media coverage of my Brookings report, India @ 75: full of contrasts, full of opportunities, full of challenges, has mostly focused on India’s increasing industrial concentration. I am glad that a debate has started on this important issue. Here, I want to highlight another set of issues that have received less attention. These pertain to providing better education to our children, skilling our youth for better quality jobs and restoring the female labor force participation rate.
Why are these issues central to India’s macroeconomic outlook? They affect our ability to achieve potential output without inflationary pressures. Officially available data on listed-company salary hikes appear to be in double digits, far exceeding the rate of inflation. This wage spiral is complicating, given the growing sluggishness in our overall employment, as some analysts believe.
Effectively, India’s ‘Phillips Curve’—a relationship that shows that when unemployment levels are high, the rate of inflation is low—seems to have moved up and/or down. This reflects a lack of sufficient skilled labor for the formal sector, which is outperforming the informal sector, as well as a lack of adequate upgradation of labor skills to take advantage of the potential in the formal sector. Due to this mismatch, India is creating very few jobs relative to the size of its labor force.
One reason is that there are too few skilled workers, especially in agriculture. Substantial subsidies of input factors—electricity, fertilizers, water, credit, etc.—keep the sector bloated. According to World Bank data, the share of India’s agricultural labor force in 2020 was 45%, which is huge considering that the sector’s share of GDP is less than 20%. Furthermore, the sector operates at low efficiency in terms of value added per employee. Overall, this makes the distribution of workers low-skilled and unfavorable for India being able to grow at full potential without inducing wage spirals.
Despite steady improvements in school enrollment in India since 2006, according to the Annual Status of Education Report (ASER), the substantial education gap leading to the development of a high-skilled workforce encourages labor to remain in low-skilled jobs. Educating the girl child Some of the recent learning gaps are undoubtedly due to extended school closures during the Covid lockdown. However, the biggest impact of the Covid years has been on India’s female labor participation. According to survey data from the Center for Monitoring Indian Economy, it is set to decline from 18% in 2016 to less than 11% in 2022, and surprisingly to less than 7% in urban areas. Even the Periodic Labor Force Survey (PLFS) data shows that female labor force participation is low in absolute terms and relative to most peer countries.
These trends do not bode well for India’s productivity going forward. While the problems are too complex to fix overnight, I propose three steps.
First, there is a need to reduce the share of low-earning agricultural labor and partially replace it with better skilled high-earning labor. One way is to (i) raise the currently subsidized costs of the sector to market prices over a period of time, (ii) allow foreign entry into the sector and increase it from its current extraordinary level of around 35%. increase its productivity by reducing tariffs, and (iii) reduce the penetration rate of agricultural labor by training youth for vocational skills in manufacturing and services. The latter could be a flagship project of a center dedicated to skill development in partnership with private firms.
Second, the large primary education gap in children’s education during the pandemic needs to be decisively addressed. One option is to provide a grade-by-grade national curriculum for a 30-day remedial summer program and the other is a 30-day start-of-the-year boot camp for reinforcement. ASER-style surveys can be conducted at the pre-summer, end-of-summer and boot-camp exit phases to assess success and identify remaining gaps to help plan further remedial action Are. A parallel ambitious move could be to set up ‘charter’ or ‘magnet’ public schools in each state that offer high-quality science, technology, engineering and math (STEM) education at the secondary school level, with screening based on entrance exams. Provides education. Such schools will help create an aspirational learning path for many less privileged children.
Lastly, the need of the hour is to make it easier for women to join and stay in the labor force, especially in urban areas. Given that Indian companies are required to contribute a minimum of 2% of their net profit in the last three years towards Corporate Social Responsibility, the following eligible expenditure may be made: (i) Support to institutions that provide education and skills to the girl child; provide for the young female population; (ii) maternity leave and primary caregiver relief for spouses that are replaceable to increase the mother’s flexibility in resuming work; and, (iii) setting up of quality childcare facilities in the company premises or in the neighborhood to reduce the domestic burden of working women.
India’s primary advantage in taking on the China-plus-one challenge is the country’s demographic profile. We must pay more attention to our children, youth and women to fully realize our demographic dividend.
Viral Acharya is professor of finance at New York University’s Stern School of Business and former deputy governor of the Reserve Bank of India.,
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