Two years on: PM Modi must show political will, resolve to defuse unemployment time bomb

As the NDA government completes two years at the helm on Thursday, findings from a couple of recent surveys should worry Narendra Modi.

While the Prime Minister's personal approval ratings remain high and many respondents are in favour of giving him one more term at office, the government is perceived to be faltering on one critical issue: jobs.

Prime Minister Narendra Modi. PTI

Prime Minister Narendra Modi. PTI

An online poll, conducted by Network18 in association with LocalCircles with a sample size of 3.75 lakh (46% from tier 1 cities, 26% from tier 2 and 27% tier from 3 and rural areas) finds that 46% people believe the government has met expectations, 36% say the NDA has failed to do so and 18% say the government has exceeded expectations. An overwhelming 61% believe corruption has reduced after Modi took charge.

Crucially, however, around 43% respondents say unemployment has "not reduced" in the last two years as against 35% who feel it has.

Another survey, conducted by the Centre for Media Studies (CMS) covering around 4,000 respondents across rural and urban areas of 15 states, finds that 62% approve of Modi's performance and 70% would like him to continue as Prime Minister for at least 10 years.

Inability to provide employment, however, has been cited as one of the top failures of the government.

The enormity of the problem

Across surveys, the indications are clear. The government needs to create more jobs. And it needs to do so fast. As growth in the key manufacturing sector grinds to a decadal low with investment drying up due to poor domestic demand and slumping exports, Modi's poll promise of creating two crore jobs each year appear way out of target. The government did announce last month that it is set to add more than 2 lakh central employees over a period of two years from 1 March, 2015, but in a country where 13 million Indians enter the job market every year, this is a pittance.

Survey perception matches dismal data

Latest Labour Bureau data, carried recently in a Firstpost report, points out that India's much-vaunted 7.6% GDP growth may be essentially jobless. Instead of creating employment, the Indian economy has witnessed a decline of 20,000 jobs across eight labour intensive sectors in the quarter ending December 2015. The December quarter pulled down the number of job creation between January-December 2015 to just 1.35 lakh, the slowest pace since 2009 when the UPA was in power.

The recently concluded assembly elections across five states threw up one little-stressed fact. Voters placed greatest importance on economic development above all other markers. In West Bengal, Mamata Banerjee returned with a thumping majority despite a plethora of corruption charges against her party mainly because she focused on rural development and pulled up the state's GDP growth.

Incumbents in Assam and Kerala were shown the door by voters because growth had witnessed a slowdown in these states.

For a demographically young nation like India, employment remains the most important parameter and it is here that Narendra Modi faces his biggest challenge.

Who can provide jobs to skilled and semi-skilled youth migrating from rural areas? The manufacturing sector that also includes MSME (Micro Small and Medium Enterprises). Let's see what's happening there.

Deep depression in manufacturing

Modi's 'Make In India', aimed at turning the country into a manufacturing hub on the lines of China, has so far failed to take off as an initiative. There are roughly two sets of reasons behind it. I shall come to the global factor in a bit but domestically, despite a favourable perception that the government has substantially improved ease of doing business (60% in CNN-News18 survey), few of the foreign investors such as Xiaomi, Boeing, Foxconn and Hitachi who are keen on making in India still struggle with infrastructural shortcomings and policy-related hurdles.

FICCI's quarterly survey on Indian manufacturing, released last month, paints a grim picture. For the quarter ending June 2016, the survey polls 308 manufacturing units from 13 sectors — textiles, capital goods, metals, chemicals, cement and ceramics, electronics, auto, leather & footwear, machine tools, food, tyre, paper, textiles machinery — and finds that private sector investments in manufacturing would continue due to "uncertainty in the policies, poor demand conditions, high cost of borrowing, delayed clearances and cost escalation".

What is the result of this depression? More than 80% of those polled in June said they are unlikely to hire additional workforce in the next three months, says the survey.

Globally, India is now at a disadvantage because the world may not simply be ready for another export-led economy like China with manufacturing witnessing a global slowdown. US Presidential hopeful Donald Trump, who seems almost sure to win Republican nomination after winning the Washington primary and Hillary Clinton, who looks set to be his rival, have both promised to insulate American economy from a Chinese invasion.

In other words, Indian exports are unlikely to see an immediate spurt. The future is uncertain.

The FDI paradox

A seemingly paradoxical factor is evident. FDI inflows have witnessed a record rise under Modi who has been actively wooing foreign investors. India, in fact, has surpassed even China. If that is the case, why is manufacturing not reflecting the trend? It could be because a lion's share of the FDI is being directed towards the services sector where India possess an army of educated and highly skilled white collar labour force.

In the first seven months of 2015-16, while the total equity flows grew by 26% to $27.1 billion, the equity flows going to the services sector grew by 74.7% to $14.8 billion.

What could be the remedy?

It is imperative, therefore, for the Modi government to kickstart domestic demand instead of looking at global cues. And to kindle it, it must focus on two key areas where it has been spectacularly unsuccessful so far.

Amending land bill and initiating labour reforms

UPA's growth-retarding legacy, the Land Acquisition Act of 2013, is the biggest villain of the piece. As Vivek Kaul wrote in Firstpost: LA Land Acquisition Act which discourages land acquisition cannot be of much help to an economy which needs to create jobs for 13 million individuals entering the work force every year."

Jairam Ramesh, the Congress leader who was one of the key figures behind the 2013 bill, in a book with Muhammed Ali Khan (Legislating for Justice—The Making of the 2013 Land Acquisition Law) writes that: "The law was drafted with the intention to discourage land acquisition. It was drafted so that land acquisition would become a route of last resort."

Modi brought in The Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement (Amendment) Ordinance, 2014, which introduced some key changes to the original bill, making it easier for the government to acquire land for the purpose of defence, electrification, affordable housing, and industrial corridors. But unable to take political rivals along and lacking the expertise to initiate a fracture in the Congress-led Opposition's resolve to stall the amendment, he allowed the land bill ordinance to lapse.

Labour is another key sector where the Centre must initiate long-demanded reforms. India has one of the most rigid labour markets in the world, and that reforming the labour laws would lead to a major economic growth spurt. This would actually benefit labourers as more jobs — and more proper jobs — would become available.

But lack of political will or hesitation in biting the controversial Industrial Disputes Act, 1947, for amendments that would allow easier retrenchment and closure norms have meant that status quo remains.

That is unacceptable. Time Modi government understands that it cannot simply wait for the ticking bomb to explode.

Updated Date: May 25, 2016 15:05 PM

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