Why ‘Make’ Is Just As Important As ‘Skill” in India

13.06.2016 • Investing

From Vivek Kaul’s Diary (INDIA)-

Organised retailing is expected to be a big job creator in the days to come. A recent report brought out by National Skill Development Corporation (NSDC) suggests that 5.6 crore people will be working in the sector, by 2022. The earlier estimate was around 1.8 crore.

Estimates made by NSDC suggest that organised retailing employed around 3.86 crore in 2013. This number is expected to increase to 4.51 crore in 2017 and finally to 5.6 crore in 2022.

The question is will this happen? We will get around to answering that later in this column. Essentially, countries escape from being under-developed in three ways: geology, geography and jeans. Jeans is basically a code for low-skilled manufacturing.

As the Economic Survey of 2014-2015 points out: “In recent years West Asia, Botswana and Chile, and further back in time Australia and Canada, exploited their natural resources endowed by geology to improve their standards of living. Some of the island successes (Barbados, Mauritius, and others in the Caribbean) have exploited their geography by developing tourism to achieve high rates of growth.”

On the other hand, the East Asian countries (China, Thailand, Indonesia, Malaysia etc.) got out of being underdeveloped by concentrating on jeans i.e. low skill manufacturing. The initial fillip to economic growth came from these countries relying on low-skilled manufacturing. With time, they diversified into more sophisticated manufacturing.

India has missed the low-skill manufacturing revolution, for sure. Information technology was our great big hope. But the sector needs extremely skilled individuals, and thus has its limitations in creating sustained as well as wide-spread economic growth.

Also, it is worth pointing out here that no country in the world has escaped poverty by using skill-intensive activities as the launching pad for economic growth. One of the major criteria for creating rapid, sustained and wide-spread economic growth is the alignment of the fast growing sector with the comparative advantage of the country.

In the Indian case, this happens to be the availability of labour. As the Economic Survey points out: “To ensure that expansion occurs and the benefits of fast-growing sectors are widely shared across the labour force, there should be a match between the skill requirements of the expanding sector and the skill endowment of the country. For example, in a labour abundant country such as India, the converging sector should be a relatively low-skilled activity so that more individuals can benefit from convergence.”

In other countries which have had abundant labour, low-skill manufacturing has put the labour to work, incomes have gone up and sustained economic growth has been created. Due to various reasons, from focus on public sector enterprises to a surfeit of labour laws leading to firms which do not grow a certain size, India has missed out on the low-skilled manufacturing revolution, which has pulled many East Asian countries out of poverty.

The manufacturing sector as it has developed in India has been highly skill intensive. As Amrit Amirapu and Arvind Subramanian write in a research paper titled Manufacturing or Services? An Indian Illustration of a Development Dilemma: “It turns out that registered manufacturing is indeed a sector that is relatively skilled labour intensive…The share of workers with at least secondary education is substantially higher in registered manufacturing than in agriculture, mining or unregistered manufacturing and also greater than in several of the service subsectors. In some ways, this should not be surprising. High labour productivity in this sector is at least in part a consequence of higher skills in the work force. What it does suggest, however, is that registered manufacturing does not really satisfy requirement number four. The skill intensity of the sector is not quite aligned with India’s comparative advantage.”

 

Given this, Indian manufacturing the way it is currently structured is not going to solve India’s jobs problem. What India needs are jobs for the low-skilled. The current Modi government has tried to tackle the lack of jobs in India, by launching the Make in India programme.

Further, the question is, will the services sector, of which organised retailing is a part, be able to generate enough jobs. Estimates suggest that nearly one million individuals are entering the workforce every year. And this is expected to continue for a while.

Does the services sector have the potential to put low-skilled Indians to work? As Amirapu and Subramanian point out: “Services in aggregate are no less skill-intensive: on average, 78% of workers in the service sector have at least a primary education (77% in registered manufacturing), and 48% have at least a secondary education (43% in registered manufacturing). Furthermore, a large number of service subsectors – including 1) Banking and Insurance, 2) Real Estate and Business Services, 3) Public Administration, 4) Education, and 5) Health and Social Services – have significantly higher educational attainment (90% or more of workers have at least primary education) than registered manufacturing. What this implies is that many service subsectors (precisely the high productivity, high growth subsectors, for the most part), have a limited capacity to make use of India’s most abundant resource, unskilled labour.”

The NSDC report on organised retailing also talks about lack of skill in the organised retailing sector. Hence, if the services sector in general and the organised retailing sector in particular, have to create jobs in India, the skill-set of Indian labour needs to improve in the years to come.

As the Economic Survey points out: “Sustaining a skill-intensive pattern on the other hand would require a greater focus on education (and skills development) so that the pattern of development that has been evolving over time does not run into shortages. The cost of this skill intensive model is that one or two generations of those who are currently unskilled will be left behind without the opportunities to advance. But emphasising skills will at least ensure that future generations can take advantage of lost opportunities.”

Further, if a skill-intensive pattern of development has to be followed, what it means is that the Skill India programme is as important as the Make in India programme. As the Economic Survey points out: “What the analysis suggests is that while Make in India, which has occupied all the prominence, is an important goal, the Prime Minister’s other goal of “Skilling India” is no less important and perhaps deserves as much attention. Make in India.”

Disclosure: The basic idea for this column came after reading Akhilesh Tilotia’s research note Forecasts of fewer jobs dull demographic sheen. Tilotia works for Kotak Institutional Equities and is also the author of The Making of India.

-Read more at Equity Master (English)-

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