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February 26, 2006

"Revitalizing manufacturing is the key to tackling poverty"

As part of a special Business Today issue on "25 Challenges for India", economist Lord Meghnad Desai argues that crearting manufacturing jobs is the key to eradicating poverty in India.
A massive employment creation programme, not employment guarantee is needed. No country has grown rich without taking its rural population off the farms and putting it into factories. India has to tackle that urgently. The stagnation in manufacturing has to be reversed. This can only be done if manufacturing is growing at high double-digit rates. China doubled its manufacturing labour force from 53 million to 103 million in 20 years from 1981 to 2002. Its manufacturing value-added grew eight times over that period at 25 per cent per annum, while India managed only 6 per cent. India can double its manufacturing employment in the next 20 years, if not faster. The resources can be raised if policies are improved. It requires:
* A drastic cut in budget deficits of the Centre and states. Cut non-plan expenditure, which was at Rs 3,52,748 crore by 2003-04, while plan expenditure was only Rs 1,21,507. There was more non-plan expenditure on the capital account than plan expenditure!
* A simpler and faster FDI entry procedure; and
* A drastic change in labour laws to make hiring workers less expensive.

Domestic savings of 25 per cent plus a net government saving of another five per cent and FDI of 10 per cent can lift the economy to those heights. This is something the business community can get its teeth into. Only employment growth in manufacturing offers unskilled rural labour any hope of a permanent route out of poverty. It is time to grasp it.

Arun Natarajan is the Founder of Venture Intelligence India, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.