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Modi's missed chance on jobs

India must deregulate to boost employment

| India

Last week's giveaway Indian budget was meant to act as a springboard for Prime Minister Narendra Modi's re-election, as he gears up for national polls in April. It did not turn out that way.

Instead, India's leader found himself embroiled in a bitter row about jobs, as leaked official data showed unemployment hitting its highest rate in nearly half a century. More alarmingly, the furor demonstrated all too clearly that neither Modi nor his various opponents have much in the way of ideas to solve perhaps the most pressing economic issue India faces: jobless growth.

Last week's spat began when the Business Standard newspaper revealed unpublished data from the National Sample Survey Office, a government body, showing that 6.1% were out of work in 2018. That was three times more than the last survey, produced in 2012, and the highest level since the early 1970s.

Making matters worse, the leak hinted at a cover-up. A few days earlier, two members of another statistical body had resigned in protest at delays to the publication of the employment data. For a leader elected in 2014 on promises of rapid job creation, it looked suspiciously as if India's Prime Minister was running from his record.

Picking up on Modi's nickname of "NaMo," opposition Congress party leader Rahul Gandhi mocked him on Twitter, with the phrase "NoMo Jobs!" Other critics latched onto the figures as proof of the damage done in 2016 by Modi's experiment in "demonetization." And here there is a case to answer, because the weeks of chaos caused by his move to scrap high-value bank notes almost certainly did hit employment levels.

India's job problems go deeper than one misguided policy, however. Calculating unemployment can be tricky, given most workers are in the informal sector. But other surveys suggest that last week's figures, which include part-time and occasional workers, in fact probably understate worklessness.

Recent figures from the Centre for Monitoring the Indian Economy, a think tank, put unemployment at more than 7% in December. The problem is especially pressing among younger workers, around a fifth of whom can't find work, according to last week's official survey. Most troublingly, academic research suggests that India's economy as a whole is creating far fewer jobs for a given amount of growth than it did in earlier decades.

Perhaps the one comfort Modi can take is that his country is not alone. Indonesia, also facing closely contested elections in April, shows similar traits. So do other regional lower-middle income nations, for instance those in the Mekong delta like Cambodia and Myanmar. Where earlier Asian emerging economies were celebrated for job creation, today's are struggling.

In Indonesia, President Joko Widodo, commonly known as "Jokowi," claims to have created 10 million jobs since coming to power four years ago, a reasonable-sounding record. But that isn't how it feels on the ground, says Rian Ernest, a parliamentary candidate for the opposition Indonesian Solidarity Party in the hardscrabble eastern districts of the capital Jakarta. "The number one issue people talk about is job creation. People turn up from all over the country looking for work and they struggle. They take whatever they can find."

This joblessness crisis has many causes. In India, as elsewhere, complex thickets of labor rules put employers off hiring. Poorly-funded education systems leave workers lacking even basic skills. Harassed manufacturers automate production via investment in industrial robotics, rather than using abundant supplies of eager low-skilled workers. Cultural barriers mean female employment is often lower than it should be.

Underlying all this is a more profound problem of informality, in which too little is done to coax grey-market employers into registering companies and paying taxes. For all of its decades of rapid growth, India's formal sector remains stubbornly stuck at less than 10% of the economy as a whole, according to a recent World Bank report.

It is against this backdrop that last week's Indian budget looks so disappointing. Modi unveiled plenty of sops for farmers and middle class taxpayers, but almost nothing that looks like a serious agenda for job creation. Were he to be re-elected, there are few signs he is finally gearing up to overhaul festering labor laws, or for that matter regulations in areas such as land acquisition or tax that make it so hard for investors to build and operate the kind of large-scale factories that have provided plentiful employment in east Asian economies.

Modi's record is not all bad: under his watch India has gradually hauled its way up ease-of-doing-business rankings, which should in time help factory job creation. Further cuts in burdensome regulations could also help pull more small businesses into the formal sector. Much also needs to be done to help other labor-intensive sectors, from construction and food processing to hotels and tourism, all of which could be important sources of future job creation. Investment in basic training is another priority, and one in which Modi's government talks a good game, but where employers see few changes in practice.

To be fair to Modi, the opposition Congress is also lacking in inspiration. Rahul Gandhi recently unveiled plans for a minimum income guarantee for poorer Indians. It is an intriguing idea, but one that focuses on the problem rather than the cause, by handing out cash to those who cannot find work rather than making it easier to create employment in the first place.

At base, India's worklessness crisis is neither a recent nor a cyclical phenomenon. It cannot therefore entirely be blamed on Modi. India's leader is also blessed with divided political opponents, while jobs are not the only issue his voters care about. So it might well be that, in a few months' time, Modi manages to retain India's top job. But without more serious efforts in his second term to produce ordinary jobs for tens of millions of his fellow countrymen and women, he will find himself looking for work soon enough.

James Crabtree is an associate professor at the Lee Kuan Yew School of Public Policy at the National University of Singapore. He is author of "The Billionaire Raj."

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