Why the Government Cannot Create Jobs Easily, despite PM Modi's Promises
In the last week of March, chief economic advisor (CEA) V Anantha Nageswaran said the government cannot solve all social and economic problems, such as unemployment. He wondered what the government could do on the employment front 'short of hiring more itself'. “In the normal world, it is the commercial sector that needs to do the hiring,” he claimed. India’s gross domestic product (GDP) grew 8% in the December quarter—while the unemployment rate among graduates is over 40%. But jobless growth is not a new syndrome. It has plagued every regime for the past 25 years, including the two Congress-led regimes as well.
 
I remember former CEA Shankar Acharya pointed out in his columns in this very space, how even the strong growth in the mid-2000s did not lead to a commensurate rise in employment. The United Progressive Alliance (UPA) was led by a dream team of ministers and bureaucrats. The finest brains in the government and outside had formulated numerous schemes, including job guarantee schemes. But to no avail. Unemployment remained high. The Modi government has brought in an equally large number of policies, yet unemployment has remained sticky.
 
When Narendra Modi was campaigning for power in 2013-14, in his election rallies, he often asked the youth: “Aapko naukri chahiye ki nahi chahiye?” In one of the earliest election speeches in Agra in November 2013, he had promised one crore jobs a year to the youth if voted to power. When Zee TV asked him about this promise in January 2018, prime minister (PM) Narendra Modi instead pointed out that street food vendors, selling pakodas, should also be included in employment statistics; and so, unemployment in the country is much lower. The PM’s creative logic drew a few laughs giving birth to “pakodanomics” while the PM’s supporters passionately argued that it reflects the PM’s right emphasis on entrepreneurship.
 
Why is it so hard for government actions to create jobs—so much so that even high economic growth under different regimes is not good enough to change the basic picture of unemployment? One, as Mr Nageswaran correctly pointed out, “it is the commercial sector who needs to do the hiring.” But then, shouldn’t he ask himself – or ask the commercial sector – why is it not creating more jobs? Businesses don’t hire for the sake of it. They hire when they think they need more hands.
 
Unfortunately for netas, babus and job-seekers, they also weigh the advantages of hiring humans versus acquiring machines. Many aspects of manufacturing and construction are now mechanised which is preferable for businesses. Humans need skilling, careful managing and replacing when they quit. It is challenging but necessary for labour-intensive sectors like textiles and the service sector. Indeed, there is a shortage of skilled employees in all service businesses like travel, transport, hospitality, healthcare, software development, maintenance and repair functions, design, finance and marketing. Anyone with skills in these areas is not jobless.
 
So, can’t government policies nudge businessmen to hire more? Of course, they can. That leads us to the second reason for jobless growth: while PM Modi promised jobs before the 2014 election, for six years, he did nothing to help create them. Between 2014 and 2020, his initiatives were mainly social: Swacch Bharat, Jan Dhan, Digital India, Beti Bachao Beti Padao, Suraksha Bima, Jeevan Jyoti Bima, Atal Pension, and Soil Health Card.
 
The 'economic' schemes of this period, like Make in India, Skills India, MUDRA loans and Startup India were a lot of sloganeering, with very little impact on job creation. The coup de grace was the Tughlaki scheme demonetisation which destroyed small businesses and jobs. 
 
No wonder India’s GDP growth dipped to 5% before COVID-19 (even after making a 1.5%-2% upward adjustment by changing the method of GDP calculation). The economy sank into a morass.
 
A panicky government drastically cut corporate tax rates on 20 September 2019 to make businesses invest and hire. This gamble failed. Businesses refused to step up, given poor demand growth.
 
However, in the post-COVID-19 period, GDP growth picked up and government revenues boomed, allowing the government to launch a new set of ambitious policies. This time, it was all hands-on development projects and simultaneous initiatives in multiple directions – something never seen before. The government announced production-linked incentives during COVID-19 itself.
 
Then came the defence production and export policy and railway modernisation. In the 2023-24 Budget, the government allocated an unprecedented Rs10 lakh crore for infrastructure. Implementation is visible on the ground in the railways, defence production, road transport, urban infrastructure such as metro projects (some of it wasteful), water, power, etc. It has even made destructive changes to the Indian Forest Act to remove hindrances in the path of 'development'. I am certain this will lead to some job growth. Does the government need to do more?
 
If the “commercial sector needs to do the hiring,” real and frictional cost (read corruption) of doing business needs to be slashed and Chinese dumping at below cost has to stop. Writing on the issue of job creation seven years ago, I had said that successive governments have contributed to making the lives of businessmen tougher.
 
The prime minister’s office can have a team whose only job is to listen to businessmen’s mann ki baat about the reasons for the high cost and delays involved in doing business. Common and recurring problems could be clubbed and eliminated; this would require working with the states (at least the BJP-ruled ones). The team could also monitor a few labour-intensive projects to understand the bottlenecks they face, right up to the implementation stage, and recommend systemic changes.
 
Maybe we will see this happening in Mr Modi’s third regime.
 
After all, he has come a long way from wasteful publicity of social schemes to Central funding of development projects. Freeing job creators from a corrupt and destructive web of policies and practices from the Centre down to the talukas is the third and final step required. Jobs would follow, to the extent possible. Beyond that, we wade into a much more difficult terrain of education and skilling.
 
(This article first appeared in Business Standard newspaper)
 
 
Comments
duvvuridp
1 month ago
The number of jobs to be created is really large. Manufacturing has to be an important source of any large scale increase in jobs. For this to happen skills and capital are needed. Then the challenge will be markets to absorb the production that follows. As the output per person increases with technology, lesser number of people will be producer for very large number of consumers, hence absorption of labour will be diminishing even if we see large-scale growth in manufacturing. It is not private or public sector, structurally there are limits to job growth. Add to this issues of quality, international competitiveness, visible/invisible tariff barriers and so on.
As a nation, perhaps, India has to innovate most in the labour market than in any other.
yerramr
1 month ago
Promising jobs is the last thing that the government should do. Most such jobs will be replacement of the retired. In stead, the Government should facilitate massive manufacturing facilitates . AI and ML are already threatening jobs in the leading services sector and even the structural change - shift from the farm sector to the industry sector did not happen. If this were to happen, agro-industry hubs are the best solution. Abounding small farms should have door-step market sale that need more and more aggregators who can sell either the direct produce or processed quality certified food products should vastly reach the markets both domestic and export. Here lies the on-farm and off-farm sector employment leading to structural change. These require a definite policy shift.
mudit3
1 month ago
Our governments since independence are more colonial and feudal than the earlier rulers. The mindset is how to extort bribes for giving approvals. Change the approach by having blockchain method of approvals or outsource the government to the Republic of Singapore which has a proven track record of efficient governance. Even inter governmental approvals should employ blockchain technology rather than the antedilevian method of notings on files.
adityag
1 month ago
The only "structural changes" required is "minimum govt" and leave it to private sector to solve this problem. It wont be easy. There WILL be pain and suffering along the way. This is not politically palatable.

Any learned individual and student of economics (and markets) knows central planning is a joke.

We need leaner systems with FEWER rules (unlike SEBI, coming up with one stupid rule after another, laced in irony as it is helmed by a woman who worked in private equity).

We need to bring back the first motto of the BJP govt. Minimum Govt. Libertarian policies and systems. Hit the gym, cut the carbs, and shed the bloat. Needless, it's still the best Govt India has ever had, so I'm not complaining. The trade-offs I've seen so far are quite good and reasonable. You can't have everything.
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