Employment through services

KIRAN KARNIK

MAKE in India is the slogan and policy call of the day, reflecting the philosophy of Aatmanirbharta. Promoting manufacturing in the country is seen as an essential element for both economic growth and employment generation. For well over a decade, the aim has been to boost manufacturing to the level of 25 percent of the GDP; yet, it has continued to stagnate in the upper teens for all these years.

The share of agriculture has, as expected, declined. With slow growth rates in agriculture and a languishing share contributed by manufacturing, the driver of growth has been the services sector. The tardy growth of manufacturing has caused concern, and policy initiatives to change this have come thick and fast, including production-linked incentives (PLI), and efforts to increase India’s share in global supply chains.

The geopolitical situation is seen as conducive, given the desire of many countries to reduce their dependence on China, the major source and often the biggest supplier for so many products — especially in the booming electronics sector. Indian companies, encouraged by government policies, seek to ride on this. As global companies espouse a China+1 policy in supply chains, India wants to be at least the alternative to — if not replacement for — China.

In addition, there is need for India to be self-reliant in key components and products, especially those that are strategic. Electronic chips, telecom equipment, key (active) pharmaceutical ingredients are examples that relate to industry and are being given a push by the government. While these have to be promoted for strategic reasons, such technology and capital intensive products are not really large employment creators. A chip fabrication facility (fab), for example, is strategically crucial but generates few jobs, while requiring huge investment.

Many thought that India could mimic the China model of mass production and mass employment: that we could manufacture toys, garments, or other consumer goods for export — in addition to domestic consumption —and, through that, create mass employment while boosting exports. The fact is that other, nimbler, countries, with low-cost labour, have already taken up that space (our neighbour, Bangladesh, is one example). More important, there is already increasing automation in such industries and, in future, it is clear that robots, AI, and automation will rule the roost. For example, a combination of new technologies now makes it possible to feed yarn into a machine and get a ready-made garment (stitch-less) at the other end. Similar developments are already taking place in other areas too.

The result: a massive reduction in the need for humans in the factory. Jobs will be further affected by the fact that the lower component of labour cost reduces the attraction of using developing countries as a source for cheaper imports. In short, following the 1990s China/South East Asia model (massive job creation through export of goods at low cost) is past its sell-by date.

Major manufacturing powers — Germany and China — are rapidly automating and are setting up ever-more robotic factories. Humans cannot compete with robots in terms of efficiency, consistency or work quality. With decreasing costs, economic trade-offs too are changing in favour of automation, even in low-labour-cost countries. Clearly, industry of tomorrow is going to be highly automated, filled with robots rather than workers.

If manufacture of high-tech, strategic items, and even of consumer goods, is not going to create jobs at scale, how then do we create mass employment, especially for low-skilled workers who are surplus to the agriculture economy? The first step may be to recognize that, in the times ahead, manufacturing is not going to create anywhere near the 10 million jobs a year that are needed. Whatever jobs are created will be only short-term, as rapid automation —with its greater efficiency and its decreasing cost — will mean large-scale retrenchment.

While decentralized production and industrialization of the agri sector (through packaging, processing, and value-added products) could create a fair amount of employment, here too automation will soon displace labour, through superior capabilities and cost-efficiency.

The answer will lie in services. Despite scepticism in some quarters, it is here that one sees very good prospects for India. Over the past two decades, it is this which has been the saviour: for the economy and for jobs. Today, India’s biggest foreign exchange earner is the IT services sector. It is also the biggest employer in the organized private sector. While data is unreliable, it is likely that more jobs have been created in the past few years in new areas like app-based taxi services, food and grocery delivery, e-commerce and the like, than in manufacturing. Private security services, beauty parlours, and entrepreneurial start-ups are other areas that have bloomed in terms of employment opportunities.

Looking ahead, one sees tremendous possibilities for greater employment in these and other areas of services. Government security services (including the police and paramilitary), as also organized and unorganized private ones are, sadly, likely to be big job generators. The education sector, which saw a boom in the 1990s and noughties (2001-2009), through private engineering, management, and IT training institutions, may see a new resurgence focussed on artificial intelligence. Repair of devices — and training for this — could be a big new area, as environmental policies push repair over immediate replacement. 

Driven by growing needs globally and ageing populations, healthcare — through doctors, nurses, paramedics, ancillary staff, and care-givers — can provide employment to millions, including unlimited opportunities abroad. Another high-potential area is domestic and international tourism, which too will see a boom, creating jobs in restaurants, transportation, and hotels. Personal care, through beauty salons and gyms, and construction will continue to grow. In addition, like IT from the 1990s, there may be unforeseen new areas. Importantly, unlike in manufacturing, most of these jobs cannot be automated, at least for a decade or more. However, most of the new jobs will be in self-employment or gig mode, re-emphasizing the urgent need for a universal social safety net including healthcare, education, unemployment and old age pension, and upskilling. 

All in all, while manufacturing is an essential component of the country’s development, employment at scale will come primarily through services. Policies, and concrete initiatives, need to gear themselves to this, rather than being focused only on manufacturing.

Kiran Karnik is a public policy analyst and author. His most recent book is ‘Decisive Decade: India 2030, Gazelle or Hippo’