'Fake Narratives Being Peddled on India's Job Crisis': IMF Executive Director

"There is no doubt that we need to create more jobs, that is because we are a young population. But just because there is an emphasis on employment and job creation does not mean in a binary manner that jobs are not being created. I think that's important to keep in mind."

Executive Director at the International Monetary Fund (IMF), Professor at the Indian School of Business (ISB), and the 17th Chief Economic Advisor (2018–21) - Krishnamurthy Balasubramanian is one of the key personalities tracing India's journey to become the world's largest economy.

While there is a lot of talk about India@75, Subramanian has already drawn a roadmap to India@100 'India @100: Envisioning Tomorrow’s Economic Powerhouse'

On 'Badi Badi Baatein', he talks about the pillars to strengthen India's growth, what the country has achieved and what it still needs to, and the recently presented Union Budget by Nirmala Sitharaman.

There's a lot of talk about India at 100. The government talks about it, the opposition talks about it, the political-financial dispensation talks about it. What is your take on India at 75? Where are we today economically?

We’re the fifth largest economy. Among all the large economies, we are growing at the fastest (rate). We grew out of COVID by implementing very good policies both on the health and the economic side. Poverty has reduced significantly over the last ten years. Using the latest consumption survey, if you look at employment as well, this is one area where often the negative narratives have run ahead of the actual data. '

But if you look at the data using the very high quality KLEMS database, which, by the way, is an international database, from the vantage point that I occupy at the International Monetary Fund, I can vouch for that. The RBI report that uses the KLEMS database shows that there have been 12.5 crore jobs created over the last ten years. Even if you exclude agriculture jobs, there are 9 crore jobs that have been created. So, I think India is doing very well, from a macro perspective of growth, but at the same time also generating inclusive growth.

Why do you think the youth is not happy about the employment situation in the country? 

I don't know what data or evidence you are pointing out to support that claim. I go by the data that economists use and I just pointed that data out to you. So, the basis of your question, I would like to know, what is the evidence that you have to make that claim?

Well, it's the experiences we have as journalists on the ground while speaking to the youth of the country.  

As I said earlier as well, I think this is one area where the narrative using poor quality data has run ahead. And, it can actually happen when some of the narratives are pushed, then people can believe these narratives without looking at the high quality data.

Why do you think the middle class is usually persistently unhappy whenever the Budget is presented? Do you think there is a scope to do more for the middle class while the government is taking care of the poor and the business class?

I have focused on the need (in the book) for social and economic inclusion which will lead to the creation of a large middle class. And, I have emphasised that jobs are really critical. There is no doubt that we need to create more jobs, that is because we are a young population. But just because there is an emphasis on employment and job creation does not mean in a binary manner that jobs are not being created. I think that's important to keep in mind.

I think some of the policies that have been implemented in the last decade need to be redoubled. I think the emphasis on manufacturing is really critical. That's why, in the book, I spent a significant amount of space talking about the need for manufacturing because the manufacturing sector creates jobs. And, keep in mind that as the middle class grows as the economy grows as well, the middle class will require all kinds of durable goods whether it's a refrigerator, a two-wheeler or an air conditioner. If we do not have enough manufacturing happening in India, we'll have to import all of that. That will lead to trade deficit, current account deficit, etc. So, the importance of manufacturing, the importance of agriculture and growth in that as well, for a large middle class and an aspirational middle class to be created, is something that is important.

When we talk about India at 100, there are certain steps that are already being taken. If you take the recent Budget, the government aims to create approximately 4.1 crore jobs in the next five years, and to support this, they have two lakh crore rupees allocated. But do you think there could be certain practical challenges to the implementation of these initiatives?

So, let me use the evidence of similar programs that have done very well. Let's go back to the COVID period when the Aatmanirbhar Bharat Rozgar Yojana was implemented where firms with less than a thousand employees were given the subsidy, where 12% contribution of the employer, provident contribution, was taken care of by the government. Evidence actually has shown that it has led to significant job creation. Why? Because, as we economists think about, if you have to have real impact through policy, that policy has to relax what is called a binding constraint.

And in the case of employment, oftentimes, that binding constraint is from the employer’s side. It's also from the skilling side. If, for instance, the employer does not find the employee to be skilled enough, that becomes a binding constraint. Or if the employer actually thinks that he doesn't have the requirement for that particular job, then that becomes a binding constraint as well. So, focusing on skilling and giving incentives to employers help in relaxing these binding constraints. And that is why they actually delivered the good outcomes that they did. So, when you look at the recent policies that have been implemented, these are based on things that have already worked. Therefore, that gives me optimism that they should work going forward as well.

Another aspect that would aid the growth and employment and eventually skillful jobs is education. You have spoken about the need for pushing more education and pushing more quality education in your book. There is a particular narrative going on for the past one week, which everybody is pointing at, that the allocation of the education Budget over the past 20 years in all the four subsequent governments has gradually reduced in proportion to the total budget that is presented. How do you look at this data point that is being talked about?

So, let me respond to this question by comparing with health care because there's also a chapter on health care. If the health care spend increases from 1% of GDP, state and Center together, to about 2.5% of GDP, and one of the first charts in that health care chapter, the reduction in out-of-pocket spending by households can be significant, can actually go down by about half. I'm sure all of us remember the movie, ‘3 idiots’, where the three characters go to Raju's house, and Raju's mother talks about how almost half of her income goes into taking care of the ailing father, which is oftentimes a situation that many poor households face. So, increasing the allocation, and especially states need to do this, is really critical in health care. But in education, it is not about the budget. The emphasis should not be as much amount on the budget as it should be on ensuring that the bang for the buck is actually increased significantly, and here, governance matters a lot. This is an area where states need to play the most important role. The way teachers actually are sort of pulling out teachers to do riff-raff jobs, all that basically does not help with generating bang for the buck on on the educational rupee that is spent. 

The importance of pedagogical methods and good training material, good teaching material cannot be overemphasised. The same teacher when actually is given better quality teaching material, can deliver much better teaching. In other words, the emphasis on education needs to be on generating greater bang for the buck, where the onus has to be much more on state governments. In other words, I will turn your question 180 degrees and say that the entire emphasis on education needs to be on states to ensure governance in the education sector, that teachers’ utilisation, teaching material creation, all these are emphasised. I don't think it is the budget that is actually the problem in education. It is the utilisation of that budget.

Coming to agriculture, you've spoken about how small farmers need to become the biggest 'laabharthis' of the economy of the country. To achieve that in the next 25 years, what more do you suggest needs to be done?

First and foremost, the emphasis on, and the realization that, it is a small farmer that is actually getting hurt through the status quo because of the way in which the status quo has been. If you take the APMC act, the farmer is is forced to go and sell in a particular mandi. Many times what happens is a small farmer who does not have his own tractor-trailer, what he does is he actually will hire a tractor-trailer to actually bring his produce to the local mandi. The intermediary there will actually, typically called the (Adhatiya), knows very well that this small farmer has nobody else to go to. The small farmer basically waits from 8:00 in the morning or maybe 7:00 to actually sell his produce. The intermediary makes him wait till maybe 3:00, 3:30, 4:00. By that time, the produce itself actually is sort of reducing in quality, and at the same time, that small farmer is becoming desperate. Using that then the price that the small farmer gets is much lower, and this is actually seen in the data as well. If you look at the value added between the small farmer and the intermediary of  ₹100, about 90 of that actually goes to the intermediary. The small farmer does not get adequately at all.  

Second aspect- take the Essential Commodities Act. It's a fundamental aspect of agriculture that supply is seasonal. Demand is all through the year. Supply comes during the cropping season. When you have supply that is seasonal and demand that is all through the year, what you have to do? Of course you have to store. And yet through the Essential Commodities Act that was enacted in the 1960s when India had food shortage, we effectively equate all storage to hoarding. And I'm sure you remember, maybe you're young, you may not remember, but your dad may actually remind you of Bollywood movies like Jeevan where was basically if he was storing, he was shown as a hoarder, every storage, every person who stores. But it's a fundamental aspect that when you have supply that is seasonal and demand that is all through the year, you have to store. But through the Essential Commodities Act and the penalties therein, we actually have disincentivized storage completely. Large farmers have the deep pockets to go and build the storage and utilise storage. A small farmer suffers. The current status quo actually hurts the small farmers. So for all the narrative and the rhetoric that one sees, especially from some of the demagogues, the simple fact remains that they are not really standing up for the small farmer by basically advocating or opposing reform. They're actually standing up for the rich farmers and the intermediaries who are the beneficiaries of status quo. And I think if you see the evidence of the farm bill as well, because they know very well that they're going to lose out, but those who are going to benefit, those benefits come over time. You know, we've really sort of held back the agricultural sector through these very archaic regulations that only ends up benefiting the existing rich farmers and the intermediaries.  

One of the most interesting points in your book is something which you have raised and something which we have been shouting off of our rooftops for a very long time, that countries like India, developing nations, are having to bear the brunt of climate change more than the developed nations. Could you tell our viewers how exactly are we getting affected economically?

Firstly, if we look at climate change that is caused by the stock of emissions, not the flow of emissions, and to explain to our viewers, think about water in a tank and water flowing in. The amount of water that flows in maybe a minute or maybe half an hour, that's the amount of flow. But the level of the water is basically the stock. So when you think about climate change, it is a stock of emissions. Think about that tank of all the GHG emissions, the level. It's that level that has actually led to all these symptoms of climate change. And who has contributed to that level? You know actually, the data is very clear that over 90% of that stock of emissions actually is contributed by the advanced economies. At the same time, there's research by the Nobel laureate Esther Duflo at MIT showing that even if you look at today's production that actually happens in India or China, Vietnam, Thailand, etc., a lot of the production is happening still for consumption by advanced economies. So in other words, even the current consumption and the flow of emissions that are being created are basically being outsourced to emerging economies. These are aspects that really need to be part of the conversations on climate change. In emerging economies, social safety nets are also not as strong as it is in the advanced economies. It needs to be a more fair conversation on climate change and not just a conversation of convenience.