Job growth not GDP growth matters for India

Extensive commentary on the latest Indian GDP growth numbers has been unable to clear prevailing confusion on whether the economy is in its recovery phase or not. It would be more useful to focus on the data that the ordinary Indian cares about: jobs growth and employment. Yet, unfortunately, employment still does not seem to figure as a priority for Indian policymakers. This lack of attention to employment in a country that boasts the youngest population in the world is simply incomprehensible.

Combined with the fact that growth momentum was visibly weaker in the second half of 2014–15 compared to the first six months, it can be reasonably argued that overall economic weakness is persisting. This has prompted the Reserve Bank of India (RBI) to revise its growth target for 2015–16 downward from 7.8 to 7.6 per cent in the second bimonthly policy statement issued in early June.

Of the total FDI received by India in 2015-16, the three top sectors, services (including finance, banking and insurance), computer hardware and software and the trading segment, accounted for inflows worth $16.6 billion, or over a third of the total inflows received.

On the other hand, three of the large manufacturing sectors that have been shouldering the brunt of employment generation over the years, construction development, automobiles and drugs & pharmaceuticals, witnessed a net decline in FDI inflows during the year.

Construction development (including housing, township and built-up infrastructure), which has traditionally been the second largest FDI destination after the services sector, saw a sharp fall of 85 per cent in FDI inflows over the previous year.

The data would have been worse had it not been for the IT/BPO sector, where the employment surge during the last four quarters was higher than all the other eight-labour intensive sectors, including key manufacturing sectors such as textiles, leather, metal, automobiles and jewellery, put together.

Bhoday Sales Corporation is tucked inside the industrial zone of Ludhiana. A small machine tooling factory with a net worth of not more than Rs 10 lakh, it makes manufacturing equipment for other plants in the city.

Of late, it has fallen on bad times. Sales are down. At one time, says its founder, 68- year-old Maan Singh, the company used to make four power presses a month. It now makes one a month.

Bhoday is far from being the only company that is struggling in Punjab. A story published last December in Scroll reported industrial units across the state – steel plants in Mandi Gobindgarh, sporting goods manufacturers in Jalandhar, textile units in Amritsar, bicycle-makers in Ludhiana – were shutting down or relocating to other states.

A similar narrative is visible in industrial hubs in three other states that Scroll surveyed.

What is common to these industrial clusters is the loss of competitiveness. This is where the failing of the "Make In India" campaign lies. While it eases the regulatory process of setting up businesses in India, it doesn't do much to make manufacturing in India globally competitive.

The impediments go beyond issues like poor infrastructure. Political risk is an especially large factor. As mentioned earlier, in Punjab, the ruling Akali Dal, which has the Bharatiya Janata Party as an alliance partner, is extracting rent from industry and overcharging for power.