Growth and Tier-II City

Why in News?

• As the fastest-growing large economy in the world, India’s high growth has attracted headlines.
• However, with nearly a quarter of the youth being unemployed, India’s youth unemployment has also attracted attention.

 

Reason of High Unemployment in India Despite High Economic Growth

• Lop-Sided Development Policies
  • For a young country like India, high growth and unemployment is not a paradox or a reflection of automation or artificial intelligence (AI).
  • The primary reason is lop-sided development policies that have resulted in fewer jobs being created for millions who join the labour force every year.
  • India’s young demographic is an asset in an ageing world, and changes in the trajectory of globalisation have opened new doors for India.
  • More than 50 per cent of India’s population is below the age of 25 and more than 65 per cent is below the age of 35.
  • The coexistence of high economic growth and high unemployment is a puzzle.
• Less Focus on Human Infrastructure
  • India needs good infrastructure, both physical and human, to create more jobs.
  • The country has made huge progress in improving its physical infrastructure but has fallen behind on human infrastructure like education and skills.
  • Physical infrastructure in the absence of good human infrastructure has slowed the pace of job growth.
  • Physical infrastructure investments are also focused on urban areas, but the manufacturing sector is migrating away from urban to rural areas to remain cost-competitive.
  • However, poor physical and human infrastructure in rural areas has constrained the growth drivers and limited the size of the manufacturing sector in India. 

 

Importance of Investing in Human Infrastructure

• High Returns
  • Returns to investment in education are much higher than the returns to investment in physical investment.
  • The average social rate of returns to primary education is nearly 20 per cent and returns to higher education are increasing rapidly.
  • The World Bank, which for a very long time just focused on basic education, and ignored higher education, has also accepted this fact.
• Accelerate Job Creation
  • Policymakers need to recognise that investments in education will accelerate the pace of job creation.
  • Most of the jobs are created by new enterprises, and enterprises, both domestic and foreign, look for both skilled workers and a good physical infrastructure.
  • Given India’s large youth population, the potential to benefit from education is huge.
  • Education and skills are becoming more important as new enterprises make their location decisions based on the education and skills of the local workforce.

 

Challenges Associated with Human Infrastructure in India

• A Huge Illiterate Population: India has the largest concentration of illiterate people in the world. More than one-third of India’s adult population remains illiterate, and less than 20 per cent have completed secondary education.
• Multidimensional Challenges in Rural Areas: The challenges are enormous in rural areas. They are also multidimensional; access, quality, relevance, finance, and governance. 
• Quality of Education
  • Despite a few excellent public and private universities in India, concerns have been raised about the quality of education due to a huge variation in the quality of graduates from both the public and private systems.
  • Effective systems of quality assurance do not exist, either for the public or the private sector. 
• Shortage of Qualified Faculty and Outdated Curriculum
  • Another factor compounding the problem of the quality of education is a shortage of qualified faculty due to poor compensation, rigidities in the number of places allocated to different disciplines in the public system.
  • Outdated curricula and pedagogical methods that still rely too much on rote learning rather than creative thinking and problem-solving and teamwork that is needed by the market is another challenge in creating the human infrastructure.

 

Measures to be Taken to Overcome These Challenges

• Need for A Better Governance for the Education System
  • As the education system becomes more complex with multiple players and multiple pathways, the governance of the education system needs to be improved.
  • New and better systems must be established and it needs better incentives, monitoring, performance assessment, and accountability both for the internal processes of the education system as well as for students. 
• Scale-up the Tertiary Education (Higher Education)
  • This will increase the cadres of professionals who can create new enterprises and maximise job creation.
  • Tertiary education increases the distribution of knowledge beyond universities, through interactions between firms and the rest of society.
• Dedicated Focus on Tier-II Cities
  • The future of economic growth will not be in tier I cities, which are already dense with India’s best and brightest, but in tier II cities.
  • New cities have the potential to generate 70 per cent of the country’s new jobs and GDP over the next 20 years - a process that could drive a four-fold increase in per capita incomes.
  • In China and the USA, intermediate cities have become the new drivers of growth and job creation.
  • Globally, manufacturing has been dispersing from high-density clusters to less dense areas.

 

Way Forward

• In the early 1990s, India’s manufacturing sector walked hand in hand with urbanisation.
• This process has reversed from 2000 onwards, with the pace of de-urbanisation of manufacturing gathering momentum.
• Industrial firms are choosing to locate in rural areas due to a combination of cheaper land prices, lower pollution restrictions, weaker congestion, and other spatial factors.
• India’s pre-mature de-industrialisation is due to the divergence in the paths of urbanisation and industrialisation, which raises big policy questions for policymakers.
• The rural development is not just about raising agriculture productivity it should also include the manufacturing sector.
• Therefore, India needs a broader focus on rural structural transformation to accelerate job creation.

 

Conclusion

• The challenges associated with high economic growth with high unemployment can be addressed if policymakers can scale up physical and human infrastructure investments to build the missing links between urban and rural India.
• The de-urbanisation of the manufacturing sector has scaled up the importance of rural development and job creation agenda.

 

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Q1) What are some challenges faced by the Indian manufacturing sector?

Economic reforms of 1991 focused on manufacturing, but the significant scaling down of tariffs and the dismantling of the ‘licence-permit Raj’ did not lead to an increase in the share of manufacturing in the economy. The 'Make in India' campaign and Production-Linked Incentive scheme have not produced the desired results. Manufacturing growth has been consistently low, even in the presence of policy initiatives, indicating underlying structural issues.

 

Q2) What are some factors contributing to the growth of tier 2 cities?

The economic reforms initiated in the 1990s have led to increased foreign investment, job creation, and economic growth, which has contributed to the rise of the new middle class. The rapid urbanisation in Tier 2 cities has led to better infrastructure, job opportunities, and improved living standards, attracting people from rural areas and smaller towns. The new middle class has more disposable income, which has fueled the culture of consumption and contributed to the growth of Tier 2 cities.

 

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Source: The Indian Express