India story: Right policies for an angry young population

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India is in a demographic sweet spot where an overwhelming majority of its people are in the working age.

Bollywood has a time-tested formula for successful films – an angry young man fighting the ills of the society and emerging victorious. Numerous films with Amitabh Bachchan, Ajay Devgn and many other stars have milked this formula for box office success. The story line of most of these movies may be thin to the extent of being trivial, but the fact remains that a country that cannot channel its young population will never be a peaceful and prosperous place. Today, India is in a demographic sweet spot where an overwhelming majority of its people are in the working age. The need today is a churn of the youth to right direction. Close to two thirds of India’s 1.3 billion population is in the working age and this boon should not be wasted because of complacency, delay in decision making and the lack of right policies.

Three challenges to growth

The current slowdown is an opportunity to go to the drawing board and correct the mistakes. The average age of Indian population is around 30. The advantage of having a young population could soon turn into a liability if the youth do not have leaning/skilling opportunities and good healthcare facilities. The first challenge for the county is to ensure that its youth is turned into a productive asset. Second, India needs a strong manufacturing industry to grow at its full potential. This is crucial for generating enough number of jobs for the young population. The third challenge is to convince the world that India is just a good destination for selling their goods and services. It needs to be a place that can produce and sell high-quality goods and services.

If these three issues are addressed sufficiently, India will be on the path to achieve sustainable high growth. The author has experienced the interplay of the several factors that contribute/affect economic growth at the ground level and this article is an effort to draw from the experience as a practitioner. The options before the government do not involve knee-jerk reactions, but a long-term systemic approach.
The economy is experiencing difficult times. The GDP growth for the second quarter was just 4.5% that followed a below par first quarter that witnessed 5% growth. Employment creation is one of the areas most affected by the economic slowdown. Unemployment was at a four-decade high of 6.1% in 2017-18. The working-age population between 15 and 60 years of age is expanding by 13 million a month. India needs to create 18.6 million jobs a year to ensure that the young population is gainfully employed.

The success stories

To generate ample jobs for its impatient population, India needs sector-specific policies aimed at creating globally competitive industries. The country has two success stories to follow. The dairy industry and the steel sector are examples of how right policy approach can help build competitive industries that can withstand bad times.

The dairy sector in India flourished on the back of a cooperative movement as the producers are small farmers, not big farms. Good physical infrastructure in Gujarat allowed the societies to focus on milk production, training members and enabling them to seek credit to buy cattle. Everything from veterinary services, supply of cattle feed, facilities for artificial insemination, collection of milk based on quality, insurance for the cattle, processing of milk and brand building fell in place. The expansion of market was achieved through adding new products such as milk, butter, cheese, milk powder and chocolates. Joining RCEP would have been disastrous for this sector. India is currently the largest producer as well as consumer of milk and milk products. The need here is to focus on breed improvement and consumption. The consumption is increasing at 4.8% and demand is anticipated to reach 180 million tonne by 2021, so will contribute a big way in addressing malnutrition. The market to trigger the sector can also be assisted by ensuring that milk is included in the mid-day meal programme diet. A similar approach has paid rich dividends in poultry, fisheries and different crops.

There is another case study in the case of steel. India is second largest producer and will continue to be the same with an investment to a tune of Rs 10 lakh crore and provide employment to nearly 21 lakh people. The sector is not export dependent and half of the producers are MSMEs. Steel industry has always been a cyclical one but managed to weather the current slowdown. The sector is still suffering from uncertainties. The consumption is now growing at 5.6% and with better infrastructure in terms of fast trains, good road, sports, housing and drinking water will put the sector in high-growth path. The biggest challenges are delay in auction of coal and iron ore mines, cheap imports and high input cost.
Coking coal can be replaced by coal gasification or natural gas, but the policies are not in place to encourage this and cut the import bill. The drivers of high steel demand are railway networks, ship building, defence manufacturing, auto sector, capital goods industry, pipeline networks, power, construction and infrastructure – all sectors key to economic growth. The credit cost is 12% in India while in China Japan and Korea it is 5.6%, 1.5% and 3.7% respectively.

Thus, steel sector expanded from 85 million tonne capacity to 104.98 MT and the IBC resolution was feasible only because of the holistic approach followed by the sector. The modern technologies have made steel a green industry and thus the focus must be on encouraging wealth creation and for triggering manufacturing growth. India needs to become self-sufficient in capital goods manufacturing to ensure sustained growth and to avoid foreign exchange leakage.

The two examples amply demonstrate the benefits of the holistic approach. India’s growth story suffered for long from ad hoc decision making and time has come to take the bull by the horn.

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Dr Aruna Sharma is a New Delhi-based development economist. She is a 1982-batch Indian Administrative Service officer. She retired as steel secretary in 2018.