Citizens and their families are at the centre of society or the nation. Economic development of a nation is for the well-being of citizens. Economic development is primarily a question of getting more work done. To work is the common and the most natural thing in the world. Every eligible youth of the country has the right to seek gainful employment. A large section of the population, say elders and children, depend on young family members. India has to create ample employment opportunities over the next decade to reap the benefit of demographic dividend.
India has a large workforce. About 64 per cent of the population was in the working age group 15-59 years during 2021 which is expected to drop to 36 per cent in 2036. Each year about 12 million persons are added to the working group population. This work force has varied knowledge, experience and skill sets. Creation of large numbers of good-quality jobs with decent earnings is the basis of long-term economic development. But some experts are of the opinion that India has witnessed jobless growth. This is also reflected in the current data on unemployment. The recent ‘India Employment Report 2024’ of ILO says the share of unemployed youth was almost 83 per cent in total unemployed population of 2022 with the share of educated youth at 65.7 per cent. According to ILO, in 2022, 18 per cent youth with higher education remained jobless whereas 29 per cent graduates did not have jobs. One among every three young persons is not in employment, education or training. This is after all an uneconomic situation for the nation. Underemployment or underutilisation of the workforce is another crucial aspect to be reckoned with. The rate of underemployment at 16.8 per cent in 2022 was on the higher side.
Employment in India is predominantly, about 90 per cent, in low-income generating agriculture, informal sector or in self-employment. These sectors do not provide social security provisions. It is also revealed that real per capita wage in India has not increased substantially, commensurate with the growth of the economy over the years. Job conditions in most workplaces are also not suitable. Gig workers are tightly controlled by algorithmic management. A much faster growth in the manufacturing sector is necessary to create more employment opportunities for a young and increasingly educated population which has high expectations and aspirations. Growth in the manufacturing sector has a multiplier effect and creates jobs in other sectors such as services and ancillary industries. The average earnings of workers in the formal manufacturing sector are higher than in agriculture and the unorganised sector.
There is also a good prospect of individual growth. Rapid growth in the manufacturing sector will reduce dependence on agriculture. The share of the manufacturing sector in India’s GDP is a major concern for the economy. It has remained stagnant at around 15-16 per cent since the 1980s. The National Manufacturing Policy (NMP) of 2011 announced by the Government of India targeted to achieve an increase of this share to 25 per cent by 2022. It was considered that the manufacturing sector has the potential to contribute more to the national economy. The policy also aimed at generating 100 million jobs by 2022. To achieve these targets, an average annual growth rate of 12-14 per cent in the manufacturing sector over the next few years was envisaged. But the target remains unachieved. The new target has been set for 2025. The manufacturing sector employs about 15 per cent of the workforce. But this has remained stagnant. Employment increased at 1.7 per cent per year during 2000-2019. Capital intensive large manufacturing units increase production and productivity with the help of advanced technology, reducing scope of employment.
It also implies economic growth is associated with technological progress and productivity gain rather than with employment generation. For the manufacturing sector to grow at 12-14 per cent p.a. is a daunting task. It needs an exquisite action plan and policies, and efficient implementation of the same. The NMP 2011 emphasised on employment-intensive industries like garments and textiles, food processing, gems and jewellery, leather and footwear. A special focus was also given to capital goods industries and R&D activities. Emphasis was also given on industries with strategic significance like defence, IT, telecommunications and solar energy. The MSME sector had also attracted attention of the policy. One important criteria of performance of the Indian manufacturing sector is the low rate of return on investment which is often less than the cost of capital.
It is estimated that 700 out of the top 1,000 industrial establishments experience returns less than the cost of capital. So it is a challenge to bring in new capital in these industries. Only chemical and automobile industries give returns of 13.4 and 13.7 per cent respectively. The MSME sector plays a crucial role in overall economic development and employment generation. A little over 60 million MSME units produce about 40 per cent of the manufacturing sector output and contribute 45 per cent of exports. Its share in GDP is about 27 per cent. This sector provides employment to about 110 million people, the most after agriculture. So the obvious choice of the economy would be to boost MSMEs. Out of a total 60 million MSMEs, about 31 per cent of enterprises are engaged in manufacturing. MSMEs with low investment create mass employment.
But the major challenge in this sector is finance and low return. Most of the units, about 85 per cent, are owned by individual entrepreneurs who cannot provide adequate resources. Productivity is low. Average fixed assets held by each individual-owned enterprise are Rs 0.80 lakh. Annual revenue generated is only Rs 0.62 lakh and outstanding loan per enterprise stands at Rs 0.27 lakh. Small here is not beautiful. These small enterprises wish to grow and do better but often find it difficult. A majority report stagnation. An estimate also shows that about 60-80 per cent individual endeavours fail to achieve success in the MSME sector. Institutional support becomes necessary to make them a success. There must also be additional markets for additional output produced. Contrarily, an additional market is created only when employment increases, as the purchasing power of people increases. The market, if allowed to function freely, will try to maximise profit. Market does not recognise societal problems like unemployment, poverty and inequality.
Given the correct resources, capital investment and technology, the market will go on producing profits. Big players have the natural advantage as they grab most of the resources. The question is in such a market how can a small player stand. Institutional governance is necessary to manipulate the market to move in a certain direction so as to provide a level playing field to all participants in the market. Such direction is necessary in countries like India where there exists large-scale poverty, unemployment and inequality. Policy action on many fronts by central as well as state governments is required to activate directional changes in market and economic activities. It will not come by following business as usual. A special impetus is necessary. A National Plan should provide a detailed outline of key steps needed in each area for sustainable and inclusive growth. Regional imbalances in development are also to be considered for its correction. Earlier, this job was performed by the Planning Commission.
Presence of such an institution is necessary now. A comprehensive strategic planning for a short to mid-term is needed. National, regional and sectoral growth targets, and plans and programmes to achieve targets, must be prepared after wide consultation with all the stakeholders. Ultimately the benefits of growth must reach every section of society, every region, every nook and corner of the country. The Indian economy is now majorly driven by the service sector with a share of over 50 per cent of GDP and 25-30 per cent of workforce. But if the manufacturing sector does not flourish, who will be served by the service sector?
(The writer, a cost accountant, served as General Manager (Finance and Accounts) of a public sector power utility.)