Calcutta Notebook


Foreign Direct Investment (FDI) will be allowed in all sectors except multi-brand retail. It is said that this will create jobs and enable India to access frontier technologies. Simultaneously it is proposed that import tariffs should be reduced in order to provide low cost imported goods to the people. Exports should be facilitated so that Indians can gain from comparative advantage in areas such as pharmaceuticals and spices. That will create jobs. Indeed these fortuitous impacts will take place. Large numbers of middle class jobs have been created in the services sectors like call centers, software programming, research, medical transcription, processing of insurance claims, etc. courtesy global integration. But question is whether this will be adequate for begetting India 10 percent-plus growth rate and to provide jobs to the unemployed youth.

This model has been implemented across the world under the aegis of the World Bank and International Monetary Fund during the last two decades. The net result is not encouraging. The International Labour Organization has pointed towards the worsening of the global employment situation in its report titled Global Employment Trends, 2014. It has reported that young people are not getting jobs: "The global youth unemployment rate has reached 13.1 percent, which is almost three times as high as the adult unemployment rate. Indeed, the youth-to-adult unemployment ratio has reached a historical peak." The second point is that jobs are mostly being created in the informal sectors like that of rickshaw pulling and housemaid in South- and East Asia: "In some countries in these regions, informality rates reach up to 90 percent of total employment... the lack of formal employment opportunities is likely to constitute a barrier to a sustainable further reduction in poverty." Figures provided by the Government of India confirm these trends. There has been a net addition of only 11 lac jobs in the organized sectors in the economy between 2000 and 2011. About nine crore workers have entered the job market in this period. Only one out of hundred entrants has got a job in the organized sectors. The beneficial impacts of global integration are proving grossly inadequate for meeting the aspirations of people.

The lack of employment opportunities is a logical result of the FDI-cum-free trade model. Large-scale production is undertaken by few highly skilled workers on automatic machines. These workers are paid huge salaries of Rs 1-2 lac per month. They employ three maids and two gardeners in their homes. The organized employment is shrinking while unorganized employment is expanding. FDl and export industries are simply not providing high-quality jobs that are expected. This problem is not restricted to FDl. Domestic big industries contribute to it as much.

There is a consensus that small and medium industries should be provided encouragement. But it is not recognized that there is a direct conflict between big and small industries. They operate in the same market. If a big industry starts making cheap eye glasses; the small industries have but to close down. It is like inviting a trained wrestler and saying that encouragement will be provided to the village youth suffering from malnutrition to compete with him. The wrestler will invariably win. The mainstream economists do not have a solution to this problem.

There is a need to invite only that FDl which leads to net creation of jobs or to the transfer of advanced technologies. Say an MNC wants to open a furniture manufacturing facility in the country. Let us assess how many jobs will be created directly in that factory. Let us also assess how much furniture will be produced by the MNC and how many carpenters will have to shut shop as a result of cheaper furniture from MNC becoming available in the market. One can then assess the net impact on employment.

The WTO will be a big hurdle in such calibrated approach. The WTO comes in a package. Either you accept free trade in toto or you are out of WTO. This is only the larger picture, however. There are many provisions in the WTO that allow nations to move in calibrated integration. There is a livelihood clause. The governments are permitted to impose restrictions where livelihood of large number of people is affected. They can impose non-tariff barriers on grounds of quality etc. Other ways have to be found. India should even be prepared to quit the WTO if it is found that the net impact on the people is negative.

Vol. 47, No. 3, Jul 27 - Aug 2, 2014