Inbreeding has its dangers, especially among prominent families. It is also dangerous among prominent disciplines, economics being a case in point.
As policy makers like precision and economists like numbers, after a short, sweet exchange of equations they can hitch up for life. Consequently, economists find it unattractive to enlarge their intellectual gene pool by making contact with others on the planet. It is this failing that makes many of their recommendations questionable.
Take exports, for starters. It is true that our performance here is miserable, but is currency devaluation the best way out? Check out the consequences of this advisory. Well before our exports get tastier, our import costs would rise as the machines we need to make our goods are nearly always ‘foreign made’. No exporter can leave the table before that bill is paid.
Consider in this connection an interesting factoid. About 25% of our imports are petroleum related, but 20% is on account of buying machinery from abroad, usually China. Further, the import content of exports is about 25%, not including the vast, but incalculable, second hand market for imported machines in the MSME sector. We talk at length about our oil burden, about our gold fixation, but rarely do we discuss our machinery deficit.
These machines are new age ones and they don’t commit mistakes. They require high skills to make, but low skills to operate. As India does not manufacture such equipment but only uses them, it has led to the gradual de-skilling of our working class. Things have come to such a pass that we now depend on China even for electric circuit boxes; not too long ago we produced them in garages.
An industrial tailor in India today needs about a month’s apprenticeship as the imported sewing machine, with its many knobs and gears, is so versatile. With a flip of a switch it can do almost everything – from stitching pillow cases to buttons to curtain pleats. Likewise textile and car parts manufacturers, whether in Bhiwandi, Gurgaon or Panipat, all use imported machinery, either brand new or second hand.
Under these conditions devaluing currency, by RBI fiat, would kill the grass on our side of the hedge as well. This brings us to a related misconception. Many experts believe that our businesses long for skilled labour and feel dejected by its absence. This is a convenient moon in June romance fiction.
The 68th round of the National Sample Survey shows that just about 58% of those with a formal vocational training found jobs. The remaining languish as unemployed, or self-employed. If the scenic route leads to a dead end, why should one take it? Further, according to an Accenture study, apparently a third of vocational school graduates turned down jobs because the pay was low or the work profile unsuitable. This is hardly evidence of a skill courting entrepreneurship.
India has only 11,000 training institutes while China has 5,00,000. Not surprisingly, only about 2% in the age group 15-59 in India have some skill training. At a higher level, things are scary too. In IITs, India’s grey cell hub, faculty vacancies can touch 40%. A look at the admission cut offs in Delhi University reveals a lot. Our best out of school kids tend to opt for commerce and not physics, chemistry or maths.
This is where we could learn from fast growing Asian economies without, god forbid, imitating them. They too began from a poor industrial and educational base, but have since prospered enormously. They climbed up leveraging their once cheap labour to move into high skill industries. But when our exports were growing rapidly between 2003-08, at almost 18%, we did nothing of that kind.
On the other hand, we have many economists who advocate a re-intensification of the low wage labour approach, because it’s so easy. That this should happen at a time when the West is moving into the era of driverless cars and intelligent automation, is both tragic and anachronistic. This is why our past cling wraps our present and we just cannot shake it off.
Third, the agricultural sector. It is often argued that our public finances would get a pressure boost if only we could tax agricultural income. True, there are some fat cows munching cud in the fields, but the overwhelming bulk of farmers, almost 95%, have earnings too low to be taxed. Nor should recurrent agricultural subsidies be viewed as habitual offenders. From the US to Europe to Japan, farmers would perish without these handouts.
Also, keep in mind that of all professions, the highest rate of suicide is among farmers across the world. In France, decision makers are seriously concerned about it today. The answer lies in upgrading agriculture to industry by making it safe for small farmers to lease out to big operators. But fear of the patwari and tenuousness of land records prevent that from happening.
If none of this is convincing, witness the road widening efforts on the Kalka-Shimla highway. The heavy machines on the job are all imported, but there are thousands of local workers too. Most of them are squatting by the hillside, chipping stones Neolithic style. Expect delays, expect accidents too, because inefficiencies will multiply as long as entrepreneurs find cheap labour, fresh out of villages, profitable to employ.
Workers in sweat shops cannot be turbocharged; they can only be flogged.
DISCLAIMER : Views expressed above are the author’s own.