India needs to give manufacturing a better chance and abandon age-old concepts that hinder employment and growth, Raghuram Rajan, Chief Economic Advisor to the Finance Ministry, has said.
The country cannot reap the ‘demographic dividend’ unless more jobs are created in the manufacturing sector, Rajan said at a satellite session of the Delhi Economic Conclave here on Monday.
He said the answer to the problem of people not being able to move out of agriculture partly lay in creating more manufacturing jobs.
Besides making the entry and exit of firms easier, India should revisit the issue of local area banks to feed local businesses, he suggested.
Power supply, finance
Rajan admitted that steady power supply was required for industry, especially smaller units, and said the Government was focused on improving power availability. Local area banks were much better at meeting the needs of local entrepreneurs, he points out. Often, they did this better than a bank headquartered in Delhi or Mumbai and driven by bureaucratic rules.
Rectifying the shortage of manufacturing jobs was, therefore, very important for equitable and sustainable growth.
“If we don’t have that, the pressure to try and create welfare schemes will increase, simply because too many of our people will just not have the opportunities that they need”, he added.
Highlighting sectoral disparities building up in the economy, Rajan said that while agriculture’s share was declining, that of services had gone up. Manufacturing had remained flat.
“This is not surprising. As countries grow, agriculture declines. What is special about India is that the exit of people from agriculture has not kept pace.
Increasingly, people in agriculture are impoverished relative to those having jobs in industry or service”.
Unlike other countries, where people have migrated from agriculture to other sectors, India has not seen same level of migration, he said.
Sectoral disparities are creating enormous pressure for redistribution of welfare schemes, including more support to agriculture through increased support prices, and so on, Rajan said.
Scaling up
“We managed to move the States together, but perhaps we need to do more on the sectoral side to move people out of agriculture into other areas”
Rajan pointed out that the bulk of jobs were created by large firms or by small firms that grow into larger ones.
“We have a number of large firms, but that is not enough. What we are missing is small firms growing to become large firms”.
Small firms do create jobs, but they also lose jobs, he said, citing the case of the textile industry.
In India, 85 per cent of employment in textile firms is in units with less than eight people.
In China, 85 per cent of the employment in the textile industry is in firms with 50 people and above.
“Small firms are less productive than large ones. That explains why China — after the multi-fibre agreement — gets the lion’s share of world trade in textiles and we are struggling to compete with Bangladesh”, Rajan said.
Srivats.kr@thehindu.co.in