Why India's Employment Puzzle Resists Solutions with Amit Basole
Insights on India's Unemployment Challenges
In this episode, author and journalist Puja Mehra speaks to Amit Basole, Professor of Economics and Head, Centre for Sustainable Employment and the lead author of the State of Working India report. They talk about why India’s unemployment challenge remains unresolved, why fixing the employment crisis goes beyond grand economic reforms, touching on issues like local governance, municipal underfunding, and the lack of coordination between ministries and levels of government. They also delve into what India’s demographic trends imply for the future, and whether the country risks “growing old before growing rich.” Tune in for insights into one of India's most urgent and complex economic problems.
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TRANSCRIPT
Puja Mehra: Hi, Amit. Thanks for joining the show.
Amit Basole: Thank you very much for having me.
Puja Mehra: I want to talk to you today about something that is so important and something that is discussed a great deal. Almost every day we read about it in the newspapers or we hear a discussion or something around the topic. But you've been working on this for so long and you're so well versed with the subject that I thought it was best to go to you for this topic, which is India's employment challenge.
Amit Basole: Sure, yes. Happy to talk. I mean, yeah, we have been working on it for many years, but I think as will become clear in the conversation, there are still quite a few unknowns.
I mean, we think we understand the problem, I guess. And there are solutions out there. People are proposing and policies, many policies that are being tried.
So we can talk about all of that. But it's a complex challenge. So happy to talk.
Puja Mehra: So let's start by first understanding what is India's employment challenge.
Amit Basole: Yeah. So I mean, if I were to really summarise it in a very brief way, if you want to give an elevator pitch kind of a thing, then there are two separate problems. One is just a lack of jobs.
So there's unemployment. And that's particularly the case for younger workers that we can discuss specifically. But then there is a broader issue also of low productivity and low wages, which has been with us.
It's a legacy problem. In fact, youth unemployment is a relatively newer problem for us in terms of the quantity because of the explosion of higher education in the last 20 years, the number of younger workers or younger people with higher education looking for aspirational jobs and not finding those jobs. That phenomenon, I think, is relatively recent.
But a much longer running problem is that we are a low productivity country and a low wage country, therefore. So these are two separate challenges that we need to address both.
Puja Mehra: So let's take them one by one.
Amit Basole: Sure. So, you know, the way generally I think of this is through the lens of what economists call structural transformation. So which is a phrase that tries to capture the reallocation of economic resources, including labour, away from relatively lower productivity activities, be they in agriculture or petty retail or many other sectors where there is surplus labour, where there are more people than needed.
How do you reallocate that to sectors where productivity is higher? So that movement from low productivity to high productivity of workers and other resources raises the overall level of productivity in the economy. Now, as you know, you would guess from the sound of it requires the generation of jobs in the high productivity sectors in adequate numbers that people can move in.
So through this lens, you can understand both things, you know, how can I create more jobs? But specifically, how can I create more jobs in the higher productivity sectors? Because what we have seen, for example, in the pandemic and the recent years is employment has risen, but it has mostly risen in the lower productivity sectors, like agriculture, construction, etc.
So that the average economy-wide productivity level doesn't rise as a result of it, even if employment does rise.
Puja Mehra: So let me request you here to explain to those listeners who don't know economics, what do you mean when you say high productivity or low productivity?
Amit Basole: Sure. And you're right in bringing this up, because these are not straightforward things to measure in many cases. The simplest intuition here would be of productivity can be something like a physical output, which is if you're in a factory, how many units of output are you producing per person per day, per unit of time per person, you know, how many bags of coffee, or how many units of a smartphone, or whatever, that's a physical productivity measure.
Now, of course, there are many sectors of the economy where it's harder to measure that. So in IT, is it how many lines of code? Is it how many programmes?
You know, it's not very clear there. It's teamwork, the output is not very well defined. Finance, it's even harder, you know, is it how many loans you give out or what.
So productivity is not an easy concept to measure sector by sector. But economists generally take a shortcut and put a rupee value on it or a dollar value on it and say, how many rupees worth of output is one person producing, right, at an economy wide level and in a sectoral sense. So if you look at it, different sectors are very different in productivity, agriculture, construction, petty retail tend to be much lower productivity, meaning the rupee value of output produced per person is much lower.
Then let's say, factories, larger factories, think of the Foxconn factory or something like that, large factories or even smaller factories, compared to IT, compared to business processes, administrative services, any number of services, productivity is much higher. So the challenge is how do you create those things?
Puja Mehra: And this estimation of productivity, is there a universally accepted list of estimates we have across industries? You know, like, for instance, GDP is estimated by the government and everybody accepts that. Does something like that exist?
Amit Basole: So, well, you know, GDP itself, in a way, is a proxy for how productive an economy is. And if you look at GDP per person or GDP per worker, that gives you a good sense of productivity. But yes, I mean, you know, the kind of definition that I gave, which is, let's say, value added per worker, right, would be an accepted definition of labour productivity, at least at the firm level or at the industry level.
So it's a legitimate thing to ask, for example, what is labour productivity like in the Indian automobile sector? And how does it compare to, let's say, the Chinese automobile sector? That will allow you to get at things like how mechanised is production, you know, how much capital is applied.
Generally, the more mechanised and the more capital applied to production, the more labour productivity would be high. But it's not just about capital, it would also be about infrastructure. If you have better quality infrastructure, better skilled workers, all of these can add to your productivity.
Puja Mehra: Power supply. Right. So coming back to the challenge.
Amit Basole: Yeah. So as I was saying, through the structural transformation lens, both the low wage, low productivity challenge and the not enough job challenge have come together. And the question becomes, how do I create or how does the government enable, let's say, the creation of, and I want to be careful about the words, because in a vast economy like India, government itself is always a small part of the employment directly.
Mostly the government is about enabling the private sector to create jobs. How does the government enable the creation of a sufficient number of high productivity employment opportunities? Which are those industries, which are those sectors?
And at the same time, that's at the demand side, the labour demand side. At the labour supply side, how do I ensure that the workforce is adequately trained and equipped to occupy those employment opportunities? Both are important challenges.
Puja Mehra: Right. So how are we doing on these challenges?
Amit Basole: Okay, so we can maybe divide that up into two parts. One is what does the data broadly tell us about India's structural transformation experience, let's say, over the last couple of decades or even a longer period since liberalisation. And the second part would be the policy framework or the efforts that are ongoing and have been undertaken.
The first thing that we know from the data side is that everybody would know that economic growth significantly picked up in India post liberalisation. Perhaps lesser known would be that in the period that is often called the dream run, which is the high growth period in starting 2004 onwards, lasting maybe a little bit post the global financial crisis. That period also saw significant structural transformation in the sense that agriculture shared significant labour and people found non-farm jobs.
There were two kinds of things that happened. One at the lower end, meaning workers who did not have too much education, they left agriculture, largely went into construction. And at the upper end, workers with some education went into IT, IT enabled services, finance, all of those kinds of sectors, that is India's service sector boom.
So we had both of these things happen, which drove both within sector productivity growth and structural transformation occurred too, meaning we moved people from low productivity to high productivity sectors in this period around 2004 to let's say 10, 11 and so on. In fact, all the way up till the 2017-18 period, growth was not bad. It wasn't as high as it had been, but it wasn't bad.
And some amount of job creation was happening. It wasn't as much as we needed, given how many people, young people were entering into the workforce, and given how many people were leaving agriculture looking for other opportunities, we did not create enough jobs even back then. And there were all these discussions of jobless growth, job loss growth even.
But post 2018, the situation has actually worsened somewhat, which is that we entered first a period of slowdown and then the pandemic, which resulted in significant reversal of the structural transformation process such that people fell back into agriculture, fell back into the fallback sectors. And the last few years post-pandemic has been a story of trying to recover from that shock, but it has not been as good as we hoped, meaning that even now as of the latest available numbers, the number of people in agriculture remains higher than it was pre-pandemic. So that reversal that has happened has not yet corrected itself.
So the legacy employment challenge that we always had, which is that the Indian economy grew fast, but couldn't create enough jobs, has worsened now. Because on top of that problem, we have this other problem that people move back, and we need to pull those out as well.
Puja Mehra: And how do we understand this? What is the reason? Of course, the pandemic was a shock, but now it's been some number of years.
So what's holding up?
Amit Basole: I think that is the really important question. And also given that the GDP, at least as going by GDP numbers, growth has not been bad post pandemic. It's even more perplexing as to why we are in this situation.
So perhaps one can answer that in two parts. One is, we should also go back and emphasise that the reason India's legacy employment challenge was also there, let's say compared to someplace like China, is that one, of course, we didn't perhaps grow as fast as China. But also our growth occurred in sectors, which were not particularly labour absorbing sectors, in the sense that most of our labour force is not higher educated, they are 10 standard pass, and so on.
So we need high productivity jobs for those kinds of people, not for college educated people only. While the sectors that grew in India, the service sectors, were largely driven by college educated people, who are the minority of the workforce. So we had productivity, we had growth, but in this small sector not generalised.
While in China, because growth was largely driven by labour intensive manufacturing, etc. You could get people who did not have higher education, put them in higher productivity work. And that remains something that we need to do in India today.
But to answer your question of what has happened now, we have also experienced a prolonged period of depressed private sector investment. So even before the pandemic, private sector investment was not as great, then the slowdown happened, the pandemic happened. And the post pandemic recovery, although there was a bounce back, and a lot of profits were made, particularly at the upper end, many people have highlighted this, they didn't translate into reinvestment to that same extent.
So we are still in apparently a kind of economy where people are reluctant to invest, aggregate demand remains muted. And so barring a few pockets of the economy, generally, there is no boom. And therefore, we are not seeing a job creation of the kind that maybe we saw in that boom period, the 2004 onwards.
And I don't know what the reason for the prolonged, depressed private sector investment is.
Puja Mehra: I think that, yeah, we could probably make that a part of this conversation. That quite clearly is a whole lot of policy uncertainty, policy flip flopping, changed international economic scenario, where a lot of things have changed in terms of globalisation, trade policy, there were the wars, Ukraine, etc. So yeah, many, many things we are seeing sort of, you know, the investor sentiment, the business climate isn't as gung ho as it could have been.
And also, I think a lot of the infrastructure deficit problems, a lot of the scaling problems, etc., all of those are not getting addressed as well. And I think, although there are many economists who challenge the employment challenge analysis put out by economists such as yourself, I think the biggest confirmation comes from the fact that all political parties across the board offer cash supplements now, during election times, as the most important offering. I think that says something about the employment challenge.
And I wanted you to also say something, you know, about the fact that how large is this challenge in terms of, you've explained qualitatively, but also in terms of quantitative terms, if you could put some numbers to it. And two, to people, you know, who say that India does not have employment challenges is that we're not measuring jobs properly, or we're not defining jobs properly, or that we are not going to have jobs, we are going to have to get used to people doing gig work, etc. So how do we understand what, you know, these economists when they challenge, you know, the analysis that you're offering?
Amit Basole: Yeah, I think, you know, it's a fair point. I'll come to the numbers in a minute. But connecting back to also what you said about the global climate, de-globalisation now, and with the Trump tariffs, etc.
Certainly, we are looking at a very different period now, and maybe into the foreseeable future. So it's not an illegitimate thing, I think, in my mind to ask, over the next 20 years or so, can India actually achieve structural transformation in the way that we have understood in the past, let's say with Korea, and now the most recent example being China, is that model something that actually is even a model anymore? Right?
Because China grew at a time when the global climate was very different. Globalisation was far more favourably looked upon by the developed world, the markets were there to be had. That is no longer the case.
And of course, China itself, its presence in the manufacturing space creates new challenges for late, so to speak, late industrializers, to use the term in the literature, right? Every late industrializer has its own challenge.
Puja Mehra: Let me say here that, you know, we always compare with all these countries, but I was recently reading something, Regan's latest biography, in fact, and so even the US, when it was in a very different era, went through a structural transformation. So does structural transformation actually depend on just there being export opportunity?
Amit Basole: Yeah, that's a good question. I think that, you know, if you divide up structural transformation into broad phases, you know, we take the earliest ones, which is, in history, if you go back to England, and so on, we're going back 200 years. And then you have the later ones like Germany and Japan, and then the still later ones like Korea, and then the still later ones like China.
So you have these waves happening of industrialisation and structural transformation. What we see is that, with few exceptions, I think America might be one of the few exceptions, exports have always played a critical role. And oftentimes, for the simple reason that the domestic market was never large enough to sustain the economies of scale that industrialisation truly could give you, right?
And even England exported its way into the Industrial Revolution. So did Germany, so did Japan, you know, so did Korea, so did China. So I think we have grown used to thinking that exports are the key.
And you can see why. Even today, in India, the global market, even with a hostile or not of a less benign global climate, is much bigger than the Indian market would be. So that remains the case, I guess.
But there are other important differences. And that goes back to your question about the sceptics, that it's true that the global climate is different. It's true that the climate challenge puts a completely different spin on the constraints that are going to be there in the next few decades to come.
So given all that, is it not worth imagining different roots, right? And I think that's a legitimate thing to say. And plus, India is a very large economy, you know, we are way larger than other countries who are attempting this, like Vietnam, and so on, in a number of terms.
And we are a robust democracy. You know, most of the time, structural transformation has been achieved in non-democratic countries. And we have to take that into account, right?
So we are a robust democracy, we are a multi-ethnic, multi-lingual, multi-religious country, which have unique constraints. And those are constraints that most of us would welcome, we don't want to homogenise. So we want to become a prosperous economy, while holding on to these things that we value.
And that's by no means clear that we can have models, easy models from other countries. So I have a lot of sympathy for thinking creatively and differently. And this brings me back to the numbers.
If you look at sheerly in quantitative terms, there are different estimates out there. But even the economic survey, you know, last year or so had an estimate that around 7.5 or 8 million jobs per year is what you would need to accommodate the new entrants and the leavers from agriculture. You can play around with that number, maybe make it 10 million, whatever, but it's a significant number.
And these are 10 million productive approaches. Let me emphasise again that what we care about is that people are greater than the average level of productivity in the economy. Only then does the economy wide average rise.
If these people end up in sectors that are lower than average productivity, it doesn't do anything for us in terms of growth and productivity. So we need around 8 to 10 million jobs per year in sectors that are above average productivity. Now, what kind of jobs are these?
By jobs, do we mean regular salaried work? Or do we mean self-employment, entrepreneurship, startups? And which sector?
Do we mean manufacturing? Do we mean services? There, I think India is a large enough economy that we need to have no, we shouldn't have any constraints on this.
Jobs are going to come from every manufacturing industry, from many service sector industries. They're all going to play their part because none of them is large enough for India's jobs problem. Even with our large employment, when people think of gig work, we don't have any good estimates, but I'd be surprised if there are more than maybe 4 or 5 million people in gig work.
And that's a tiny fraction of India's 500 million, 600 million workforce.
Puja Mehra: And is it very productive? Is it more productive than the average economy?
Amit Basole: The statistics are very poor, as you know, in the gig economy, both in terms of number of workers and productivity. I wouldn't be surprised if it is higher productivity than average. But it's not the kind of work that we see as very desirable work going forward.
So we have to be honest about that. However, it can be a piece of the puzzle, just as, you know, apparel and textiles are a piece of the puzzle, just as electronic components are a piece of the puzzle. IT is, every sector has something to offer, because it is, even the large ones don't employ more than a few million or tens of millions of workers.
And we have a workforce that is hundreds of millions. So we can't think simplistically, you know, and point to this or that sector or industry as the magic bullet. It's not going to happen.
We're always going to be a very diverse economy. And regionally, it's going to change because we are a very diverse economic region. So what does Bihar look like, when it is three times its current per capita income, or four times its current per capita income?
And what does Karnataka look like, when it is two or three times its per capita income are going to be very different. So our policy needs to adjust to that as well. And I think the numbers challenge will seem less daunting, if we allow ourselves this breadth of view, that it's going to come from many, many sectors.
Puja Mehra: Sorry, so what is the gap between the number of jobs that are getting created and the number of jobs that are required to fully absorb this workforce, that number of people who joined the workforce?
Amit Basole: Yeah, so it's a, that answer depends on how you define a lot of assumptions going into this. And things change also year to year. For example, in the year 2023, I remember in the PLFS data, quite a large number of regular salaried jobs were created, much more than in the previous few years.
The indicator that I watch out for is the share of the workforce that is engaged in the organised sector. The organised sector is the sector of the economy that employs more than 10 people, it tends to have a lot more regular salaried jobs and a lot more productive jobs. The share of the organised sector, which has hovered somewhere around 24-25% for a long time, has stubbornly refused to rise.
So that tells me that we are not creating enough to accommodate the new entrants and the leavers from agriculture. Again, we are to accommodate them in the higher productivity sectors, because certainly employment has risen. Female labour force participation rate has risen.
But where have people gone? Mostly in tiny enterprises, on account work, unorganised sector enterprises. So the unorganised share rather has risen, and the organised sector as share has fallen.
And that's the key indicator for me to look out for.
Puja Mehra: Let's bring technology and AI now into this employment challenge. What will that do? How will it make the job tougher?
Or it will not? Many people say that it probably will not.
Amit Basole: Well, I think, again, the answer probably varies on what you have in mind in terms of the sectors. There are sectors that will be impacted. I don't think there's any doubt about that.
Because tradable sectors, by which we mean sectors that are exposed to international competition, have their own logic in terms of technology adoption. When you're building cars, you can't have your own way of building cars. That is more labour absorptive or something like that.
It doesn't work because you're exposed. So your unit costs need to match international unit costs, and you will adopt technology as needed. So sectors that are exposed to international competition, where large language models or robots and so on are significantly improving productivity and lowering unit costs, I don't see any reason why jobs should not be lost in that.
It's going to happen. But that doesn't mean that, A, every sector is going to be impacted, no. And B, that on the net, it's going to be a loss.
That's not clear either. That's what people have in mind, is that on the net, AI is going to destroy more jobs than are created anywhere else. And that's not an easy claim to make.
I'm not pessimistic about that score. I think there are many industries where humans are important, where interactions are important, where it's hard to think of machines and AI replacing humans very quickly. I'm teaching.
Teaching is being fundamentally altered by AI. But we are still far from a world where teachers are going to be replaced. Certainly, the practice of teaching is changing, for sure.
So there are many sectors where the sectors are going to be impacted. But that doesn't necessarily mean they're going to be large job losses. And in a country like India, where we still have quite a bit of way to go in terms of just moving people into sectors which are not even that heavily mechanised or impacted, those still remain.
I mean, it's not like apparel, or leather, or food processing, or tourism, or any of these large employers. They're not about to become very heavily influenced by AI. So we still have a window, I think.
I may be wrong on this, but that's how I feel.
Puja Mehra: And let me now ask you, what is the future? So you've said that, you know, some of the things you would have liked to change have stubbornly remained the same. The structural transformation saw reversal.
We have not been able to recover from that. And we've also seen a lot of effort from governments, all kinds of policies. We've seen policies and schemes for skill development, apprenticeship, internship, production links, incentives being given, employment link incentives being given, export link incentives being given.
Are these appropriate policies and frameworks and schemes for tackling the employment challenge? And as we say this, also, you just said that some new technology-related challenges are emerging. There's climate change, there's a changing international economic environment.
So given all of these variables, what is the future looking like? How optimistic should we be about India sort of being up to the challenge, measuring up to the challenge?
Amit Basole: I'm certainly optimistic. We have to be creative, that's for sure, for the reasons that we have discussed in the past, I think, in the show. The past is not perhaps going to be a very good guide to what the next 20 or 30 years are like and what our challenge is.
But I'm optimistic. Let me, before going to the big picture future things, let me talk about the policy for just a bit. You mentioned many things that the union government as well as state governments have been doing.
Some projects I was taking stock of state-level industrial policies and employment policies, and many states have that. So it's not like only the union government is thinking about this, many state governments are thinking about it. My feeling is that, yes, we need to do stuff on skilling, we need to do stuff on linking workers to firms better, whether that's through internships or other models.
We can incentivise firms through these kinds of things that you talked about production linked employment incentives, all of that is good. But there are certain fundamentals that we have still not managed to completely crack. Although we know that this is our problem, and governments know that this is a problem, they've been trying to do things about it.
Like what? A few key things. One, human capital in a very broad sense, which means not just skills when you are an adult, but your experience before that in education, etc.
And the surrounding things to that, which is health and other things. That's what creates a workforce that is reliable and capable. It's not skills in a narrow sense, like, do you know, are you a qualified electrician or a fitter, you know, a machine parts person, that's one thing.
But do you have good numeracy? Do you have good literacy? Do you have good analytical ability?
Do you show up for work, when you're supposed to show up? Do you follow through? These are not skills in that narrow sense, these are broader skills.
Yeah, acculturation issues, but they are often not even about the individual so much as about the society in which that individual lives. Your life is not predictable, it's not in your hands. If there's a crisis at home, somebody is sick, so you have to take care of something else, you won't show up to work.
Puja Mehra: Social institutions.
Amit Basole: Exactly. So social safety nets, social security institutions that enable a person to be the best person that they can be at work, we have not yet managed to crack that very well. The second important thing is infrastructure, which we talk about a lot, and a lot has been done on it.
But the more you descend down to the levels, the worse the problem gets. So we solve airports, ports, highways, fine. By the time you get to local roads, local buses, and so on, things start looking very different.
So, but that's where a lot of small firms are constrained. You look at these small firm surveys that keep coming out, the constraints that they report are actually funny enough, Bijli Sadak Pani, you know, still, so it's still electricity supply, it's still water. So these kinds of very local municipal level constraints are often where a lot of small firms experience loss of output.
And that makes them uncompetitive. So solving for local infra, and these kinds of societal issues that make the workforce more productive, I think can really put us in that next league. And we have not yet managed to crack that problem.
So on the policy front, I would say if there are any lacuna, those are the ones I would identify.
Puja Mehra: You know, somebody once told me a small, small firm owner once told me the two things they thought policymakers don't understand at all, is that, you know, scaling up is very, very difficult. And for as long as units remain these, like you're saying, you know, tiny units, whether even if it's slightly more than 10 employees, they have, that's not going to do the job, if they're going to have to, we're going to have to have firms, large number of firms that employ lakhs and lakhs of people, we don't really, we haven't cracked that. And then the second thing this person said, and this was a conversation in terms of credit availability, which we have not touched upon, which also tends to be a big factor here.
The cost of failure in India is very high. And, you know, socially and family wise, etc, etc. So, I was wondering, you know, if our policymakers have analysed the problem correctly, and based on the correct analysis, it's a complex problem, like we've just discussed so many things, social things, infrastructure things, it's legacy issues, etc, but human capital.
So, have our policymakers, is the analysis correct? Do you see this analysis in policymaking? Does policymaking reflect this analysis?
And if they are, if they've understood it correctly, have they used that, are the policies designed on the basis, is the policy design correct? Is it on the basis of this correct analysis? And finally, has everything been covered?
Or, you know, is there political will to sort of get behind this problem completely? You know, so where is the gap, really?
Amit Basole: I know the last one, I don't have any doubt that there is strong political will. You alluded to the cross party direct benefit transfer phenomenon. And I see that as a, you know, a stopgap that parties have to do in a democracy.
But I don't think that there's anybody who is not committed to seeing this problem as a first order problem. I genuinely think that is the case. It is just a very wicked problem to solve, because the moving parts are too many, and the government has limited levers, all said and done.
I mean, it's a big player. It has many policies, you know, there's trade policy, there's industrial policy, infrastructure, skilling, everything is there, and they do it. But as you pointed out to that local business, you know, the small business person, it comes down to whether entrepreneurs feel they have the room to be optimistic, and to grow to take risks, and to absorb the failure, if there is, there inevitably will be failure.
Are you creating an environment in which people can take those risks? It's not enough to just talk about entrepreneurship. So that part, again, the commitment, I think, is there.
The question is, how much can the government do? And what should it do? Of course, there'll be a lot of differences of opinion on this, there'll be economists probably who would say, look, don't micromanage things, don't get into this sector, or that sector, this incentive, that incentive, try to remain big picture, horizontal, as they say, meaning, make sure that the labour market frictions are gone.
You know, there's power, there's ease of doing business, doing all that stuff, the simple tax environment, etc. Get out of the way. The global environment is the global environment, you can't do anything about it.
Hope that you get lucky with oil prices and with whatever else. Make sure you're ready when it comes, right? When the favourable environment comes, you have your ducks in a row.
People will respond to incentives. That's one point of view. The other point of view is that, yes, all those things have to be done.
But we see from the history of many countries that governments are quite interventionist. They are playing favourites. They are backing certain horses, betting on them and so on, and creating conditions for them to succeed.
And that's what works. So you should do that, you know, you should pick winners, as they say, and so forth. It's very hard to settle this debate one way or the other.
But I think the first part most people would not disagree with, which is that horizontal things do need to be in place. You need clarity on that, that this is what is important. And we need to solve for it.
So, you know, if small firms don't have assured power supply, that's a problem. And that's a first order problem that I have to fix today, right? Or, you know, local roads or whatever.
The problem here is not the political will or the fact that that problem is known to everyone. It's that in our system of governance, the kind of multi-regional or level coordination that you need is hard. And what is of different kinds, there is, first of all, horizontal coordination, which is different line ministries, etc, need to coordinate, right?
So that they are not at cross purposes with each other. And then the three levels of government at a minimum need to be on the same municipal, state and central, and they all again need to coordinate. That's not easy.
We have way too much centralisation in spending and in decision making, so that local governments are permanently resource constrained and don't have the necessary tools to deliver what they are expected to deliver. There's a recent RBI report also on municipal corporations, etc, shows how centralised our funding is, taxes are, and so forth. So we need to spend a lot more at the local level, we need to collect a lot more at the local level, so that that coordination doesn't depend on going all the way higher up again and again, and leaving these problems unsolved.
So that I would say is somewhere where our problems lie.
Puja Mehra: But Amit, sorry to disagree with you here. But you know, since 2012, we've had this investment, private investment slowdown, which is directly linked to, like you explained, the employment challenge. It's now been more than a decade, we have not cracked this problem.
And it has not always been, I mean, the global environment is not all through this period being not conducive. And there have been phases where we could have done something about it. And there are many things that, you know, we're a large economy, we can do many things internally, we can generate enough domestic demand internally.
I agree that there is political sensitivity to this issue. But political will, I'm not so sure, because the political agenda is always so full of so many other things. And it's just about, you know, winning elections, one election, second election, third election.
And governments are managing, political parties are managing to form governments and win elections without addressing this employment problem. We can surely say now with the cash transfers thing happening, we don't know how long this will continue to satisfy voters. That question certainly arises.
But I'm not sure there is political will to fully, you know, to take this challenge head on. I don't see it as somebody who walks in and out of government offices, meeting decision makers all the time.
Amit Basole: Certainly, for both of these questions, I would refer to you because you've looked at the past decade much more closely in your book. And you also, as you said, interact a lot more, so I wouldn't contradict. On the performance of the past decade, I suppose we all have a sense that, you know, there have been a lot of particular things that have happened that have kept us at a low equilibrium.
And there was a period when oil prices were low and conditions were not so unfavourable. But then there were some policy mistakes, you know, demoralisation happened, and so forth. That made a difference.
And then the pandemic happened. And so it has been a kind of uncertain decade, as we also started with it. On the second point, yeah, I think that's a more important thing.
Is it about, is there clarity in policy circles? Is there a lack of clarity? Or if it is that people are clear, but the pressures of electoral politics and the myriad issues that face you, then make this just one more thing, among many others, I can certainly see that happening.
And that's also why I made it a point to mention that the fact that we are this, you know, multi-ethnic, multi-linguistic and multi-religious democracy, to my mind is not a, not just sort of side point, you know, the economy exists in a society. So we can't have economic goals and ambitions that have nothing to do with our society. And if our achievement so far has been to build this society and make it work, then the economy has to be in service of that.
And we can't pursue economic goals that then compromise this. That's at least how I think about it. And if that means that, and this is where I think might be unpopular, people might disagree with it.
But that means certain kinds of compromises on the economic ambitions, you know, that there are trade-offs here in terms of electoral pressure, this and that, then we, that's what we have, you know, we have a country which can grow at 5%, can't grow at 10%, and can't deliver the seismic, you know, changes that we've seen in other societies. But it can become a functioning, you know, relatively prosperous society. It may not become a developed country in 20 years or whatever goal, you know, you want to set yourself, maybe that's not a realistic goal, I don't know.
However, we have to carry everyone along. So whatever works to carry everyone along, and what is the outcome that comes out of it, I think is the outcome. The question would be, are you doing all that you at least can do?
And that perhaps what you're saying is more can be done, you know, if people just pay attention to this issue. Perhaps, yes, I wouldn't disagree with that.
Puja Mehra: I fully agree with you. And I think, you know, this comes across, so I see a difference, a distinct difference in the way bureaucrats, for instance, or even politicians from the southern states, you know, what their priorities, policy issues, what keeps them gives them sleepless nights is relative to how people put decision makers, policymakers, even politicians from, say, UP or Bihar or the other, you know, northern states, how they think, what are their priorities? What is their political agenda? So I think you're absolutely right.
The agenda reflects, you know, what the people, what is the priority for the people? If not the priority, at least what is the perceived priority for people? I think that's, yeah, absolutely correct.
Because I see, for instance, you know, bureaucrats from Tamil Nadu, for instance, people who have served in Tamil Nadu, and then, you know, they're now serving in Delhi in a senior position. They will tell you stories about, you know, some big, large foreign investor, what are the problems that they were, you know, what is the health that they wanted? How was this factory set up?
How was that industry set up? Whereas, you know, the things that come up for discussion from bureaucrats from other cadres, UP cadres, Punjab cadres, you know, those issues tend to be the same old issues, not yet about industrialisation, or jobs creation.
Amit Basole: So yeah, you know, the youngest population, so we have a lot of work to do in terms of the demographic change that has also come in. These are the states which are going to contribute the most in terms of young addition, additional young workers.
Puja Mehra: So last question, Amit, a lot of people tend to warn that the demographic dividend could turn into a nightmare. You've already said you're optimistic about the future. But is this a realistic assessment people have?
Is there a risk at all?
Amit Basole: No, of course, there's a very real risk. I mean, being optimistic just means that, you know, we, I feel like we will rise to the challenge. But it is a significant challenge.
And the risk is big, indeed, because, you know, demographic changes are funny, right, in a way, because you're, sometimes they happen much quicker than our zeitgeist adjusts to them. So, only now have we realised what has been true in India for more than a decade, which is that the total fertility rate is crept down, down, down to below replacement, the replacement or average below replacement in many southern states and so forth. Until recently, we still have people in the board of the 80s and 90s, which is, you know, population, etc.
So, we adjust slowly, but demography changes very fast. And we already see East Asian countries facing demographic disaster. So, in our case, disaster may be too strong a word, but certainly we face a risk of catching phrases, you know, growing old before we grow rich.
That's how people put it. And, yeah, I mean, in a sense, if you in 20-30 years, when the ratio flips, the working age to non-working age ratio will flip, I believe, somewhere around 2040-ish or 2045 or something, certainly by 2047, when it comes out, it's going to be flipped. What is going to be our level of per capita income at that time?
And if we grow consistently at 7 or 8%, then we may hope to have two doublings of our income, which would put us somewhere around $10,000 per capita in today's terms, which is sort of like a, you know, middle, upper middle income country, right, where China is slightly richer than Africa. That's the, I mean, for me, that's actually the optimistic scenario. I'd be very happy if we achieve that.
I don't, I'm not thinking of a developed country. That's too fast. I don't think, I don't even think it's necessary.
I mean, there's a whole debate to be had on the middle income trap. But I feel like the middle income trap story is much more of an inequality story. So the question is, what kind of a $10,000 per capita economy are you?
Are you the Brazilian kind of $10,000 per capita economy or an East Asian kind? And that's very different, those two things. So our goal should be that we have growth, we become, you know, solidly middle to upper middle income, but in an equal way, so that it's not a failed kind of society that meets us there, where we have a lot of people who are supporting older people without enough resources to do so.
I think that's a really dangerous situation to be in. So, but I'm optimistic that if we have clarity that that is a problem we are solving, we can solve it.
Puja Mehra: We'll keep that discussion for another day. You must come back on the show and discuss the middle income trap. But thank you so much for explaining the employment challenge.
Amit Basole: Sure, my pleasure. Thanks for having me.
