During the recent election, many observers detected a persistent undercurrent of anxiety among voters, especially in the Hindi heartland. It related to jobs -- people want better quality jobs. None of the parties in the election campaign seemed to address this. The BJP offered a vision of a rapidly growing economy that would become the world's third largest, but it did not relate high growth to jobs. The Opposition stuck to a message of freebies, promising merely to fill vacancies in government jobs. The surprise result in U.P. has sent a clear, sobering message: creating quality jobs has to be a clear priority of the new government.
Since 1991, India has grown handsomely -- at almost 6% a year for thirty years -- lifting 400 million people out of poverty, while the middle class expanded from 10% to 30% of the population. Extreme poverty, as defined by the World Bank's definition of $ 2.15/day, has come down to less than 5% of the population. This is a remarkable achievement. But our high growth has not created enough jobs. This is because India failed to create an industrial revolution. It has done exceptionally well in services, becoming the world's back-office, but that cannot be the answer for 45% of the nation's workers, who are under-employed, stuck in agriculture.
All successful nations have developed by creating an industrial revolution. More recently, the nations of East Asia -- Japan, Korea and Taiwan -- have risen dramatically to become prosperous middle class societies by following the same mantra, adhering to a simple strategy of exporting labour intensive manufactured products. China is the latest example. India has failed to do this. Manufacturing accounts for only 15% of GDP and India's share of world exports of goods is less than 2%. To fix this has to become the single point agenda of the new government.
It will not be easy. There will be naysayers, arguing that the time for an industrial revolution is past, that technology will soon make human jobs obsolete; environmentalists will be terrified at very idea of another "industrial revolution". There will be a need to reassure them all patiently. The technology threat to jobs is less immediate in making shoes, toys and garments, much more in the case of IT services. When it comes to the environment, it will mean acting more responsibly and sustainably, within the bounds of the energy transition. But to give up on manufacturing would be the wrong moral choice. Indians have just as much right to a reasonable middle class life of ease and comfort which has been achieved in the developed world.
To achieve the goal, the government will need to do major reforms, including the two that the previous Modi governments failed to pull off: (1) simplify acquisition of land for industrial purposes; (2) modify our rigid labour laws to give companies flexibility to lay off workers during the low season or in a down business cycle, while providing them social protection. The government should also learn from past mistakes. Executing a reform requires selling it to one’s party, to the opposition, and the people. It will need education reform to deliver a better skilled, employable workforce, and a vigorous apprentice program in collaboration with industry. Above all, it will need a renewed focus on the ease the doing of business. India must learn from others' successes -- from China which delegated power and incentivised its provincial bureaucracy to deliver results. Closer to home, Tamil Nadu, has succeeded by making single window clearance a reality. Finally, it will require judicial reform to unclog the legal system, especially at the lower levels and with respect to the enforcement of contracts.
The government will have to induce large firms to enter labour intensive manufacturing in order to compete. Our competitor firms employ in the hundreds of thousands; ours are puny in comparison. Once the big firms gain market share, small and medium firms will flourish as component suppliers to them. It will also need a change in industrial policy. The government will have to reward exports and jobs, instead of production as in present PLI scheme. Also, to win share from entrenched competitors, Indian companies will have to disrupt markets with innovation. This is not their strong suit -- low R&D spending has been their traditional weakness.
The preconditions for a take-off are better than ever today. Infrastructure is vastly improved -- road mileage has doubled since 2011; port handling capacity has quadrupled. India is now one market after GST -- the line of trucks waiting for hours at octroi nakas has become a horror image of the past. The digital revolution has reduced friction and corruption in the system. And demographics are still in our favour for at least a dozen years. Creating a labour intensive industrial revolution is a huge undertaking, involving quick action from multiple ministries. The Indian state delivers when the government acts in a mission mode. It cannot be business as usual. Empowered leadership will be key in order to coordinate hundreds of actions. Here, this government has an advantage. One secret for Mr Modi's popularity is simply better implementation by mission-mode schemes, which has been achieved through coordination by the prime minister's office. Even his worst critics concede this.
The ethos of a new government is set in the first 100 days and so, it must act now. There is a huge prize waiting if India manages to pull this off. It means that we shall be well on our way to becoming a middle class society where the majority of our people Indians will be at ease economically. What could be bigger moral imperative than a one point agenda to transform a poor country into a middle class nation!