Indian policymakers should not assume that all manufacturing industries will generate lots of jobs.
The Make in India jamboree that just ended in Mumbai apparently attracted $222 billion (Rs 15.2 lakh crore) of investment pledges, though cynics say more than a few of them are old announcements that have been dressed up and trotted out once again by industrialists who want to curry favour with the government. Studies by different organisations estimate that only about 13 per cent of pledges made at such investment fairs actually materialise into projects on the ground, though Amitabh Kant, Secretary, Department of Industrial Policy and Promotion (DIPP), told reporters that he expected 80-85 per cent of the pledges to come good.
Even if half of what Kant estimates actually gets invested over the next five years, it is an impressive number. The Make in India programme is supposed to fulfil the twin goals of Prime Minister Narendra Modi. One, make India a global manufacturing hub, which will drive India's growth over the next two decades. He expects manufacturing to contribute to 25 per cent of India's GDP in a few years' time. The second goal, which follows from the first, is to create 100 million jobs in the Indian economy within six years.
The focus on increasing manufacturing's share and getting more manufacturing investments into India stems from the government's belief that the service revolution that drove growth in the initial years of the UPA regime did not create enough jobs for those who were not engineers. And given that an estimated one million youth in India will join the workforce every month for the next 15 years, most of whom are both ill-educated and poorly skilled, the demographic dividend that the country boasts of will soon turn into a demographic curse. The government believes that a manufacturing revolution - of the kind that China saw in the past two decades - would create enough jobs to meet India's needs. Currently, though the economy is supposed to be growing at 7.5 per cent per annum, it is barely creating 5.5 million new jobs in a year, according to most estimates. In many industries, labour statistics show that jobs have actually been lost over the past few years.
Unfortunately, what the government's policymakers do not seem to realise is that a manufacturing revolution in India may not automatically create lots and lots of jobs. For the country, both manufacturing competitiveness and jobs are equally important but the two will not necessarily move in sync with each other. That is because today manufacturing competitiveness no longer depends on inexhaustible supplies of cheap labour. Modern manufacturing is far more technology focused.
It is true that once upon a time, manufacturing competitiveness and availability of cheap labour were almost synonymous. Higher labour costs saw manufacturing move out of the US and other developed countries to developing countries with cheaper labour such as Mexico (initially) and then Brazil, Taiwan and then, of course, China. The growth of our north-eastern neighbour was powered by manufacturing shifting to it because of its cheap and highly productive labour.
More industrialists should have made that point with the government. With the rise of automation and the improvements in robotics, more routine jobs that were earlier being done with cheap labour will be replaced by technology substitutes. Robots in factories are becoming both cheaper and more sophisticated. Some estimates in fact point to a bleak future of robots taking over almost 50 per cent of the jobs being currently done by humans, especially jobs in factories, within the next three decades.
Already, a McKinsey study shows that while manufacturing's share of global GDP is about 16 per cent, its share of jobs in the global economy is lower at 14 per cent. It will reduce even further as technology is adopted even more in tomorrow's high tech factories. Some developed countries such as the US, which saw manufacturing flee to other cheap labour countries, are finding that times are changing. Manufacturers are returning because of a combination of high-tech manufacturing practices that lower need for cheap labour, and also because of lower energy costs (shale oil) and proximity to customers.
Equally importantly, modern factories are looking at hundreds of ways to improve productivity of even the humans they employ. So, in the future, even for human only jobs, what needed hundreds of people earlier to accomplish is likely to require only a couple of dozen.
The point is that countries which think that cheap labour is their sole advantage in the global manufacturing landscape are losing their edge within the next two decades. In fact, even in services, automation is rapidly taking over many jobs that were done by low cost workers. But in services, there are still plenty of jobs that are being created even as low end jobs are vanishing.
The policymakers would do well to recognise this. India needs to become a manufacturing powerhouse and policies need to be created for that. But those policies should not assume that all manufacturing industries will generate lots of jobs. But as India also needs to create a lot of jobs, it needs to look at other sectors in services where new jobs can be generated and start thinking of policies to boost those as well. Old style thinking will not serve any long- term purpose.