ADAIR TURNER, chairman of the Institute for New Economic Thinking (INET), says India needs to get real with the “scale of challenge” of finding jobs for millions of people entering the workforce, which is far more difficult in the age of automation. “I think the first step in this (job creation) is to stop talking nonsense and I think a lot of talk about demographic dividend is nonsense. In India, it’s an even bigger nonsense and in much of Africa. If India now had a stable population, I think it would grow just as fast but would have less of the job creation problems,” said Turner, also a businessman, author and former chairman of the UK’s Financial Services Authority. INET was founded in 2009, after the 2008 global financial crisis, to challenge the traditional economics which failed to understand challenges of the global economy. He spoke with SUNNY VERMA in an interview during a recent visit to New Delhi. Edited excerpts:
Prime Minister Narendra Modi has been stressing on Digital India, but in the backdrop of automation, what impact do you see on job creation?
The most important issue for India is probably job creation. The dynamism of the Indian private business sector, the entrepreneurship are such that India will probably see a reasonably higher rate of growth over the next 15 years. People get fixated whether it is higher than China or is it less than China, is it 6 per cent, has it slowed down. India is going to grow at 6-7 per cent each year rather than 2-3 per cent that it used to. But, what we don’t know is that in the world of robots, automation, artificial intelligence, is even a six per cent growth rate combined with weak job creation? I pointed out in my lecture in Bengaluru that this can be really dramatic that the working age population is supposed to be defined as 20-64, etc. but it will give us a rough guide. It’s going to go off in something like 730 million to 1 billion and 30 million within the next 33 years by mid-century.
Although you can’t predict population 50 or 100 years out, you can predict 30 years out in relation to working age populations. That’s a pretty clear figure. We are dealing with an economy which already has a working age population of say 730 million, of whom as far as we can make out, the workforce in some sense is 430 million, but that still leaves a large number of people who are not employed or may be working in the household. But within that 430 million, only a 100 million is in an organised economy, (and out of this), only a 35 million or so are on formal government employee contracts, others are on temporary contracts. This is the extraordinary thing about India — the really striking thing when you come look at it is that within a huge working age population, only a small proportion are actually in organised sector or in formal long-term employment and I could see an environment in which this organised sector continues to deliver growth but doesn’t grow that much in jobs. The challenges, I think, for India are significant and I don’t think they receive enough attention. I think people get incredibly excited about the growth rate.
The smallest subset of this is formal employment contracts in the organised sector and somebody will say that’s going down and those can be unemployed graduates but this is a very small part of a huge issue. The worry for India socially is does it go from pre-industrial poverty and underemployment to a sort of post-industrial, rich elite surrounded by huge numbers of relatively unemployed people doing low productivity service jobs; is that the transition? Maybe, that would work but it’s not an attractive model as India’s people would want.
Is there any way out?
I think it’s difficult. The first step in this (direction) is to stop talking nonsense and I think a lot of talk about demographic dividend is nonsense. In India, it’s an even bigger nonsense and in much of Africa. If India now had a stable population, I think it would grow just as fast but would have less of the job creation problems. So, I think the first step is to get real with the scale of the challenge. One has to do many things and one has to try and develop the manufacturing sectors as fast as possible and one has to be realistic. A modern manufacturing sector is going to create large numbers of jobs. It’s good to have, should be developed but if one thinks that this is going to create a 100 million jobs then that’s just dreamland. It’s just not going to do it. So, I think there has to be a lot of focus on where one can create the jobs which are less vulnerable to automation in the short term. I think manufacturing jobs and indeed some categories of business, business process operations and call centre jobs are highly susceptible to automation in the short term. You take construction — I think it’s quite a long way before we are going to replace construction workers with robots; this will be several decades. The building of infrastructure, high levels of infrastructure spending can be a major drive, which I think is less vulnerable to short-term automation than manufacturing. I think what’s needed in India is a far more open debate which starts with digital capability and automation. Let’s have a real debate about what is the category of job creation which at least for a few decades ahead are less vulnerable. Have we got strategies to make sure that we are making as many as those jobs rather than the jobs in super-automated manufacture which is good to do but probably not all that’s big in job terms.
Will fiscal expansion be the correct approach to deal with economic slowdown in India?
The answer is I don’t know; I don’t know enough about the particular balance of macroeconomic policy in India really to have strong points of view about the balance of fiscal and monetary policy. What I do understand is that the RBI (Reserve Bank of India) has an inflation target, and it is reasonable. Undershooting it would tend to suggest some loosening of policy, but I haven’t studied the RBI statement to know why they don’t agree with that. I know there is a big debate going on in relation to fiscal policy as well. A rapidly growing economy can run a reasonable level of deficit and deal with the debt consequences of that by growth. The hugely complicated challenge in macro policy is, and this is where I am always sympathetic with finance ministers, at any time, it may well be the case that you can stimulate the economy with a slightly higher fiscal deficit in a classic Keynesian fashion and people then say why is the finance ministry still fighting for debt reduction, and the answer is that you often have finance ministers who completely understands that some temporary relaxation might be a good idea in the short term. They are just terrified that if they just tell their colleagues around the table that it’s possible to have a relaxation, there will be a set of spending demands which will add up to far more than makes sense. So, finance ministers have a bureaucratic tendency to argue for tight fiscal control, which, at some level, is legitimate as there are so many other forces in the government arguing for lose fiscal (policy) that unless there is somebody there who is the guy saying no, you lose control. Could I be convinced that India at the moment might benefit from slightly lose fiscal policy? Yes, the argument is for that. But, I still have a lot of sympathy for the finance ministry who is saying that how do I have a medium-term debt discipline.
Indian banks are facing huge bad debts. What are your observations?
What’s interesting is that the bad debts which the Indian banks have are somewhat different category from what I talk about in the book (Between Debt and the Devil). The crucial thing is that it’s a different category of debt. In most advanced economies, problems in the past 30-40 years have developed almost entirely in the real estate sector whether the residential mortgage debt or commercial real estate development debt, that’s where the problems rose in Japan in the 1980s, in Scandinavia in the early 1990s and in the 2008 crisis in America, Ireland, Spain, etc.
Indeed, in my book, I argue that one of the problems with the banking system of the developed world is they only do a small amount of what our textbooks say they do — which is to lend money for real new investments in the economy other than in the real estate sector — and they have this huge tendency to lend money against real estate. What’s going on in India is different, however.
The biggest problems were from an over investment boom in particular in the power sector, which has now produced these thermal power plants with low plant load factor utilisation, large debts primarily made to public sector banks. Now this is interesting, this is in a sense a more classic form of the debt cycle. This is a debt cycle of the sort that (economist) Friedrich von Hayek described as an over investment cycle in the period of very rapid growth back in 2006, 2007 and 2008 and people extrapolated that in overestimating demand, they did investments which now look excessive and demand will take another five years to catch up with the capacity that is there. So this is different from the other problems. But it is still a problem, the Economic Survey talks about the twin balance sheet problems of the over-indebted corporates and the banks.
What is your view on recent structural initiatives such as demonetisation and the goods and services tax (GST)?
I think the goods and services tax is undoubtedly a good thing, it has been debated for years, the previous government and ministers like (former finance minister) P Chidambaram saw it as a major priority. The Congress government was unable to get it through because of the opposition in the Upper House. It’s good that the task has been taken forward. I think what has been revealed is that there are significant implementation difficulties but I think they have to work through this. In the long term, the GST will be good for the
Indian economy, which has been believed across the political spectrum for the last 15 years… I think it’s a right thing to do even if there are teething problems. The demonetisation is interesting, and really don’t know what I think of that, it came from nowhere — wasn’t discussed in advance. It’s not clear that it has tidied up the corruption quite in the way it was suppose to tidy up, though I could understand the arguments for that. And it does appear to have produced a non-trivial slowdown in the economy.