Manufacturing sector hasn’t generated enough jobs

Experts in the Planning Commission and policy analysts can deliberate endlessly over the relatively faster reduction of poverty in the post-liberalisation phase of the Indian economy.

But the incontrovertible fact is that inequalities in income and consumption within the country have widened.

The Trade & Development Report (TDR) of the UN Conference on Trade and Development (Unctad), released here on Wednesday, noted that while the processes of globalisation have been associated with greater inequalities of income and consumption in developing countries and in China, this is “particularly evident in India”.

Without mincing words, the flagship report of Unctad said the gains from growth in India have been concentrated among “the surplus-takers which includes profits, rents and financial incomes”.

A major reason for this is that growth in the modern sectors such as manufacturing and high productivity services like the software industry has not been “sufficiently employment-generating”.

It is small wonder that “about half the workforce continues to languish in low-productivity agriculture (even though that sector now accounts for less than 15 per cent of the country’s GDP) and in low remuneration services”. Supachai Panitchpakdi, Secretary-General of Unctad, in a 15-page overview to the report aptly said in India and in many African countries, the manufacturing sector has not grown fast enough to generate sufficient employment and a much larger proportion of the labour force has been absorbed in informal and less remunerative employment. Statistically, Unctad found an increase in India’s Gini coefficient for consumption from 0.31 in 1993-94 to 0.36 in 2009-10, while the urban-to-rural consumption ratio rose from 1.62 to 1.96, even some other experts estimated in 2010 a Gini coefficient for expenditure of 0.35 in 2005 and a much higher Gini coefficient for income of 0.48.

A Gini coefficient of 0 signifies perfect equality of income and a coefficient of 1 signifies perfect inequality and the closer the coefficient is to 1, the more unequal is the income distribution.

Even as the UPA Government has been talking about inclusive growth for more than eight years, Unctad contends that inequalities that begin in the cradle are not easily redressed through social mobility. This in turn is further compounded by unequal access to education and health services.

Insufficient growth of average real wages coupled with inappropriate tax reforms, are the root causes of rising inequality in most countries.

Unctad diagnosed that real wage increases, below productivity growth and greater job uncertainty systematically destabilise domestic demand and serve to increase unemployment rather than reducing it. Hence it plumps for an appropriate incomes policy, besides employment and growth-supporting monetary and fiscal policies, in securing a socially acceptable level of income inequality.

Stating that there is scope for using taxation and Government spending for reducing inequality without compromising economic growth, Unctad argues taxing high incomes, especially the top income groups, through a more progressive tax scale does not remove the absolute advantage of the high income earners nor does it spur others to move up the income ladder.

It singled out taxes on real estate, large landholdings, luxury durable goods and financial assets that are normally easier to glean than taxes on personal income. They can also form a bankable avenue for revenue in countries that have high inequality of income and wealth distribution.

The moot point is whether the governing class with its paradoxical position of inclusive growth and promoting high growth through spurs to private sector could do this without raising the hackles of the rich and high income groups.

(This article was published in the Business Line print edition dated September 13, 2012)
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