india cannot take shortcuts to development

india cannot take shortcuts to development
The private sector cannot replace the state when it comes to human development, which boosts growth and prosperity
There are no shortcuts to development. Nevertheless, Indian policymakers may now be tempted to attempt two more, the first two having landed the economy in swamps from which further progress was difficult.

The first shortcut, along which policies began to move in the 1990s, was to shoot for GDP (gross domestic product) growth before making progress in human development through public health and primary education. The argument of GDP cheerleaders was that the state needs resources to invest in human development. Therefore, the growth of the economy must precede improvements in human development. Amartya Sen and other economists who pointed out that it must be the other way around, and indeed has been the other way around for the Asian miracle economies and China too, were dismissed as socialist, anti-capitalist, and anti-growth by those on the GDP bandwagon. Now, the hurdles for productivity of enterprises, and for GDP growth, owing to poor levels of education and skills in the country have become evident. Moreover, since the purpose of development must be to enable people to live longer and better lives, India’s lack of attention to public healthcare is anti-development.

The second shortcut emerged accidentally. The Y2K crisis at the turn of the century fuelled a surge in demand in the West for low-cost engineers who could write computer code. Indian information technology (IT) companies, with the large pool of engineers they could tap into in India, thanks to the Nehruvian thrust to build high-class engineering institutions in the country, and thanks to the English language, were the only ones able to respond. India’s IT sector grew remarkably. Many speculated that India had found a shortcut to development and growth, avoiding the traditional route via high-employment manufacturing that the Asian miracle economies had followed.

The need to create jobs, to prevent India’s demographic dividend from turning any further to a demographic disaster, signs of which are now unmistakable, has panicked the government into undertaking a rash of schemes to revive manufacturing and create jobs, especially at the bottom of the pyramid. Having missed the opportunity to create more jobs in manufacturing while China was becoming the factory of the world, lifting millions of poor Chinese into the middle class, India wants to catch up now. Make in India, Stand-Up India, Start-Up India, etc. hope to create more jobs and enterprises for India’s burgeoning youth population. The problem is that the rapid advance of automation is expected to reduce jobs in manufacturing and even services.

The threat of job losses to automation is tempting Indian policy-makers into the third shortcut, to prepare for ‘Industry 4.0’. Consultants in the ‘future of work’ and manufacturers of robots and automation equipment are busy organizing seminars in India and advising India’s policymakers on how to prepare for a future of automated work. However, the World Bank’s recent report, Trouble In The Making? The Future Of Manufacturing-Led Development, estimates that up to only 8% of present jobs will be eliminated by automation in the next few years. The problem of jobless growth that India is suffering from now is in the present configuration of the economy, caused by shortcuts India has tried to take in the past. It has little to do with Industry 4.0, which is yet to spread.

Economies industrialize and grow when enterprises in the economy, and people within them, learn to do what they could not do before, thus advancing up an escalator of capabilities. Escalators that can lift large numbers of people out of poverty must reach down to the present levels of knowledge and skills of people, and to the present levels of competencies of potential entrepreneurs, and from there lift them. Most Industry 4.0 solutions that consultants are proposing are based on the situations of countries, the majorities of whose populations are on higher rungs of the development escalator. What is missing in India are steps at the lower rungs of the escalator. We must build these quickly to enable people to earn more income in enterprises and jobs that may not yet have taken the shape of the jobs of the future that Industry 4.0 consultants are forecasting. In enterprises at these lower rungs, people can also learn the soft skills of interacting with others, in addition to technical task skills, that employers say people need to become fully productive.

The fourth, big shortcut that some economists and industrialists suggest India take is to cut the government out of the picture and leave growth to private enterprises. They say the Indian economy only grows at night when the government is asleep. They offer the example of the Indian software industry, which they say grew only because the government stayed out of its way. They conveniently brush aside the huge role that public investment in institutes of technology played in providing the industry with a huge pool of well-trained and low-cost workers that it could use in wage-arbitrage strategies from which it benefited enormously. Moreover, the government made a huge contribution with the tax concessions that the industry was given, and continues to enjoy. These concessions have deprived the state of resources to invest in human development, the tardy progress in which is now hurting all industries, including those that have so far enjoyed low taxes.

There can be no shortcut to improving the capacity of the state for building the steps at the bottom of the capabilities escalator. Nowhere in the world is primary education and public health privatized. Small enterprises must grow in both rural and urban India to support the large factories that will themselves become more automated and employ less people. Moreover, such small enterprises will provide the steps needed for people to earn and learn. India’s hundreds of millions aspiring citizens need world-class governance, not world-class tertiary hospitals and world-class automated factories.