THE CONTEXT: The COVID-19 pandemic changed the way we think about our economic future and globalisation is now in retreat as well. Though, India recovered relatively quickly from the pandemic, yet it has entered a phase of ‘premature deindustrialisation’.

ISSUES:

• Sustained growth: Industrial policy and strategic state-led economic interventions are back in the world everywhere. The Inflation Reduction Act in the U.S., the European Green Deal, and India’s Atmanirbhar Bharat are prominent examples. However, India’s growth momentum has sustained without much growth.
• Unequal distribution of growth: The fruits of high growth were shared by a small minority which worsened pre-existing gaps of already unequal society. On the one hand, High-end cars get sold out and on the other hand common people struggle to cope with high food prices. This fault line is built into the structure of India’s growth.
• Stagnant manufacturing sector: India has not been able to industrialise sufficiently in last 75 years. Its manufacturing share in output and employment has always been stagnant and below 20%, except during the ‘Dream Run, 2003–08’. Even the 1991 economic reforms, which came with the promise of labour-intensive industrialisation, didn’t alter this reality. India’s industrial investment is stagnating, with high levels of unemployment and chronic disguised unemployment. Its trade deficit largely driven by imported goods, has been widening. India is not able to export goods and even lagging in producing the goods its consumers.
• Poor employment elasticity of services-led growth: India’s experience with services-driven growth since the late 1980s had two negative implications. First, it could not absorb the labour exiting agriculture in the same way that manufacturing would have. Second, the service sector required a large highly skilled workforce that India could not adequately supply. Inequality from services-driven growth is thus much higher than from manufacturing-led growth. The Gini index of inequality for regular wages in the services sector was 44 compared to 35 for manufacturing (Periodic Labour Force Survey, 2021-22).
• Unequal investment in human capital: Early investments in higher education contributed to the near abandonment of mass school education. These higher education institutions cultivated self-serving elites who played a role in India’s IT “revolution” while contributing to industrial stagnation. Thus, investments in human capital were deeply unequal.
• Differ in returns to education: The returns to education differ across classes and social groups. School enrolment is high. Higher education is not as inaccessible as it was earlier. But the differential quality of schooling feeds into the quality of higher education, which feeds into labour market outcomes. The high-skill services pitch would suit the traditional elite but not the majority first generation graduates from colleges in rural areas and small towns. The majority of these students reap poor returns on their investments in education. The poor quality of most state-run schools and colleges is closely linked to the elites renunciation of public education. Even as these fault lines are new forms of class divide in India, they reflect older ones rooted in the caste system.
• A culturally rooted diagnosis: The lack of mass education meant that an important cultural prerequisite for industrialisation was missing. India has looked down upon certain occupations, particularly those that are essential as electrical, welding, etc., partly impeding organic innovation in manufacturing. Industrialists say that India undervalues the vocational skills needed for manufacturing. Certain skills are not valued even if they command higher wages. Artisanal knowledge doesn’t enjoy as much social respect as scholasticism or metaphysical abstraction. Increasing returns and efficiency come from innovation and its diffusion, which are based on mass education and collective absorptive capacity.

THE WAY FORWARD:

• Need of deep industrialisation: India needs deep industrialisation, not just the service sector, that has the power of changing the foundations of society.
• Rise of useful knowledge: Economic historian Joel Mokyr suggests that the rise of useful knowledge is key to technological progress and growth in modern economies.
• Revaluation of culture of growth: A culture of growth also requires the revaluation of labour, production, and technology.
• High skill driven growth: Focusing on skill development programs tailored to the manufacturing sector can address the skill mismatch and enhance the capabilities of the workforce.
• Reviving demand: Supply-side efforts and regulatory reforms will certainly help but the key to the manufacturing-sector revival lies in reviving demand across the economy particularly discretionary spending.
• Boost Investments: Encouraging both domestic and foreign investments in the manufacturing sector can help upgrade infrastructure, improve technology adoption, and enhance productivity. This can be achieved through attractive investment policies, tax incentives, and easing of regulatory procedures.
• Regulatory Reforms: There is a need for streamlining regulatory processes by reducing bureaucratic complexities, and simplifying labour laws can create a business-friendly environment. It can attract investments, foster innovation, and enhance productivity in the manufacturing sector.
• Research and Development: Encouraging R&D activities and innovation in the manufacturing sector can lead to technological advancements and productivity gains.

THE CONCLUSION:

Despite the policy push and various state incentives, the industries in India has been hurt by a decline in its consumer base which has seen incomes come under stress. The industrial sector needs a major revival not just for the sustainability of economic growth, but also for income and employment generation, both of which have been under stress for some time now.

UPSC PREVIOUS YEAR QUESTIONS

Q.1 What are the salient features of ‘inclusive growth’? Has India been experiencing such a growth process? Analyse and suggest measures for inclusive growth. (2017)

Q.2 “Industrial growth rate has lagged behind in the overall growth of Gross-Domestic-Product (GDP) in the post-reform period” Give reasons. How far the recent changes in Industrial Policy are capable of increasing the industrial growth rate? (2017)

MAINS PRACTICE QUESTIONS

Q.1 There is a continuation of a trend of weakening of industrialisation over the past decade. Analyse the reasons and suggest measures to boost industrial growth in the country.

Q.2 The declining share of manufacturing in overall economic output as well as employment is a worrying sign for the economy’s long-term growth prospects. Comment.

SOURCE: https://www.thehindu.com/opinion/op-ed/why-india-needs-deep-industrialisation/article67841633.ece

TAG: GS 3 INDIAN ECONOMY

CONTEXT: The government has reconstituted the ministerial group of the GST Council that was tasked with recommending the simplification of the complex tax structure and a rejig of its multiple rates.

EXPLANATION

• Since the beginning of the introduction of the GST tax regime, there has been a call to rationalize the tax structure.
• The group of ministers (GoM) on GST rate rationalisation, headed by former Karnataka CM Basavaraj Bommai, had been in suspended mode since its formation in 2021.
• The convenor’s role for the seven-member GoM has been assigned to Uttar Pradesh Finance Minister Suresh Kumar Khanna.

CURRENT GST STRUCTURE

• The current GST structure has a total of four tax slabs, including 0%, 5%, 12%, 18%, and 28%.
• There are different forms of taxes levied under GST:

Central GST (CGST)

This tax is imposed on the movement of goods and services within the state but is appropriated by the central govt.

State GST (SGST)

It is the tax levied by the state government and appropriated in the state where the transaction occurs or where the goods are sold and consumed.

ntegrated GST (IGST)

This tax is imposed on all the goods and services between two or more states or union territories.

Union Territory GST (UTGST)

Imposed on supply of goods and services within the Indian Union Territories.

NEED FOR RATIONALISATION

• Ease-of-doing-business is needed as the current structure is quite complicated. For example, there are some items whose tax rates depend on their packaging, like specified food products, or selling prices.
• To reduce the number of litigations arising from classification disputes.
• GST is an indirect tax, which means that it is regressive in nature. Lower tax rates on some of the basic items would ease the pressure on common man.
• The frequent changes in rates for different goods and services in the past have created uncertainty for businesses.
• The 15th Finance Commission had observed that the GST’s revenue neutrality was compromised due to multiple tax rate reductions.

IMPLICATIONS

• Improved compliance: As too many tax rates lead to tremendous compliance-related problems.
• Improved tax collection: Higher tax rates doesn’t always imply higher revenue collection, going by the Laffer curve theory. This is proven by the fact that with reduction in tax rates on some items in the past, tax collection has only increased.

CONCLUSION

• Rate rationalization in the GST regime remains an ongoing challenge.
• There is a need for careful consideration to strike a balance between revenue generation and easing the compliance burden.

Source:https://www.thehindu.com/business/centre-rejigs-gom-to-simplify-gst-rates/article67635249.ece

THE CONTEXT:   Infosys founder N.R. Narayana Murthy suggested that the youth of the country should volunteer to work 70 hours a week for India’s development.

ABOUT LABOR PRODUCTIVITY:

• Labor productivity measures the hourly output of a country’s economy.
• It is defined as real economic output per labour.
• Growth in labor productivity depends on three main factors:
  • Saving and investment in physical capital,
  • New technology
  • Human capital

INDIAN WORKER’S PRODUCTIVITY STATUS:

• Innovation Index 2021: This report produced by NITI Aayog. It showed that in 2018, India’s gross expenditure on research and development (GERD) as a percentage of GDP was 0.65%, (one of the lowest in the world). This figure dipped further to 0.64% in 2020-21, according to the Department of Science and Technology (DST).
• International Labour Organisation (ILO): Latest data of ILO for 2023 shows that the workers of the country are already working more than their counterparts in other countries. As per the rankings, Indians work 47.7 hours a week, which is seventh longest in the world.

WORKING HOURS IN THE WORLD:

• New Labour Codes in India: It mandates that workers put in 8 hours a day, capping the weekly work hours at 48 hours.
• In Germany, weekly working hours have been reduced by about 59%, from 68 hours in 1870 to less than 28 hours in 2017.
• Japan had a 44-hour working week in 1961, the highest ever since 1950, which steadily decreased to less than 35 hours in 2017.
• Working hours tend to decrease when incomes rise and people can afford more things that they enjoy, including more leisure.
• Productive economies: Workers work less.
• Less productive poorer economies: Workers have to work more to compensate for lower productivity.

ARGUMENTS AGAINST LONG WORK WEEK:

• Health: According to ILO, working hours and the organization of work and rest periods can have a profound influence on the physical and mental health and well-being of workers. Working long hours or under stressful situations can contribute to health issues such as exhaustion, burnout, and depression.
• Economy: Decisions on working time issues can also have repercussions for the broader health of the economy.
• Productivity: Research consistently shows that productivity declines significantly after 50 hours of work per week and drops further after 55 hours.
• Exploitation: Employees who are obliged to work long hours or take on additional duties may need more time to earn a decent salary. This might result in financial difficulties, stress, and anxiety.
• 70-hour work week proposal violates the international labour standards (ILS), the International Labour Organization’s (ILO) Decent Work Agenda and its Fundamental Conventions that lay down the working hours in order to ensure that women and men get decent and productive work.

ARGUMENTS FOR LONG WORK WEEK:

• Productivity: India’s work productivity is one of the lowest in the world. A 70-hour work week increase productivity because Employees put in longer hours and increase the level of how much they complete. This allows the company to produce more goods or services and deliver them to customers at a faster rate.
• More jobs: longer working hours may lead to more job opportunities. This is because businesses may be more likely to hire workers who are willing to work long hours.
• Higher wages: Workers who work longer hours may be able to earn higher wages. This is because they are able to complete more work and are therefore more valuable to their employers.

THE WAY FORWARD:

• Strong innovation system: The level of productivity of a country depends on the strength of its innovation system. Countries which have stronger innovation systems as compared to that of India’s private sectors have much higher shares.
• Supportive work culture: A Deloitte study reveals that 94% of executives and 88% of employees recognise the crucial role of corporate culture in a company’s success.
• Improve Infrastructure: Infrastructure development is crucial to achieve India’s 2047 vision for a $ 40 trillion economy and be reclassified from a developing economy to a developed economy.
• Improve education: Investing in education will improve the skills of labour force.
• Incentive programs: Incentives are a great way to encourage employee productivity. Incentive programs boost their morale and enable them to complete more work in less time.

THE CONCLUSION:

Enhancing productivity without extending work hours is beneficial for both employees and the economy as a whole. It fosters a healthier work-life balance and contributes to overall well-being.

PREVIOUS YEAR QUESTIONS:

Q) Faster economic growth requires increased share of the manufacturing sector in GDP, particularly of MSMEs. Comment on the present policies of the Government in this regard. (2023)

Q) Is inclusive growth possible under market economy? State the significance of financial inclusion in achieving economic growth in India. (2022)

MAINS PRACTICE QUESTION:

Q) “Labour productivity may not be directly correlated with extended working hours”. Discuss the statement in the context of the new Labour Codes being implemented in India.

SOURCE: The problem with the ‘70 hours a week’ line – The Hindu