Creating Jobs A Key Challenge

June 1, 2015 | Business World India

There is need to address the lingering problems such as lack of infrastructure, bureaucracy and legal and policy framework, says Tushar Dhingra

Narendra Modi’s election campaign whipped up an optimism that overwhelmed the nation like never before. PM’s pro-job pitch and vision of inclusive growth convinced global analytical agencies that he can create 69 million jobs by 2020.

A forward-looking government, influx of foreign investments and improved consumer sentiment cheered up the Indian job market in the July-December 2014 period. But will the Modi magic create more jobs?

India has a working-age population of 750 million, which is expected to increase by 230 million by 2030; so job creation is India’s greatest long-term challenge. Indian companies recorded an average hiring growth of 10-12 per cent in 2014, while salary hikes stood at about 8-10 per cent. With the economy showing signs of an upturn, we believe hiring should only get better in 2015.

So what all has Narendra Modi really done?

The Bull Case:
The government is putting strong emphasis on job creation, which is evident from the measures proposed in the Union Budget.
 
In the manufacturing sector, it is promoting labour-intensive work. With a renewed impetus to the National Skill Development Corporation, it is aiming to achieve the target of skilling and up-skilling 150 million people by 2022.

The government’s Make in India programme presents a huge opportunity for job creation. It can boost economic growth as it opens up 25 sectors of the Indian economy to foreign investment.

The government has also offered sops to small and medium size enterprises (SMEs). Budget allocation to startups will encourage entrepreneurs in tier II and tier III cities who can create over 3 lakh jobs by 2020.

The NDA government has also laid a roadmap for growth of real estate through allocation of funds in the Budget for 100 smart cities. While smart cities will boost the economy, the expansion of urban hubs and modernisation of mid-sized cities will provide job opportunities to youth.
Recently, the government has also taken initiatives to further open up the much guarded defence sector by raising foreign direct investment (FDI) from 26 per cent to 49 per cent.

The Bear Case:
The Make in India campaign is a great initiative, but there is need to address the lingering problems such as lack of infrastructure, bureaucracy and legal and policy framework. For the success of such initiatives what’s required is more substantive policy reforms. India’s highly anticipated national budget, released in February, dampened the spirit of foreign investors. Investors had hoped for something that would signal a friendlier business environment, but didn’t see any huge changes.

Also, there is a need for more flexible labour laws in India. Existing laws are making business cumbersome without offering greater security to labour. India has an abundance of informal labour, and here lies the opportunity to turn them into skilled ones to enhance growth.

Outlook: A lot needs to be ‘un-done’ before new initiatives take shape.

The question is whether steps have been taken in the right direction and if they will help our economy grow? The answer is yes. The progress is slow, but in the direction of growth.

Renewable energy, big data analytics, insurance, microfinance, healthcare and payment solutions will see substantial boost in hiring across levels due to positive policy changes. In addition, the emphasis of the government on the manufacturing sector is expected to create 100 million jobs in the next ten years. The e-commerce sector, which has grown by leaps and bounds, has created direct and indirect jobs while fuelling SME’s growth and attracting a lot of mom and pop outfits. This sector is going to be on a strong growth trajectory for years to come.
 
According to Indian Staffing Federation, the apex body of staffing industry in India, the job growth is likely to touch 12 per cent, while salaries can grow by 12-15 per cent in 2015. In 2014, hiring has moved up by a sharp 10 per cent and is likely to grow meaningfully in 2015.

In the long term, the bulls have a stronger case for India as the nation is likely to become an increasingly important source of labour for global corporations. It has the best demographics, a strong domestic market and a credible legal system can make it slightly more balanced than other emerging countries. As long as the government remains committed to converting announcements to favourable outcomes, we certainly will have ache din.

The author is partner- Consumer, Real Estate & Retail, at DHR International.

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