Job creation: Top ex-Modi adviser wants India to shed Reliance model, opposes minimum wage requirement

 

Top Indian American economist, Prof Arvind Panagariya, who resigned as Prime Minister Narendra Modi's top man in the Government of India’s think-tank Niti Ayog, has controversially said that India does not need Reliance Industries Ltd (RIL) type of model, which are not job-intensive.
Contrasting RIL with a little-known industrial house, the top academic, who is professor at Columbia University, US, says, “Nothing explains India's job creation challenge better than a comparison between RIL and Shahi Exports”.
Dishing out figures, he says, “While RIL employs five workers for each $2.2 million in assets, Shahi Exports, which is India's largest apparel exporter, employs 1,260 workers for every $2.2 million in assets.”
Pointing out that “Shahi Exports creates 252 times the jobs that RIL does” across its various ventures in India, Panagariya, who remains in touch with Modi even after resigning from his top job citing India’s powerful bureaucracy, says, it is the “apparel industry model” which holds “the key for India’s job creation requirements.”
“Jobs that Shahi Exports creates are what India needs most today”, insists the top economist, adding, “Its factories can take someone with fifth-grade education and impart necessary training in just six weeks. On average, these workers earn Rs 15,000 a month. About 60% of Shahi Exports employees are women.”

He adds, “If we could rapidly multiply what Shahi Exports does, we could begin expanding formal-sector jobs rapidly — especially for women.”
Noting that “apparel requires modest investment per job and the demand for it is there”, Panagariya says, “In 2015, the apparel export market was $465 billion. India exported $18 billion of it compared with China's $175 billion. High wages are now forcing China to withdraw from this market. From $187 billion in 2014, its apparel exports have fallen to $158 billion in 2016.”

Insisting that “India must take the space China is vacating”, he says, India must work out ways to "encourage the global apparel firms exiting China", adding, they must "locate in India, instead of Bangladesh and Vietnam... These firms have the technology and management know-how to operate on large scale. They also have links to global markets. Once a few anchor firms locate in India, many more local Shahi Exports firms would emerge.”

Suggesting the urgent need to bring about policy changes, Panagariya says, “For decades, our policies reserved apparel for production by small-scale enterprises. These enterprises were too small and their product quality too low to succeed big in the export markets.”

Pointing out that as a result "India's investment policy confined large firms and big industrialists to investing exclusively in a set of listed 'core' industries, which were all highly capital intensive”, he adds, "Although the core industries regulation ended in 1991, and small-scale industries reservation was withdrawn more than a decade ago, investment in apparel remains entirely off the radar screens of India's big industrialists.”

But the  big industries to for in for labour-intensive investment, Panagariya wants India to make a major change its labour policies, allowing "greater labour market flexibilities. 

One of the policy changes requiring urgent attention, says the ex-Modi man, is to relax the policy of minimum wage requirement, “If you live in Delhi, you are likely to think that a minimum wage of Rs 15,000 per month is only fair. And yet, such a wage will drive many labour intensive, formal sector firms out of business”, he underlines.
“Reports that the Wage Code currently under consideration by Parliament may hike the national minimum wage to Rs 18,000 a month have left many formal sector firms very nervous”, he notes.