Infrastructure investments and the slowing job creation

Unemployment in India:

1. India is the fastest-growing large economy in the world, but the unemployment rate has also increased.
2. More than 50% of India’s population is <25 years and more than 65% is >35 years of age.
3. The unemployment rate of India stands at 8% as per the data of Centre for Monitoring Indian Economy (CMIE).
4. There is a coexistence of high economic growth and high unemployment in India.
5. The reason for high growth and unemployment is not because of reflection of automation or AI but lop-sided development policies that has not addressed the growing demand for jobs balanced with employment opportunities.

Challenges

1. Poor infrastructure:
   • Poor physical and human infrastructure has constrained the growth drivers and limited the size of the manufacturing sector in India.
2. Illiteracy especially in rural areas due to multitude of factors:
   • India has the largest concentration of illiterate people in the world with more than one-third of the adult population in the country remaining illiterate, and less than 20% have completed secondary education.
   • Multidimensional damages faced by rural areas in terms of access, quality, relevance, finance and governance
   • huge variation in the quality of graduates from both the public and private systems due to absence of any effective systems for quality assurance.
   • shortage of qualified faculty due to poor compensation
   • Outdated curricula and pedagogical methods like rote learning rather than creative thinking and problem-solving and teamwork needed by the market.
3. India’s infrastructure investments are focused on majorly urban areas which has led to uneven spatial development and resultant slowing down of the pace of job creation. 
4. India’s manufacturing sector is showing a de-urbanising trend by moving from urban to rural areas to remain competitive. But the manufacturing sector is not able to grow fast in rural areas as they lack adequate physical and human infrastructure.
   • Industrial firms migrate to rural areas due to advantages offered such as cheaper land prices, lower pollution restrictions, weaker congestion and other spatial factors.
   • India’s slow-down in the manufacturing trend is due to the divergence in the paths of urbanisation and industrialisation.

What has to be done?

1. Development of good infrastructure both physical and human, to create more jobs.
   1. Physical infrastructure investments particularly focus on urban areas, but the manufacturing sector is migrating away from urban to rural areas to remain cost-competitive.
   2. Physical infrastructure in rural areas has been inadequate, thus limiting the size of the manufacturing sector in India.
   3. Poor human infrastructure like education and skills has constrained the growth drivers of India.
2. Investments in Education has to be increased.
   1. Returns to investment in education are much higher compared to returns to investment in physical investment.
   2. Focus on education has to emphasized on both basic education and higher education.
      • The World Bank has focused on basic education and has highly ignored higher education.
   3. Governance needs to be improved in education system
      • The governance of education system needs better incentives, monitoring, performance assessment, and accountability both for the internal processes of the education process as well as for students.
   4. Scaling up of tertiary education will increase the cadres of professionals who can create new enterprises and maximise job creation.
3. Focus on Tier-2 cities to unleash its growth potentials:
   1. The future of economic growth will be minimal in the very dense tier I cities and shall be exponential in tier II cities.
      • New cities can generate 70% of the country’s new jobs and GDP over the next 20 years which will lead to a 4-fold increase in per capita incomes.
      • Across the world, manufacturing has been dispersing from high-density clusters to less dense areas.
4. Policy making has to encompass a broader focus on rural structural transformation to accelerate job creation.
   1. This shall help to overcome the divergence in the paths of urbanisation and industrialisation.
   2. Scaling up of physical and human infrastructure investments is required to build the missing links between urban and rural India.

Link: https://indianexpress.com/article/opinion/columns/how-infrastructure-investments-may-be-slowing-job-creation-8908158/