‘Ad-hoc policies, early de-industrialization have caused India’s labor crisis’

Abhimanini Singh Sawhney-

Premature de-industrialization, an early shift to the services sector, and the ad-hoc nature of development policymaking and reform have contributed to India’s growing labor and employment crisis, Ajay Chhibber, visiting scholar at the Institute for International Economic Policy, Washington University, and former assistant secretary-general, United Nations, said.

Chhibber was participating in a virtual seminar last month on policy priorities for India in the next quarter-century at the launch of his book, Unshackling India: Hard Truths and Clear Choices for Economic Revival. He said what made the crisis worse was that the Indian state, while interventionist, has failed to address issues of labor and education.

Salman Anees Soz, economic development consultant and co-author of the book, agreed and said candidly that while India aspires to compete with global powers, it lags behind in several key sectors, particularly health care. This, he said, was partly because of the complex nature of the Indian state and called for a more anthropocentric social orientation of economic policy.

Yamini Aiyar, president of the Centre for Policy Research, said, “It is not that the state is too small, but that we do not have enough state in the right places”, something she attributed at least partly to underdevelopment of state capacity due to lack of stable regulatory structures between the economy of 1991 and today.

Vijay Kelkar, former finance secretary to the government of India and chairman of the 13th Finance Commission, agreed with the need to develop state capacity and stable governance, describing them as ‘binding constraints on development policy’.

He also emphasized the need for interventions in and simplification of the policy process, stating that complex policy implementation programs stress the already limited state capacity to a dangerous degree.

Lord Nicholas Stern, head of the India observatory at the London School of Economics, said India has the potential to shift its growth trajectory and create a more sustainable, resilient and inclusive economy as proved by changes in the energy sector.

He said while it would take considerable investment, it would also yield great results if directed carefully.

Outside of investing in a sustainable economy, he said the use of India’s natural capital, improving public finances while focusing on human development, and attention to the unregulated informal sector are areas that need intervention.

Rakesh Mohan, former deputy governor of the Reserve Bank of India, president of the Centre for Social and Economic Progress, and moderator for the webinar, brought his experience as a member of the Prime Minister’s Economic Advisory Council to bear on the discussion, saying a focus on building capacity for non-agricultural jobs and investigating issues with tax compliance is needed. Both, he pointed out, are essential to improve governance and state capacity.