Problem is under-employment not unemployment: Panagariya

While Arvind Panagariya is vocal about the need to create jobs, the Vice Chairman of NITI Aayog points out, in a conversation with BusinessLine, that there is also an issue with data availability. Excerpts:

While there is a push for skill development, what could be done to fix the job deficit?

We need to create an environment in which large firms in labour intensive industries such as clothing and footwear flourish. An eco-system where these industries achieve scale will generate lots of jobs. We should understand, while speaking of unemployment in the Indian context, that our problem is mainly of under-employment and not unemployment. If you look at unemployment estimates by the National Sample Survey Office in the last two decades, these are consistently low: 2 to 3 per cent if you use a liberal definition of unemployment and 5 to 8 per cent if you use the most conservative definition.

Under-employment…

Often you have two to three workers performing a task of one worker. This translates into low productivity and low wages. What we need to do is create high productivity jobs that would also mean creating jobs in the formal sector, especially in labour-intensive manufactures. Then there are industries where we are strong; such as engineering goods, auto and auto parts and pharmaceutical, but we need to further strengthen them, especially by removing obstacles they still face as exporters.Today, India’s share in the global merchandise export market of $17 trillion is only 1.7 per cent compared to China’s at 13 per cent. In next five to seven years, if we can increase our share to even four per cent, we will go places.

How important are MSMEs?

Alongside, we must also continue to strengthen Micro, small and Medium Enterprises (MSMEs), which employ workers in large numbers. Two years ago, the government introduced the Mudra bank aimed at the provision of credit to micro enterprises. A large number of enterprises have borrowed under the scheme and this must amount to jobs. Unfortunately, we do not conduct job surveys frequently enough (the last NSSO Employment-Unemployment Survey was in 2011-12).

Often we say we are having jobless growth but there are no definitive data or estimates to backup such assertions. I have been looking at some of the alternative albeit less than ideal sources such as the number of regular contributors to the Employee Provident Fund Organisation, which can serve as a proxy for formal-sector jobs. We are still in the preliminary stages of this work but we do see at least a modest upward movement in employment there.

On the policy front what can be done to correct the situation?

One reason we have not done well in creating formal-sector jobs is stringent labour laws. There is some prima facie evidence that the (SEZs) in Gujarat, which have enjoyed more liberal labour laws, have been more successful in the export markets. Building infrastructure is very important. If shipping products from Noida to Mumbai port takes 14 days, enterprises located in Noida cannot succeed in the global economy. This is part of the reason I have advocated the creation of the Coastal Employment Zones. In the shorter term, it is critical to resolve the non-performing assets (NPAs) in the banks. Credit expansion by the Public Sector Banks, which now suffer from 12 per cent of their loans as NPAs, has taken a huge beating.