BackArun Maira | Building a jobs machine
If India is to generate the 100 million jobs it needs, it has to create strong manufacturing networks
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People want to stand on their own feet, look after themselves, earn their own incomes. The principal strategy for inclusive growth must be the creation of widespread opportunities for incomes from employment and enterprise, rather than focusing excessively on gross domestic product (GDP). This is because GDP can be increased while creating few jobs.
India’s track-record of increasing GDP over the past 10 years has been impressive. But the economy has been creating fewer jobs with each per cent increase in GDP than its peers have—its immediate South Asian neighbours, countries in Southeast Asia, and other BRICs (Brazil, Russia, India and China) countries.
The pattern of growth matters to citizens more than the amount of growth. India’s manufacturing sector has limped along at around 15% of its GDP since the 1990s in spite of economic reforms and substantial increase of GDP. The government’s Make in India programme aims to rectify this. However, the measure of its success must not be whether the manufacturing sector becomes 25% of the GDP, which is often stated as the objective of the manufacturing policy, because that goal could be achieved with large capital-intensive plants and refineries. Which would not create many jobs. Therefore, the measure of the national manufacturing strategy’s success must be the numbers of jobs created across the country, especially in small and medium enterprises that create more employment, to ensure inclusion of people everywhere in the country’s progress. In the next 10 years, the aim must be to create 100 million good jobs across the country in manufacturing.
The strategy must be to make India a manufacturing powerhouse. This requires the creation of strong networks for manufacturing and their integration into global supply networks. A World Bank study has found that the fragmentation of manufacturing networks in India’s textile and apparel industry, with poor connections amongst its participants, has resulted in unreliabilty and longer lead times compared with countries much less endowed with raw materials and design capabilities than India, which nevertheless can deliver more and faster. This is the principal reason India’s apparel industry, which can generate a large number of jobs, is not a bigger player in global networks.
Connections within India’s manufacturing networks are poorer than other countries’ on account of poor physical connectivity, regulatory barriers, and weak institutional capacities. Reducing costs associated with labour further with changes in labour laws will not give India the break-through required to become a manufacturing powerhouse. The World Bank study also found that logistics constitute 10-14% of operating costs of Indian manufacturing firms which, combined with uncertainty and delays, makes Indian firms non-competitive in spite of lower labour costs. The goods and services tax (GST) will be a big first step, but a lot more must be done on the ground to build physical infrastructure and improve organizational capabilities. GST is a big ticket reform. Other reforms required are small and many. Institutional capacities to implement and get things done cooperatively, must be developed across the country. Without them, India will not create the 100 million jobs it must.
Connections between units must be strengthened to make a strong manufacturing network and the units must be strengthened too. The total factor productivity of manufacturing units in India, i.e. productivity of not only their labour but also of capital invested in machines and materials, must be improved for them to be globally competitive. Their quality and reliability must be improved too. The way to do this is to release the power within people to improve their own skills and also improve the quality and productivity of the unit’s manufacturing systems. “This is MBA 101 stuff", says M. Diane Burton, professor of human resource studies at Cornell University. “When people are your source of competitive advantage, it’s clear that a long-term employment relationship and what we call a ‘good job’ is good for the workers and good for the companies."
The key ingredients for improving total factor productivity fast and sustainably are human assets and trust between all stakeholders in the enterprise.
Industrial relations practices in India must be improved greatly. India has some world-class examples of good industrial relations’ practices. But almost all units in a network must have good practices for it to be strong. Weak units weaken manufacturing networks. Bad practices in a unit can cause wide regional unrest. Employers’ associations and labour unions must work together to build cultures of collaboration within all units to make India a manufacturing powerhouse.
India’s labour laws must be changed. They are archaic, too many, and badly administered as well. Both unions and employers have been demanding changes in the laws and their administration. Now governments, in the centre and in some states, are moving to make changes. This is a welcome step. The process of bringing about changes in laws must create more trust amongst the stakeholders and not reduce it further.
Imagine four possible conditions of India’s manufacturing sector: unreformed labour laws and poor trust within enterprises; unreformed labour laws yet high trust; reformed labour laws and poor trust; and reformed labour laws and high trust. The high trust route with reforms is the way India must go because strong networks and trust are the keys to convert India’s manufacturing sector into a jobs machine.
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