment can revive and where will jobs get created? These issues surface from looming changes across the world in its approach to globalisation, and how that may impact our fortunes.

The material key to the overt issues is the strength of India’s domestic market. But these appeal to global producers too, imports from whom put undue pressure on domestic businesses. While conventional reasoning and the ‘Make in India’ programme suggest that manufacturing creates the most jobs, there are schools of thought that suggest India has largely missed this bus. Thus a recalibration or tweaking of our job creation strategy would be merited.

Industrial activity will continue to create jobs but slower than in the past. Manufacturing job creation must derive from a larger number of small/medium units, near their respective markets. Many can be ancillaries to large, yet labour-light, investments. Simultaneously, there needs to be an explosion of employment in value-adding services, both digital and non-digital. Traditional sectors such as construction, entertainment, healthcare and tourism can be aggressively pushed to pole position in bulk job creation.

We must distinguish amongst jobs created by value-adding services and those via service/market portals and/or logistics. While these attract sizeable capital and high visibility, in essence such services are non-critical or are related to distribution, so having limitations as primary value addition is not inherent in their core processes. Therefore their sustainability is moot, generating rational concern for the long term.

For the path to resurgence, we must address three rudimentary issues. One, our regulatory thinking must transition rapidly from a mindset of the 20th century (rooted in control/discretion) to one suited for the coming decades. General business governance is becoming complicated due to multi-layered regulations even as we try to enhance ease of doing business. It is easy to adopt ideas from other jurisdictions to align better with worldwide practices; but in absence of an environment that offers similar freedom, noble intentions often fail to deliver. We need sensitisation on both the application of existing rules and the design of new ones. This is not a general comment but a call for deeper contemplation followed by surgery.

Two, we have a long road ahead to true competitiveness. We need to look at silos of individual costs (manpower, energy, financials or transactions) as well as total costs holistically; this includes intangibles imposed by extended time factors due to infrastructure or administration. Even in advanced economies value-addition to both manufacturing and services are much higher than what accrues to us at the same selling price.

Third, we spend time talking of right-skilling or future-skilling, and of existing gaps between skill needs and availability. It’s not that there is a lack of effort and intent, but the results are not visible on the required scale.

Automation is a genuine threat to industrial jobs, while increased digitisation or automation may increase service oriented jobs (Uber, etc). Such shifts require a reorientation in thinking. We risk discontent if youngsters (educated/trained by investing significant time and money) find they cannot find corresponding livelihoods. Frustration comes easily but recedes slowly.

History confirms that improvements sought in employment policies (which affect the minuscule proportion in formal employment) end up being confrontational or barely incremental, and usually pay only lip service to productivity and work ethic. A remedy may be to abandon the dual ministries of HRD and labour in favour of a unified contemporary ministry of manpower that can ensure convergence of livelihood policies and skill development.

The covert issues arise from the path that globalisation (and protection in some form) may take in multiple countries. The global effects will most likely play out over the next 10-20 years implying that the youngest in our population face the largest risks.

Reactions against unrestrained free trade are quite likely to rewrite politics across the globe. We saw some shades of this in Brexit and are seeing loud tinges in the US elections; there is also passionate resonance in other economies. Immigration too is a highly emotive issue (could cause many NRIs to return); but the focus on getting jobs back is real.

Global capital will feed these rejuvenating economies, and their manufacturers will seek access to markets in other countries. Shadows can be cast on existing or impending trade alignments. This implies that financial capital bound for India and fresh foreign investment to service our market may dampen, and our own foreign markets may wane.

Don’t misunderstand: globalisation is essential. A less open world principally hurts the poor, despite the popular belief that it benefits only the elite.

India’s interests are more completely served by strategising at two distinct levels — by addressing overt concerns already upon us; and by addressing covert ones that are on the horizon, by comprehensively reassessing policy priorities.

This column explores ideas and opinions on Indian enterprise and economy. The writer is an entrepreneur and former president of Ficci. The views are personal

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