India should focus on low-end manufacturing to harness population dividend

By Song Shengxia Source:Global Times Published: 2016/8/30 0:28:39

India should be realistic in addressing its employment issue and focus more on developing its low-end industries to create more jobs. Such urgency has been raised because there is skepticism about whether India can efficiently utilize its demographic dividend - the country is set to have the world's largest working-age population by 2020.

A recent article published by India's news outlet Firstpost warned that India may face massive unemployment and social unrest if it fails to change its current economic structure to focus on manufacturing industries in order to generate more jobs.

The observation was made based on an IndiaSpend analysis report which stated that in 2015 India added the fewest organized-sector jobs in seven years across eight important industries and that as much as 97 percent of the population is expected to work in unorganized sectors by 2017 that offer no formal monthly salary or social security benefits.  

Given the fact that India will soon or later have the world's largest working population - people aged 15 to 64 years - this observation doesn't seem like an exaggeration. According to  the IndiaSpend article, India will have the largest number of working-age people by 2020. This rise in the working  population will not automatically translate into economic growth momentum as the country's capacity to generate enough jobs and utilize labor efficiently remains in doubt.

There has long been a myth in India that the world's fastest growing economy could skip being a manufacturing base and move directly into a sustainable growth model relying on services.

There have even been calls for renewed focus on the services sector in India after a report released earlier this year suggested that the services sector contributed more than 60 percent to GDP in the 2015-16 financial year. But this conception should be considered wrong and dangerous.

Not only does this argument push back against the "Make in India" initiative launched by Prime Minister Narendra Modi in 2014 - which aims to transform India into a manufacturing powerhouse - but it also, in practice, may lead India into a trap where its huge population dividend cannot materialize.

According to research, the services sector absorbs only about a quarter of the labor force in India despite the fact that it accounts for more than half of GDP. On the other hand, manufacturing accounts for about 15 percent of the country's GDP and employs 11 percent of the labor force, a job absorptive capacity that is greater than the services sector.     

For the sake of creating more jobs to accommodate the growing working population, India should not neglect the manufacturing sector, especially low-end labor-intensive industries. This could also help absorb a large number of workers who are employed in unorganized sectors.

China lifted millions of people out of poverty in the last three decades by focusing on developing its own manufacturing industry. India should adopt a similar  down-to-earth approach to generate growth and create jobs. Whether India's fast pace of growth can persist depends on how quickly it realizes that the feasible route to inclusive growth is not by skipping past industrialization but by relying on the manufacturing industry to create more jobs, reduce poverty and create a middle class that can drive consumption. 

The author is a reporter with the Global Times.

Posted in: Eye on The Economy

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