Among foremost economic reasons for disastrous performance of erstwhile UPA led by Congress in the general elections (May, 2014) was the dismal employment scenario. Price rise and slump in growth were other key factors.
This led to huge disenchantment among youth who vented their anger against then ruling UPA dispensation. They also gave an overwhelming mandate to Modi who promised them jobs through his mantra of inclusive development.
During the last decade (2004-2014) of UPA rule, employment increased by a meager 15 million which is one-fourth of an increase of 60 million during the 6 year stint of NDA (1998-2004) led by charismatic Vajpayee.
Ironically, manufacturing sector – long perceived as the harbinger of employment – is languishing at just about 17% of India’s GDP. While, agriculture contributes an even lower share of 14%, services absorbs more than two-third at 69%.
The employment scenario in manufacturing is even more pathetic. Thus, out a total workforce of 474 million, only 100 million are employed in this sector. Agriculture accounts for 232 million whereas, services accommodates 142 million.
Modi intends to fulfill his promise of giving jobs to un-employed youth – whose number is swelling by 10 million every year – by giving a big push to manufacturing sector. He has set a target to increase its share in GDP to at least 25% by 2025.
In his Independence Day address from ramparts of historic Red Fort on August 15, Modi gave a clarion call for “Make in India” and has articulated on the theme during his eloquent speech to a 20,000 strong gathering of Indian-Americans at Madison Square Garden (MSG) on September 28 which was also attended by over 3 dozen American congressmen and senators.
His target was not just NRIs (Non-Resident Indians) – over 3 million in USA alone – but also the entire global investing community. He enticed them to bring funds and be a partner in expansion of manufacturing sector and building infrastructure.
Modi propounded a theory that is based on synergistic and complementary operation of three Ds viz., Demographic Dividend, Democracy and Demand (India has all 3 in abundance) to create a virtuous cycle of rapid and sustained development.
Demographic Dividend: Nearly 65% of India’s population or 800 million are below 35 years. This provides a huge pool of young work force that companies can deploy for setting up their manufacturing facilities. He also exuded confidence that India can train teachers and nurses and export to meet world’s expanding needs.
Democracy: democratically elected government is duty bound to enforce the laws and regulations and provide a stable policy and regulatory environment that ensures safety of capital and helps industries expand and grow.
Demand: Large-scale employment thus generated and resultant increase in income provides purchasing power to buy goods produced by industries. Increase in demand in turn, enables companies to expand capacity and employ more people – creating more demand; the process goes on ad infinitude.
The strengths of 3 Ds are well known. Yet, in the past there was hardly any action on the ground to leverage them. For 25 years, India had coalition governments and ruling party spent most of its energies in pandering to demands of partners. The net result was flip flops and continuing uncertainty of policies.
Even when, the establishment faced no coalition pressures, it failed to provide a stable and conducive policy environment. The second term of UPA (2009-2014) in particular, suffered from policy paralysis and even routine approvals of projects by concerned ministries and departments got jammed.
In contrast, the present government has got a clear mandate (BJP alone has 282 seats in Lok Sabha, 10 more than half-way mark of 272) and is not hamstrung by coalition pressure. Moreover, it is led by a person whose sole motto is to streamline procedures, cut red-tape and improve efficiency. Modi is determined to improve the ease of doing business by relying primarily on e-governance.
Already, projects involving tens of thousands of crores – stuck in red-tape for several years, some of them even for decades – have been cleared and many more are on way to being un-clogged. Introduction of e-based system for environment and forest approvals will impart momentum to the process.
Modi recognizes that there is a jungle of laws in India – most of these antiquated which impede ease of doing business. He is committed to dismantle these and would like to remove ‘one such law every day’ to cite the phrase he used in his speech at MSG.
Making a paradigm shift from the past, he is putting full trust in businessmen above every thing else. In line with this philosophy, he is inculcating a culture of ‘self-certification’ and reducing paperwork. He wants officials to restrict size of a form to no more than one page and refrain from asking repeat information.
Recognizing that investment actually happens in states, Modi has set up a dedicated team in commerce ministry that will not only provide one shot information on all issues connected with a project proposal but also, coordinate with concerned state for hassle free execution.
Laws relating to labor and land are major stumbling blocks deterring investors to come in. Due to huge political sensitivities, he is not able to take up reforms in these critical areas at central level. However, he is goading BJP-ruled states to make a head-start.
Already, Rajasthan has amended labor laws that will enable firms employing up to 300 workers not to seek permission for retrenching workers or taking recourse to lay-offs. Earlier, this limit was 100 workers. Now, Madhya Pradesh cabinet is following suit.
At present, industries are required to maintain as many as 68 registrations and furnish 16 returns under 19 different laws. To curb ‘inspector raj’, state has proposed a drastic revamp requiring them to maintain only one register and file 2 returns.
These governments are also tweaking Land Acquisition laws to mitigate the requirement of social impact assessment (SIA) – in the law passed by center – which in its present form, has made it virtually impossible to acquire land by industries.
Government has also undertaken a major skill development initiative that matches the supply of workers with requirements of industries in location specific situations. The initiative will leverage synergies between technical institutes, universities and firms operating in the area for maximum mileage.
In a nut-shell, true to his guiding principle of ‘minimum government and maximum governance’, Modi is keen to solicit investment in India’s manufacturing sector by enabling easy entry, conducive operating environment, good quality life for their personnel and above all assuring supply of cost effective work force.
Additionally, the government has implemented big-bang policy reforms like increase in foreign direct investment (FDI) cap in defense, opening up investment in railways, promised relaxation in construction sector and committed to avoid retrospective amendment in tax laws etc.
With all essential ingredients in place, Modi’s ‘Make in India’ mission is destined for a grand success promising a safe harbor for 10 million youth joining workforce every year.