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Millennium Post

Reorienting job generation strategy

At a time when the global economy is in panic following the political instability in Italy and uncertainty over the future of euro, it takes courage to talk of successfully navigating ‘difficult times’, but the Economic Survey for 2012-2013 presented to Parliament on Wednesday has done that. The seriousness of the existing challenges to the Indian economy, especially in the fiscal side have been underlined but there is strong optimism that India will come out of this more stronger  by adopting a set of policies which will take care of  both growth and social security.

Raghuram Rajan, chief economic adviser of the finance ministry has done a splendid job in focusing on the right issues and at the same time mentioning of the big strengths of the Indian economy, especially its demographic dividend, which will steer the course to the path of steady growth. In fact, the Survey mentions that slow down is a wake up call for increasing the pace of actions and reforms and the way out lies in shifting national spending from consumption to investment, removing the bottlenecks to investment, growth and job creation. This will be done through structural reforms, combating inflation through both monetary and supply side measures as also reducing the cost of borrowers. The tenor of the Survey along with the policy prescriptions, is aimed at ensuring a growth of 6.1 to 6.7 per cent in 2013-2014 but the roadmap as suggested is set to push the growth rate in the next two/three years and take the Indian economy to the high growth path of nine to ten per cent within the 13th five year plan period. In the process, the Survey has candidly set the tasks for high resources mobilisation since India has to quickly restore domestic balance taking into account the unfriendly external economic environment. The Survey’s strategy is that for bringing about fiscal consolidation which is a primary task in the coming budget, the agricultural production has to be augmented so that there is lower inflation giving the Reserve Bank of India (RBI) the requisite flexibility to reduce policy rates. This is necessary since the lower interest rates could provide an additional fillip to investment activity for the industry and services sector.

What is remarkable about Rajan’s assessment in the Survey is that he has put the demographic dividend of India in proper perspective and explained how this advantage has to be taken in full as against China and other ageing countries to catapult India to the driving seat of the global economy. The chapter on ‘seizing the demographic dividend’ is the most significant part of this Survey and it unfolds a vision and suggests a roadmap for a resurgent India.

What is significant is the link of the job aspirants in the market with the availability of skills and the quality of the jobs. Thus the question has come of revamping the education sector for creation of skilled and good jobs because such jobs are both the pathway to growth as well as the best form of inclusion. And here this Survey makes a very interesting observation. Cross country evidence suggests that productivity is an increasing function of age, with the age group 40 to 49 being the most productive because of work experience. Nearly half the additions to the Indian labour force over the period 2011-2030 will be in the age group 30-49 even while the share of this group in China, Korea and the United States, will be declining. The Survey then observes that India will be expanding the most productive cohorts even while most developed countries and some developing countries like China, will be contracting theirs in the coming decades, can be a major source of advantage.

The issue of adequate job generation as also the quality of jobs has been given priority concern in the Survey and that speaks of the mindset of the Survey this time since India is seeking to have a global recognition in a number of areas in technology. What seems disquieting is that the high productivity service sector is not creating enough jobs. As the number of people looking for jobs rises, both because of the population dividend and because share of agriculture is shrinking, these vulnerabilities will become important. The Survey therefore calls for a thorough appraisal of the job creation policies to ensure that the right types of jobs are generated leading to the optimum absorption of young people to the productive sectors. This course is essential for the high growth of the Indian economy on long term. That way, for the first time, there is a serious attempt to reorient the job generation strategy to take advantage of the demographic dividend of India.

It is clear from the Survey that despite working for growth, the finance minister will not relax on the issue of inflation management and that remains a major task for the government in an election year. The Survey therefore underlines that from the government perspective, a major contribution to the fight against inflation will be to reduce the fiscal impetus to demand. Also a focus on incentivising food production through measures other than price supports while facilitating storage and distribution, can help contain food inflation which is hard for the RBI to control. Further, policy on price and procurement supports should be calibrated so as not to encourage more production of crops that are already abundantly supplied.

The 2012-2013 Economic Survey has the imprint of a visionary and it is commendable that while identifying the short and medium term challenges facing Indian economy and the 2013-2014 budget to be presented by the finance minister tomorrow, the makers of the Survey have taken a larger view of their role and given enough indications as to how the new India should emerge. (IPA)
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