Dr Bharat Jhunjhunwala
Finance Minister Arun Jaitley will soon present his maiden budget which will have a deep impact on our relationship with the global economy. An increase in import taxes will create barrier between us and the global economy. Foreign goods will enter our markets with ease. It is understandable that businesses are in favour of deeper integration. Indian businessmen as well as Multinational Corporations are itching to make profits from the global market. But whether this is beneficial for our people is an open question.
It is suggested that Foreign Direct Investment (FDI) should be allowed in all sectors except multi-brand retail. It is said that this will create jobs and enable us to access frontier technologies. Simultaneously it is proposed that import tariffs should be reduced in order to provide low cost imported goods to our people. Exports should be facilitated so that we can gain from our comparative advantage in areas such as pharmaceuticals and spices. That will create jobs. Indeed these fortuitous impacts will take place. Large numbers of middle class jobs have been created in the services sectors like call centers, software programming, research, medical transcription, processing of insurance claims, etc. courtesy global integration. But question is whether this will be adequate for begetting us 10 percent-plus growth rate and to provide jobs to our youth.
This model has been implemented across the world under the aegis of the World Bank and International Monetary Fund during the last two decades. The net result is not encouraging. The International Labour Organization has pointed towards the worsening of the global employment situation in its report titled Global Employment Trends, 2014. It has reported that young people are not getting jobs: “The global youth unemployment rate has reached 13.1 per cent, which is almost three times as high as the adult unemployment rate. Indeed, the youth-to-adult unemployment ratio has reached a historical peak.” The second point is that jobs are mostly being created in the informal sectors like that of rickshaw pulling and housemaid in South- and East Asia: “In some countries in these regions, informality rates reach up to 90 per cent of total employment… the lack of formal employment opportunities is likely to constitute a barrier to a sustainable further reduction in poverty.” Stats provided by the Government of India confirm these trends. There has been a net addition of only 11 lac jobs in the organized sectors in our economy between 2000 and 2011. About nine crore workers have entered the job market in this period. Only one out of hundred entrants has got a job in the organized sectors. The beneficial impacts of global integration are proving grossly inadequate for meeting the aspirations of our people.
The lack of employment opportunities is a logical result of the FDI-cum-free trade model. Large-scale production is undertaken by few highly skilled workers on automatic machines. These workers are paid huge salaries of Rs 1-2 lacs per month. They employ three maids and two gardeners in their homes. The organized employment is shrinking while unorganized employment is expanding. FDI and export industries are simply not providing high-quality jobs that are expected. Let me clarify that this problem is not restricted to FDI. Domestic big industries contribute to it as much.
There is a consensus that small and medium industries should be provided encouragement. But it is not recognized that there is a direct conflict between big- and small industries. They operate in the same market. If a big industry starts making cheap eye glasses; the small industries have but to close down. It is like inviting a trained wrestler and saying that encouragement will be provided to the village youth suffering from malnutrition to compete with him. The wrestler will invariably win. The mainstream economists do not have a solution to this problem.
I am not arguing for a disconnect from the global economy. I am seeking calibrated globalization which is in conformity with our circumstances. There is a need to invite only that FDI which leads to net creation of jobs or to the transfer of advanced technologies. Say a MNC wants to open a furniture manufacturing facility in the country. Let us assess how many jobs will be created directly in that factory. Let us also assess how much furniture will be produced by the MNC and how many carpenters will have to shut shop as a result of cheaper furniture from MNC becoming available in the market. We can then assess the net impact on employment. Then let us assess how much benefit will accrue to our consumers from the availability of cheap and good quality furniture; and how much new technology will become available. Now we can make an overall assessment. We can assess the loss to our people from employment as well as gains from cheaper furniture. If the gains are huge then we must allow the big business to operate otherwise require it to shut down. We may similarly assess the impact of free trade. Let us calculate the benefit to our consumers by allowing import of cheap paper; and also calculate the number of jobs that will be lost in the Indian economy because of the same imports. Then let us take a decision whether to allow those imports or not. It can be free trade in spices may be good while that in bicycles may not be so.
The WTO will be a big hurdle in such calibrated approach. The WTO comes in a package. Either we accept free trade in toto or we are out of WTO. This is only the larger picture, however. There are many provisions in the WTO that allow us to move in calibrated integration. There is a livelihood clause. We are permitted to impose restrictions where livelihood of large number of our people is affected. We can impose non-tariff barriers on grounds of quality etc. Other ways have to be found. We should even be prepared to quit the WTO if we find that the net impact on our people is negative.
We will be reaping the demographic dividend in the next decade or so. The only way to attain 10 percent-plus growth rates is to convert this huge labour force into a productive asset instead of the liability that it is becoming increasingly. We will be saving huge expenses in welfare programmes like providing subsidized food to BPL, MNREGA, Right to Education, etc. The money saved can be invested in infrastructure which will then jump start our economy. The challenge before the Finance Minister is to adopt calibrated globalization instead of the mindless integration with the global economy pursued by both UPA and NDA-I governments in the last two decades.
(The author was formerly Professor of Economics at IIM Bengaluru)
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