India needs to improve the depth and quality of its education system to create an employable workforce, nurture effective institutions, including an efficient judiciary, to support development, and pursue reforms in its land and labour markets, in order to actualize its quest to become a developed country, International Monetary Fund deputy managing director Gita Gopinath asserted on Saturday (August 17, 2024).
Ms. Gopinath, who was in conversation with Fifteenth Finance Commission chief N.K. Singh at the Delhi School of Economics’ diamond jubilee conference, also stressed that no country can aspire to attain ‘high-income’ status without lifting its women’s labour force participation rate, which hovers at 35% in India, adding that ensuring women’s safety is critical for this.
Noting that India’s import tariff rates are higher than its peer economies, Ms. Gopinath said that being open to trade is important, even if trade integration is being questioned in the current global environment. Lowering tariffs is a requisite if India wants to be an important player on the world stage and in global supply chains, she emphasised.
While India’s GDP growth has averaged 6.6% since the 2010s till the pandemic, its employment growth has been under 2% through this period, the IMF official pointed out. “So it is indeed the case… compared to other G20 emerging market economies, growth in India has been much less in terms of employment-driven, [and] much more intensive in terms of capital,” she said.
Between now and 2030, India will have to create anywhere between 60 million to 148 million additional jobs cumulatively over this period, she reckoned, calling for policies that don’t penalize firms for hiring works, and implementing reforms proposed in the Labour Codes cleared a few years ago by Parliament, through incentives for States.
On the general quality of the workforce and skill levels in India, Ms. Gopinath said the skill mismatch in the workforce “is now a longstanding problem” that warrants urgent investments in revamping education and making sure that people have more years of, and better quality of education.
“It will not deliver results instantly. It will take time, but that absolutely needs fixing now. Otherwise, we are perennially stuck in the situation of a workforce that’s not sufficiently skilled,” she said, adding that “general corporate investment and private investment” also need to rise.
“Public investment has been going strong. If you look at private investment, by households in real estate, that’s going strong. But if you look at corporate investment, that is not doing as well as it should be for an economy that’s growing at 7%,” she remarked.
With the advent of automation and Artificial Intelligence (AI) spurring worries about the future of work opportunities, the IMF economist cited a study by the multilateral body that looked at four indicators to assess 170 countries’ preparedness for adapting with AI.
“India is at about an intermediate level of preparedness, somewhat slightly above the average for emerging markets and developing economies. But again, if you look within those indicators, the indicator on education and skilling levels of the workforce, that’s the area where a lot more work is required for it to be able to adapt,” she said.
Policies must “not inadvertently” tilt the playing field in favour of automation, and countries need to have social security nets and the ability to reskill, so that workers who have to shift jobs, can go through some kind of unemployment insurance till they find a job.
“Singapore [rated as the most prepared for AI], has this program where it provides grants for lifelong learning, which may be something that is needed in this world where you constantly have new technologies and new kinds of things that machines can do. So you want to make sure that your skills are complementing what automation brings along,” she averred.
Asked about the need for rationalising the GST rates and improving the direct taxes framework in India, Ms. Gopinath said India has parallels with other developing countries, where most of the tax revenue collected is indirect taxes and not direct taxes in the form of income taxes.
Making a case for broadening personal income tax coverage, she said it is important to have “sufficient progressivity” in the tax system, by ensuring that you are getting more revenues from capital gains and property tax.
On India’s aspiration to become a developed nation, she noted that it doesn’t happen automatically and requires ongoing, consistent efforts that are “pretty broad-scale, across many areas”.
“India has grown well in terms of its overall growth rate. And at 7%, it is the fastest growing major economy in the world. The question is — how does one keep up the momentum, and in fact, raise it further, so that you can increase per capita incomes to get to being an advanced economy?” she said.
“If you look at the years of formal education, for example, for the workforce in India compared to its G20 peers, it is on the lower end. The second, of course, is investing in infrastructure that the government has done a lot on… but there is still a big gap between what is needed and where the country is,” the economists noted.
“Third, is just having the kinds of institutions that are needed in the country to support all kinds of development. So, in terms of the ease of doing business, the kind of regulatory environment you have, the kind of judicial system, the efficiency of the judicial system, is going to be critical,” she added.