Solving India’s Income Problem (Part 4)

Commentary – 1

A few months ago, Janmejaya Sinha wrote in Hindustan Times: “Just in terms of per capita, there are three Indias. If we go by purchasing power parity (PPP) estimates for per capita in India, there is a Europe of about 50 million people with a per capita of $45,000 per annum; an Indonesia of 425 million people (double the size of Indonesia) with a per capita of $9,500 per annum; and a sub-Saharan Africa of over 900 million people with a per capita of $3,300 per annum, including about 300 million people, whose income levels rank even below sub-Saharan Africa. The first two Indias are good enough for business. It’s a consuming India, growing rapidly with increasing aspirations.”

He added: “As the consuming power of the top two Indias grows, businesses worldwide focus on them and cater to their needs. These segments are powering the Indian economy, already the world’s third largest in PPP terms. Yet, India cannot achieve its potential, or ever be called a developed country, without improving the lot of those living at sub-Saharan levels. What is worse is that the growth rates in the income of the top two segments are faster than the bottom, so by 2030, India’s Europe and Indonesia will account for over 70% of the total consumption spending. In 2030, there will remain 200 million people living below sub-Saharan Africa levels.”

Harish Damodaran analysed India’s jobs crisis in Indian Express (August 2022) with the help of the chart below:

The movement of workforce from agriculture that India has witnessed over the past three decades or more does not qualify as what economists call “structural transformation”. Such transformation would involve the transfer of labour from farming to sectors – particularly manufacturing and modern services – where productivity, value-addition and average incomes are higher.

However, the share of manufacturing (and mining) in total employment has actually fallen along with that of agriculture. The surplus labour pulled out from the farms is being largely absorbed in construction and services. While the services sector does include relatively well-paying industries — such as information technology, business process outsourcing, telecommunications, finance, healthcare, education and public administration — the bulk of the jobs in this case are in petty retailing, small eateries, domestic help, sanitation, security staffing, transport and similar other informal economic activities. This is also evident from the low, if not declining, share of employment in organised enterprises, defined as those engaging 10 or more workers.

Simply put, the structural transformation process in India has been weak and deficient.

He added: “Not everyone can be an IT professional. Given the lack of jobs in manufacturing — the sector potentially best placed to absorb the children of farmers and agricultural labourers — the bulk of the rural workforce is engaged in construction and the informal services economy. The somewhat better educated aren’t qualified enough to be programmers or write software code. They, then, aspire to join the armed forces or write the Railway Recruitment Board’s exams for NTPC (non-technical popular categories) posts. It’s another thing that not much recruitment is happening nowadays in these sectors. This, even as more jobs are getting created in industries requiring different skill sets — and in no position to absorb surplus labour from the countryside.”

P Chidambaram wrote in Indian Express: “The bulk of the jobs are outside government. They are in the private sector…There is a huge population that has multiple needs that are not satisfied. Fulfilling those needs, even partially, will create millions of jobs. Take personal transport: 24.7 per cent of households do not own a car or a motorbike or a cycle. Or consider household goods: in a tropical country, only 24 per cent of households own an air conditioner or air cooler. Just providing these essential goods at affordable prices to millions of households will vastly expand the country’s manufacturing capacity, create thousands of jobs and make life happier.”

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Rajesh Jain

An Entrepreneur based in Mumbai, India.