Job Creation in Industry and Services is important for overall prosperity - Arvind Panagariya

The Vice chairman of NITI Aayog, Arvind Panagariya has underlined the importance of job creation in industry and services for overall prosperity of the nation. He shared the views with the people in his first blog post published on the newly launched website of NITI Aayog in New Delhi today. The full text of the blog post is as follows and can be accessed at www.niti.gov.in.  

“There can be little disagreement that the fastest relief to the poor in India would come from productivity growth in agriculture.  This is where nearly half of the workforce is employed.  With the share of agriculture in the GDP at about 15 percent now, this half of the workforce is also significantly poorer than the other half, employed in industry and services.

But in the longer run, the potential of agriculture to bring prosperity to a vast population remains limited.  Over long periods, experiences such as that of Madhya Pradesh during 2011-12 to 2013-14 whereby agriculture grew in excess of 20 percent annually are rare.  In the recorded Indian history, the fastest that agriculture has grown nationally over a continuous ten-year period has been under 5 percent.  Put another way, in countries experiencing growth rates of 6 percent or more over long periods, overwhelmingly, industry and services have grown substantially faster than agriculture.

It is in this context that the creation of good jobs in industry and services is critically important. Unless workers have the opportunity to migrate to better paid jobs in these sectors, they will be unable to fully share in the prosperity experienced by a fast-growing economy.  Thus, for example, prosperity was widely shared in South Korea and Taiwan during the 1960s and 1970s because workers in agriculture could migrate to good jobs in industry and services.  The share of industry and services in employment in South Korea rose from 41.4 percent in 1965 to 66 percent in 1980 and further to 81.7 percent in 1990. Correspondingly, the employment share of agriculture fell.  A similar pattern was observed in Taiwan during the 1960s and 1970s and more recently China.

Indian farmers and their children recognize the superior prospects that faster-growing industry and services can potentially offer.  According to a recent survey conducted by the NGO Lokniti, 62 percent of all farmers say that they would quit farming if they could get a job in the city.  As for their children, 76 percent say that they would like to take a profession other than farming.

It is in recognition of these aspirations that while reorienting public investment in agriculture toward productivity-enhancing items such as micro irrigation, soil cards, effective extension services and improved seeds, the government has paid special attention to creating jobs in industry and services.  The “Make in India” campaign has provided the umbrella for many of the government’s initiatives in this context.

Using the instrumentality of cooperative federalism, the government has encouraged states to undertake labor law reforms that would help stimulate jobs.  States of Rajasthan and Madhya Pradesh have taken lead in this area and, going by the reports in the press, the central government is now considering an overhaul of labor-law regime.  It intends to consolidate the 44 central labor laws into five while simultaneously introducing important employment-friendly reforms.

The government has also greatly cut the inspector raj by introducing a portal that allows small and medium firms to comply with 16 central labor laws through self-certification. Any inspections are performed via a computer generated random selection.  Similarly, to improve access to good jobs, skill development has been greatly accelerated.  Under a recent initiative, 1.4 million workers aged 35 or younger from households that have completed 100 days of work during 2014-15 under the National Rural Employment Guarantee Act (NREGA) scheme, would be imparted skills so that they may avail of urban employment opportunities.

A common fear aired in the media is that the expansion of industry and services would divert land away from agriculture thereby undermining food security.  But these views are aired without attention to the some key facts on the pattern of land use.  Area under non-agricultural use, which includes housing, industry, offices, roads, railways and other similar items, was only 8% in 2011-12, the latest year for which data are available. Fifteen years earlier, in 1997-98, this proportion was 7%.  Accelerated growth over these fifteen years facilitated by the 1 percentage point increase in non-agricultural use of land has produced more gains in per-capita income and poverty reduction than what had been achieved over the entire fifty preceding years.

Of course, even this 1 percentage point increase did not come at the expense of agriculture.  Increased multiple cropping allowed the gross area sown to rise from 57.8 to 59.4 percent of the total land area between 1997-98 and 2011-12.  And, of course, productivity increases allowed agricultural output to rise proportionately much more.  There remains much scope for further output increase through the extension of the Green Revolution to eastern states and rain-fed regions, as emphasized by the Prime Minister.

In sum, agricultural growth and the expansion of good jobs in industry and services can go hand-in-hand to bring rapid elimination of poverty and shared prosperity for all.”