With India crossing China’s population next year, how we can create mass prosperity

Source: The post is based on the article “With India crossing China’s population next year, how we can create mass prosperity” published in The Indian Express on 22nd December 2022. 

Syllabus: GS3- Indian economy and employment 

Relevance: Issues related to the growth and development of economy 

News: The article explains the need for investing in human capital and formal jobs for the prosperity of the large Indian population. 

According to estimates, sometime in April 2023, India’s population will exceed the population of China. 

Why India should focus on human capital and formal jobs? 

A strong case for human capital-driven productivity is India’s software employment. A meagre 0.8% of workers generate 8% of GDP.  

The remittances from India’s overseas population crossed $100 billion last year. A World Bank report suggests that the qualitative shift during the previous five years from low-skilled, informal employment in Gulf countries to high-skilled formal jobs in high-income countries is significant.  

Last year, the US replaced the UAE as the single biggest source country with 23% of remittances.

Why are monetary and fiscal policies not solutions for resolving all growth-related challenges? 

Monetary policy is cannot resolve growth challenges as credit availability is a bigger problem in India than credit cost. If fiscal deficits could make countries rich, no country would be poor. Global experiences suggest where governments spend money and how this spending is financed matters more than how much is spent.  

Covid made enormous fiscal and monetary policy demands. Western central banks are struggling to shrink their balance sheets. Rich-country borrowing rates have risen by 300% plus and inflation hurts the poor the most.  

So, India avoided these fiscal and monetary policy excesses. 

What should be the focus area of the budget for generating human capital? 

The Finance Bill must target productivity and continuity by legislating human capital and formal job reforms previously proposed. The government should 

a) Reduce the implementation timeline for the powerful National Education Policy 2020 from 15 years to five years, b) Abolish separate licensing requirements for online degrees and freely allow all the 1,000-plus accredited universities to launch online learning, c) Notify the four labour codes for all central-list industries while appointing a tripartite committee to converge them into one labour code by the next budget, d) Continue EODB reforms by designating every enterprise’s PAN number as its Universal Enterprise Number, e) Explode manufacturing employment by abolishing the Factories Act and requiring all employers to comply under each state’s Shops and Establishment Act, f) Reduce the gap between documented salary and in hand salary by making employees’ provident fund contributions optional but raising employer PF contributions from the current 12% to 13%.  

What is the difference between the Indian and Chinese scenarios? 

India and China’s per capita GDP was equal in 1991. It is now five times higher for China. Unlike when China started serious reform in 1978, India today faces a more unfavourable global context of growth, exports, and manufacturing.  

China’s reforms were faster and crisper without the fixed costs of democracy. But this deficit led to their unchallenged policies of Cultural Revolution, one-child norm, and zero-Covid. India’s democracy is a strength. It reflects India’s ability to reconcile diverse aspirations.