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A New Economics for Inclusive Growth 

Context:

The inadequacy of jobs and incomes is identified as a critical vulnerability in India’s economy. The evidence is apparent beyond the confines of economists’ datasets. Farmers are advocating for improved prices, while workers in the informal sector and contractual roles are pushing for fair wages and social security. The state of the economy appears unfavorable when 60% of the Indian population, spanning various castes and religions, is categorized as “economically weaker sections” eligible for job reservations.

Relevance:

GS3- Indian Economy- Inclusive Growth

Mains Question:

The obstacle tripping India’s inclusive growth is the mismatch between skills, jobs and incomes of its population. Analyse. (10 Marks, 150 Words).

A Growth-Affecting Discrepancy:

  • The impediment hindering India’s growth trajectory is the misalignment among skills, jobs, and incomes.
  • Two decades ago, during the era dubbed “India was Shining,” economists believed that India had bypassed manufacturing in the developmental hierarchy. Traditionally, societies transition from agriculture to manufacturing and then to services.
  • Unlike China, which elevated its population from poverty by fostering a substantial manufacturing sector and earning the title of the world’s factory, India invested in world-class science and engineering institutions 70 years ago.
  • The Indian Institutes of Technology, established during that period, played a crucial role in propelling India’s software industry to global competitiveness and producing CEOs for multinational companies in the United States. India’s space program also achieved noteworthy results at a fraction of the costs incurred by NASA.
  • However, despite investing in high-end skills, India’s growth pattern has not generated an adequate number of decent jobs for the masses.

The Overlooked Realities:

  • Economic theories, crafted through the analysis of numbers, often overlook realities. Many economists lack an understanding of the “learning” process, which is fundamental to “development.”
  • This process involves citizens acquiring new skills to enhance their incomes, and nations gaining capabilities they previously did not possess.
  • An agricultural worker is willing to apply intelligence and labor to a new job but cannot afford to take extended breaks from working and earning to learn new skills.
  • Consequently, the next job, although different in content, must be sufficiently close to their existing capabilities, allowing for a smooth transition and the continuous enhancement of skills on the job. If the subsequent job is near their current habitation, they also save on living costs.
  • Therefore, fostering “adjacencies” in work and location in rural areas proves to be the most effective strategy for ascending the skill-income ladder. Additionally, such adjacencies contribute to the creation of dense networks of economic activity.
  • Manufacturing is not confined to large, capital-intensive smartphone factories, and value-adding services extend beyond major software facilities.
  • These enterprises engage in processing agricultural produce and transporting and selling it in nearby markets, thereby adding value locally without the need for transportation to more distant, large-scale processing centers.

Way Forward:

  • The achievement of trillions of dollars in GDP targets hinges on the imperative shift towards inclusive and sustainable economic growth in the near future. Altering the trajectory of economic growth is essential.
  • A higher number of Indians must be gainfully employed, allowing them to earn and learn. By earning more, they contribute to expanding the market for additional producers. Neglecting India’s small-scale and informal manufacturing sector is no longer affordable.
  • Despite India’s abundant human resources, large, capital-intensive factories demand more land and financial capital to operate on a significant scale—resources that are relatively scarce in India.
  • Investing in education and skills for “high-end” manufacturing and services may not benefit the masses unless they can be effectively employed.
  • Fostering economic activity within local networks proves to be more sustainable for growth than participating in long, international supply chains, especially as barriers to such participation increase.
  • Given the limited financial capacity of the Indian state, misallocation of funds by reducing taxes and duties and providing incentives to investors, with the expectation that benefits will trickle down to the masses, is unaffordable.
  • Importantly, more imports will not enhance the well-being of Indian citizens unless they have increased incomes to spend. Foreign direct investment will not spur growth if it fails to generate employment promptly.
  • It is imperative to break free from the economic mold cast in the latter part of the 20th century. Policymakers must reimagine India’s growth path and focus on the fundamentals of inclusive economic growth.
  • Manufacturing and value-added services can be successfully executed in rural areas and around farms through small, labor-intensive enterprises with low capital requirements.

Conclusion:

In a global economy that no longer mirrors the growth patterns seen when China became the world’s factory, producers worldwide are actively seeking new markets. India, with its unmet needs, is particularly attractive to them. India’s policies must seize this opportunity, fostering domestic production and growing both jobs and incomes for the masses.


March 2024
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