Opinion India could not create mass prosperity. It’s not too late

India’s challenge of employed poverty (not unemployment) arises from our labour force stock: Only 11 per cent are in manufacturing, 14 per cent in construction, 45 per cent in agriculture, and 30 per cent in services. Tragically, most farmers dwell in the self-exploitation of (informal) self-employment. The only sustainable and scalable way to help farmers is to have fewer of them; we don’t want to live in China but greatly respect their achievement of moving millions of people off farms into factories.

Let’s reverse our gaze: Why hasn’t India moved millions from farms to factories since 1991? It’s surely not a shortage of three factors of production — land (every Indian household could get half an acre and fit in Rajasthan and Haryana), labour (30 per cent employed poverty) or capital (50 per cent of our FDI since 1947 has come in the last five years). It’s not culture; the Hindu growth rate went from 2 per cent to 7 per cent with the same population. It’s not law and order; we can do better, but peace is the norm for most citizens, employers and investors. It’s not financialisation; our banks and equity markets are healthier than ever. It’s not macroeconomic stability; it matters, but monetary and fiscal policy may have been mislabeled as solutions to productivity. India will not get to the 45 per cent peaks of the labour force in manufacturing of developed countries, but we should target 25 per cent by 2035 (about a one percentage point increase per year).

Economics suggests two more suspects: Infrastructure and skills. But both have shifted from being a dagger in the heart to a thorn in the flesh in recent years. Infrastructure, because of massive investments. Skills, for three reasons. First, the usually depressing ASER report now suggests we have more kids in school, with more years of schooling and better learning outcomes than ever. Second, NEP 2020 is a wonderful 15-year higher education roadmap that lifts the apartheid against employability, and embraces holistic learning. And finally, as demonstrated by the eight-week training required for cell phone assembly workers, the first 25 million people needed in factories require repair, not preparation. These workers are already available, and ongoing human capital reforms will remove the quality constraints for the next hiring surge.

Regulatory cholesterol — excessive employer compliance, filings, changes and criminalisation — is the most potent suspect for our missing factories. This cholesterol doesn’t hurt big companies but sabotages productivity for small firms (flying under the radar) or informal ones (those with a sense of humour about the rule of law). Attracting factories requires a policy shift from the bird’s eye to the worm’s eye view of the daily life of employers. Change has begun with proposals like Jan Vishwas 2.0, Enterprise Digilocker, and the National Open Compliance Grid (architected as Digital Public Infrastructure). It should be followed up by adopting labour codes, creating competition for social security monopolies like EPF and ESI, and reducing the irrational statutory gap between gross (chitthi waali) and net (haath waali) salaries for low-wage employees.

India’s domestic consumption is an asset; our fastest-growing jobs today are in services like sales, customer service and logistics. China is now criticised for neglecting domestic consumption at the altars of investment and exports. However, manufacturing matters and Make in India should be complemented by smart policy for Make for India. Automobile companies have built scale, supply chains and exports because of the level playing field for domestic and foreign companies to sell in India. If we had allowed duty-free imports, auto manufacturers in Thailand, China, and Vietnam would have serviced our car demand. Tata persisted in setting up a steel plant in Odisha for 10 years, but Posco gave up and shifted to lobbying to ship steel from Korea under an FTA.

This case for the strategic use of tariffs is not export pessimism or subsidising incompetence; India’s trade-to-GDP ratio in 1970, 1980 and 1990 was sinfully low at 7 per cent, 14 per cent and 15 per cent respectively. But that number is 50 per cent today. Small countries like Singapore, Thailand, and Hungary have 336 per cent, 133 per cent, and 186 per cent, but they have no choice. However, countries with large domestic markets must use smart policy packages, including tariffs, non-tariff barriers and incentives, while remaining aware that input tariff levels must keep exports competitive. Using policy nudges that staple market access to domestic production will create learning-by-doing, technology transfer and manager alumni effect, which raise economic complexity, value addition, and wages.

Early results in electronic assembly confirm that labour-intensive manufacturing is not a missing gene in India but a latent one. China forced its citizens to choose between their wallets and freedoms. Our manufacturing employment can rise to 18-20 per cent of workers in the next decade. India missed her tryst with destiny despite building the world’s largest democracy because she didn’t create mass prosperity. But she has made a new appointment which she will keep through high-productivity firms and factories.

The writers are co-founders of Teamlease Services and Ashoka University respectively