India stares at a demographic crisis

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By ABHIRUP BHUNIA

With trouble brewing in farming and realty, factory output slackening and joblessness on the rise, radical solutions are needed

A study from 2014 indicated that 76 per cent of the youth belonging to farming households in India were not interested in pursuing farming as an occupation, and a large share of landless and marginal farmers preferred exploring livelihood options in cities. Given the recent agricultural crisis, the scenario is least expected to have changed for the better.

The reason behind agriculture’s decreasing appeal among even its practitioners is simply that the economics of farming is failing in India. It has to be understood that sustaining 50 per cent of the population gainfully on what constitutes less than 12 per cent of the GDP pie has proven untenable. Farm loan waivers are no solution, as many experts have pointed out, akin to only a temporary symptomatic relief to a deep-rooted disease characterised by routine unremunerative-ness.

Farm woes

It is worth pointing out that interventions to increase agricultural productivity is only part of the solution, because it is often a supply glut in perishables that induces price crashes leading to poor or no recovery and trapping the farmer in debt. For example, in 2016-17 bumper harvest notwithstanding, farmers suffered. The inflation targeting mandate of the macroeconomic policy dispensation (RBI and finance ministry) is also problematic for farmers already operating in a fragmented supply chain with grossly inadequate access to either infrastructure, the market, credit or proper insurance.

Two intelligent ways forward to keep at bay a demographic disaster include a China-like push to engender an en masse shift from farm labour to industry, or millions of rural micro-enterprises that are in agro-industries or otherwise. A specific push for value chain upgradation including food processing, packaging, etc. by cooperatives or farmers groups / producer companies can be explored. But one must guard against over-optimism on pooling of resources, given that successes, barring exceptions, have been few and far between.

A macro, micro problem

Meanwhile, to create mass employment in industry, the manufacturing sector needs to take the lead and perform. This need not be big manufacturing. Even MSMEs are fine. Typically, manufacturing has worked well for large scale job creation, because farmers can be absorbed in manufacturing without much additional skilling, and with an export-oriented thrust, the sector might actually bypass muted demand scenarios domestically. On all fronts, India’s recent record is troubling. Exports have fallen by and large, and the recent cheer over monthly data is premature (See chart).

Right now, with banks under duress, gross fixed capital formation (GFCF) — a proxy for private investment in the economy — has hit rock bottom (See chart). Likewise, the battered banking sector — thanks to corporate India’s bad loan problem — does little to help the already undercredited MSMEs.

According to latest estimates, MSMEs contributed 37.33 per cent of total manufacturing output in the country. During 2015-16, MSMEs made up almost as much as 50 per cent of total exports. It needs no underlining as to the importance of MSMEs with respect to job creation. Organised manufacturing slowed to 1.2 per cent in the June quarter against 5.3 per cent in the preceding quarter.

Some reports suggest that the MUDRA initiative — aimed at creating microenterprises across India’s villages, towns and cities — has proven to be a dark horse among all of Prime Minister Modi’s policies. One report goes on to claim that 16.18 million incremental jobs have been created under MUDRA in the last two years. But more rigorous evidence about MUDRA’s impact on job creation and incomes is needed.

Construction — which is the second largest employment generator in India — is undergoing its biggest slowdown since 2008.

Not so stable

It is to be noted that the diversification of even rural employment towards non-farm is principally owed to construction. Latest CMIE data shows a stalling rate of 12.7 per cent constituting projects worth ₹1.27 trillion in realty sector, which is the mainstay of construction in urban India.

This is corroborated by flat cement output for some time now, as well as low capacity utilisation of about 65 per cent in FY 2017. Government-backed infrastructure projects such as ‘Housing for All’ reflect some hope for construction sector job creation nonetheless.

Meanwhile, the skilling mission has floundered with targets wide off the mark. True, targets were unrealistic, but the ground realities tell you that it is a bit of a sham — targets met on paper, a fraction of DDUGKY trainees (under the Deen Dayal Upadhyaya Grameen Kaushalya Yojana) went on to be placed, and even fewer of them continued with their jobs.

Meanwhile in jobs higher up the skill ladder, all is not well. We have seen unprecedented layoffs in IT sector recently, and the hiring prospects are going to be bad until the first quarter of 2018, it is estimated. And then there is the potential impact of artificial intelligence on relatively low end service sector jobs.

At a time when the Labour Force Participation Rate (LFPR) has been steadily going down (from 63.7 per cent in 2012-13 to 55.6 per cent in 2015-16) — indicating possible spike in youths, including females, enrolled in formal higher education — the economy has to be ready to offer young people jobs — 1 million every month.

About the writer: The writer is a political economist

Source: Hindu Business Line

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